| Pub. 570, Tax Guide for Individuals With Income From U.S. Possessions |
2006 Tax Year |
This is archived information that pertains only to the 2006 Tax Year. If you
are looking for information for the current tax year, go to the Tax Prep Help Area.
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, single and under 65. He was a bona fide resident of American Samoa during all of 2006. John
must file Form 1040
because his gross income from sources outside the possessions ($10,000 of dividends from U.S. corporations) is more than his
adjusted filing
requirement for single filers under 65. (See Filing Requirement if Possession Income Is Excluded in chapter 4.) Because he must file Form
1040 (not illustrated), he fills out Form 4563 to determine the amount of income from American Samoa 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 (see page 22), John enters the date his bona fide residence began in American Samoa, June 2, 2005. Because
he is still a bona fide
resident, he enters “ 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 2006. 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
2006 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 2006.
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 (see page 23), 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 28. Her adjusted gross income on line 29 is $18,587.
Part III.
Tracy made estimated tax payments of $1,409. She enters this amount on line 30, and again on line 34 as the total
payments.
Illustrated Example of Form 8689
Gerald and Lily Smith live and work in the United States. In 2006, they received $14,400 in income from the rental of a condominium
they own in the
U.S. Virgin Islands (USVI). The rental income was deposited in a bank in the USVI and they received $500 of interest on this
income. They were not
bona fide residents of the USVI during the entire tax year.
The Smiths complete Form 1040 (not illustrated), reporting their income from all sources, including their interest income
and the income and
expenses from their USVI rental property (reported 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),
must be paid to
the U.S. 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 USVI in Part I (see page 24). 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 USVI income of $6,700
is entered on line 16.
Part II.
The Smiths have no adjustments to their USVI income, so they enter zero (-0-) on line 28, and $6,700 on line 29. Their
USVI adjusted gross income
is $6,700.
Part III.
On line 30, the Smiths enter the amount from Form 1040, line 63 ($3,454). 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 38), on line 33. They divide their
USVI 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 U.S. Virgin
Islands (line 35).
Part IV.
Part IV is used to show payments of income tax to the USVI only. The Smiths had no tax withheld by the U.S. Virgin
Islands, but made estimated tax
payments to the USVI of $400, which are shown on lines 37 and 39. The Smiths include this amount ($400) in the total payments
on Form 1040, line 72.
On the dotted line next to the entry space for line 72, they print “ Form 8689” and show the amount. The Smiths do not complete Form 1116 because
they receive credit on Form 1040, line 72, for the tax paid to the USVI. The income tax the Smiths owe to the USVI ($21) is
shown on Form 8689, line
44. The Smiths also include this additional amount ($21) in the total on Form 1040, line 72. They must pay their USVI tax
at the same time they file
the copy of their return with the U.S. Virgin Islands.
Form 4563 (Revised December 2006) Exclusion of Income for Bona Fide Residents of American Samoa. Summary: This is an example of Form 4563 (Revised December 2006) with items included as described in the text. Additionally,
these line items
are completed:
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“Name(s) shown on Form 1040” field contains John Black
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“Your social security number” field contains 111-00-1111
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Under
“Part I: General Information”:
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“1 Date bona fide residence began” field contains 6-2-05
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“and ended” field contains not ended
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“2 Type of living quarters in American Samoa” field contains rented house or apartment
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“3a Did any of your family live with you in American Samoa during any part of the tax year?” field contains no
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“4a Did you maintain home(s) outside American Samoa?” field contains no
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“5 Name and address of employer (state if self-employed)” field contains Samoa Products, Co., Pago Pago, American Samoa
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“6 Complete columns (a) through (d) below for days absent from American Samoa during the tax year” field contains 11-11-06, 11-25-06,
14, Vacation to New Zealand
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Under
“Part II: Figure Your Exclusion. Include only income that qualifies for the exclusion. See instructions”:
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“7 Wages, salaries, tips, etc” field contains 24,000
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“9 Taxable interest” field contains 200
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“15 Add lines 7 through 14. This is the amount you may exclude from your gross income this tax year” field contains
24,220
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Form 5074 Allocation of Individual Income Tax to Guam or the Commonwealth of the Northern Mariana Islands (CNMI) 2006. Summary: This is an example of Form 5074 (2006) with these line items completed:
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“Name(s) shown on Form 1040” field contains Tracy Grey
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“Your social security number” number field contains 111-00-2222
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Under
“Part I: Income From Guam or the CNMI Reported on Form 1040”:
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“6. Business income or (loss)” Guam field contains 20,000
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“16. Total income. Add lines 1 through 15” Guam field contains 20,000
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Under
“Part II: Adjusted Gross Income From Guam or the CNMI Reported on Form 1040”:
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“21. One-half of self-employment tax” Guam field contains 1,413
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“28. Add lines 17 through 28” Guam field contains 1,413
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“29. Adjusted gross income. Subtract line 28 from line 16” Guam field contains 18,587
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Under
“Part III: Payments of Income Tax to Guam or the CNMI”:
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“30. Payments on estimated tax return filed with Guam or the CNMI” Guam field contains 1,409
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“34. Total payments. Add lines 30 through 33” Guam field contains
1,409
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Form 8689 Allocation of Individual Income Tax to the U.S. Virgin Islands 2006. Summary: This is an example of Form 8689 (2006) with these line items completed:
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“Name(s) shown on Form 1040” field contains Gerald and Lily Smith
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“Your social security number” number field contains 222-00-2222
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Under
“Part I: Income From the U.S. Virgin Islands”:
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“2. Taxable interest” field contains 500
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“11. Rental real estate, royalties, partnerships, S corporations, trusts, etcetera” field contains 6,200
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“16. Add lines 1 through 15. This is your total income” field contains 6,700
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Under
“Part II: Adjusted Gross Income From the U.S. Virgin Islands”:
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“28. Add lines 17 through 27” field contains -0-
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“29. Subtract line 28 from line 16. This is your adjusted gross income” field contains 6,700
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Under
“Part III: Allocation of Tax to the U.S. Virgin Islands”:
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“30. Enter amount from Form 1040, line 63” field contains 3,454
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“32. Subtract line 31 from line 30” field contains 3,454
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“33. Enter amount from Form 1040, line 38” field contains 54,901
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“34. Divide line 29 above by line 33. Enter the result as a decimal (rounded to at least 3 places). Do not enter more than
1.000” field
contains .122
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“35. Multiply line 32 by line 34. This is your tax allocated to the U.S. Virgin Islands” field contains
421
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Under
“Part IV: Payments of Income Tax to the U.S Virgin Islands”:
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“37. 2006 estimated tax payments and amount applied from 2005 return” field contains 400
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“39. Add lines 36 through 38. These are your total payments” field contains 400
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“40. Enter the smaller of line 35 or line 39. Also, include this amount in the total on Form 1040, line 72. On the dotted line
next to line 72,
enter Form 8689 and show this amount” field contains 400
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“44. Amount you owe to the U.S. Virgin Islands. Subtract line 39 from line 35. Enter the amount that you are paying here and
on Form 1040, line
72. Next to line 72, enter Form 8689 and the amount paid” field contains 21
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