| Pub. 570, Tax Guide for Individuals With Income From U.S. Possessions |
2005 Tax Year |
5.
Illustrated Examples
Use the following examples to help you complete the correct attachment to your Form 1040. The completed form for each example
is shown on the pages
that follow.
Illustrated Example of Form 4563
John Black is a U.S. citizen and was a bona fide resident of American Samoa during all of 2005. He must file Form 1040 because
his gross income
from sources outside the possessions ($10,000 of dividends from U.S. corporations) is more than the filing requirement for
single filers. (See Table
4-1 in chapter 4.) Because he must file Form 1040 (not illustrated), he fills out Form 4563 to determine the amount of possession
income he can
exclude.
Completing Form 4563.
John enters his name and social security number at the top of the form.
Line 1.
On Form 4563 (shown later in this chapter), John enters the date his bona fide residence began in American Samoa,
June 2, 2004. Because he is still
a bona fide resident, he prints “ not ended” in the second blank space.
Line 2.
He checks the box labeled “ Rented house or apartment” to describe his type of living quarters in American Samoa.
Lines 3a and 3b.
He checks “ No” on line 3a because no family members lived with him. He leaves line 3b blank.
Lines 4a and 4b.
He checks “ No” on line 4a because he did not maintain a home outside American Samoa. He leaves line 4b blank.
Line 5.
He enters the name and address of his employer, Samoa Products Co. It is a private American Samoa corporation.
Line 6.
He enters the dates of his 2-week vacation to New Zealand from November 11 to November 25. That was his only trip
outside American Samoa during the
year.
Line 7.
He enters the $24,000 in wages he received from Samoa Products Co.
Line 9.
He received $220 in dividends from an American Samoa corporation, which he enters here. He also received $10,000 of
dividends from a U.S.
corporation, but he will enter that amount only on his Form 1040 because the U.S. dividends do not qualify for the possession
exclusion.
Line 15.
John totals the amounts on lines 7 and 9 to get the amount he can exclude from his gross income in 2005. He will not
enter his excluded income on
Form 1040. However, he will attach his completed Form 4563 to his Form 1040.
Illustrated Example of Form 5074
Tracy Grey is a U.S. citizen, who is a self-employed fisheries consultant with a tax home in New York. Her only income for
2005 was net
self-employment income of $80,000. Of the $80,000, $20,000 was from consulting work in Guam and the rest was earned in the
United States. Thinking she
would owe tax to Guam on the $20,000, Tracy made estimated tax payments of $1,409 to Guam. She was not a bona fide resident
of Guam during 2005.
Tracy completes Form 1040 (not illustrated), reporting her worldwide income. Because she earned more than $50,000 and at least
$5,000 of her gross
income is from Guam, Tracy must file Form 5074 with her Form 1040. All amounts reported on Form 5074 are also reported on
her Form 1040.
Completing Form 5074.
Tracy enters her name and social security number at the top of the form.
Part I.
On Form 5074 (shown later in this chapter), Tracy enters her self-employment income from Guam ($20,000) on line 6.
She has no other income, so the
total on line 16 is $20,000.
Part II.
Tracy's only adjustment in Part II is the deduction for one-half of the self-employment tax on her net income earned
in Guam. She enters $1,413 on
line 21 and line 29. Her adjusted gross income on line 30 is $18,587.
Part III.
Tracy made estimated tax payments of $1,409. She enters this amount on line 31, and again on line 35 as the total
payments.
Illustrated Example of Form 8689
Gerald and Lily Smith live and work in the United States. In 2005, they received $14,400 in income from the rental of a condominium
they own in the
Virgin Islands. The rental income was deposited in a bank in the Virgin Islands and they received $500 of interest on this
income. They were not bona
fide residents of the Virgin Islands during the entire tax year.
The Smiths complete Form 1040 (not illustrated), reporting their income from all sources. They report their wages, interest
income, and the income
and expenses from their Virgin Islands rental property on Schedule E (Form 1040).
The Smiths also complete Form 8689 to determine how much of their U.S. tax shown on Form 1040, line 63 (with certain adjustments),
is due to the
Virgin Islands. This is the amount the Smiths must pay to the Virgin Islands.
The Smiths file their Form 1040, attaching Form 8689 and all other schedules, with the Internal Revenue Service.
At the same time, they send a copy of their Form 1040 with all schedules, including Form 8689, to the Virgin Islands Bureau
of Internal Revenue.
This copy will be processed as their original Virgin Islands return.
Completing Form 8689.
Gerald and Lily enter their names and Gerald's social security number at the top of the form.
Part I.
The Smiths enter their income from the Virgin Islands in Part I. The interest income is entered on line 2 and the
net rental income of $6,200
($14,400 of rental income minus $8,200 of rental expenses) is entered on line 11. The Smiths' total Virgin Islands income
of $6,700 is entered on line
16.
Part II.
The Smiths have no adjustments to their Virgin Islands income, so they enter zero (-0-) on line 28, and $6,700 on
line 29. Their Virgin Islands
adjusted gross income is $6,700.
Part III.
On line 30, the Smiths enter the amount from Form 1040, line 63 ($5,199). They leave line 31 blank and put this same
amount on line 32.
The Smiths enter their worldwide adjusted gross income, $54,901 (Form 1040, line 37), on line 33. They divide their
Virgin Islands adjusted gross
income, $6,700 (from line 29), by line 33. They multiply the amount on line 33 by this decimal, 0.122, to find the amount
of tax allocated to the
Virgin Islands (line 35).
Part IV.
Part IV is used to show payments of income tax to the Virgin Islands only. The Smiths had no tax withheld by the Virgin
Islands, but made estimated
tax payments to the Virgin Islands of $600, which are shown on lines 37 and 39. The Smiths include this amount ($600) in the
total on Form 1040, line
71. On the dotted line next to line 71, they print “ Form 8689” and show the amount. The Smiths do not complete Form 1116. The income tax the
Smiths owe to the Virgin Islands ($34) is shown on Form 8689, line 44. The Smiths include this additional amount ($34) in
the total on Form 1040, line
71. They must pay their Virgin Islands tax at the same time they file the copy of their return with the Virgin Islands.
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