What is best for me?

[savas]

Hello there,
I have come to US for the first time with my spouce and a less than 4 year old kid on a work Visa on second week of August 05. Recently I've recieved my W2 form and I was exploring the possibilities to file the tax. I came to know that primarily I am a non-resident alien for tax filing purposes, but I can make a first year choice of being treated as a resident alien if for year 2006 I pass subsatncial presence test and if i had stayed in US for more than 31 days in 2005. I have read that in that case I will have to fill form 4868 and take the extension till I pass the substancial presence test. My question is that are all above conclusions correct? and if I choose to be treated as a resident alien and file tax in july 2006 after extension, can I claim child tax credit or earned income credit for year 2005? I was reading and found that for claiming child care credit my kid should have been resident alien for that year, but if I can claim to be treated as resident alien, will my dependents come under that category?

[savas]

and sorry I forgot to mention that my spouse is non working and I don't have any other source of income except my employer.

[LdiJ]

You are misunderstanding how the substantial presence test works.

You do not meet the substantial presence test for the tax year 2005, because you were not in the US for the required 183 days either in 2005 or combined with prior years. You cannot look to future years in order to make yourself meet the 183 day requirement.

Right now, you would be doing your taxes for the tax year 2005. You do not meet the test for that year. However, when you do your 2006 taxes (in the beginning of 2007) you will qualify as a resident alien.

Please also note that if you were not issued social security numbers for yourself and your family members, you will also need to make ITIN applications to be sent in with your tax return.

[savas]

Hello sir,
No, I am not mis-understanding substancial presence test, please read publication 519 ("Tax guide for aliens") page 9, it clearly mentions about the First-Year Choice, the clause mentions that if in next year you can pass substancial presence test, you can claim to be treated as "Resident Alien" in this year as well.
and about second advise, thanks, I have SSN, my spouse and kid doesn't have one, I will fill from W7 and apply for ITIN with my return.
I will appreciate if someone can respond to my original question.