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, single, and under 65. He was a bona fide resident of American Samoa during all of 2013. 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. See Bona Fide Resident of American Samoa in chapter 3.

Completing Form 4563.   John enters his name and social security number at the top of the form.

Line 1.   On Form 4563 (see later), John enters the date his bona fide residence began in American Samoa, June 2, 2012. 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 2013. 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 2013 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 2013.

Tracy completes Form 1040 (not illustrated), reporting her worldwide income. Because the adjusted gross income on her Form 1040 was $50,000 or more 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. See U.S. Citizen or Resident Alien (Other Than a Bona Fide Resident of Guam) in chapter 3.

Completing Form 5074.   Tracy enters her name and social security number at the top of the form.

Part I.   On Form 5074 (see later), Tracy enters her self-employment income from Guam ($20,000) on line 6. She has no other income from Guam, so the total on line 16 is $20,000.

Part II.   Tracy's only adjustment in Part II is the deductible part 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

Juan and Carla Moreno live and work in the United States. In 2013, 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 Morenos 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 Morenos take the standard deduction for married filing jointly, both are under 65, and they have no dependents.

The Morenos also complete Form 8689 to determine how much of their U.S. tax shown on Form 1040, line 61 (with certain adjustments), must be paid to the U.S. Virgin Islands. See U.S. Citizen or Resident Alien (Other Than a Bona Fide Resident of the USVI) in chapter 3.

The Morenos 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 attachments, including Form 8689, to the Virgin Islands Bureau of Internal Revenue. The Virgin Islands Bureau of Internal Revenue will process this copy.

Completing Form 8689.   Juan and Carla enter their names and Juan's social security number at the top of the form.

Part I.   The Morenos enter their income from the USVI in Part I (see later). 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 Morenos' total USVI income of $6,700 is entered on line 16.

Part II.   The Morenos 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 (AGI) is $6,700.

Part III.   On line 30, the Morenos enter the amount from Form 1040, line 61 ($4,539). Their Form 1040 does not show any entries required on line 31, so they leave that line blank and enter $4,539 on line 32.

  The Morenos enter their worldwide AGI, $54,901 (Form 1040, line 38), on line 33. Next, they find what percentage of their AGI is from USVI sources ($6,700 ÷ $54,901 = 0.122) and enter that as a decimal on line 34. They then apply that percentage to the U.S. tax entered on line 32 to find the amount of U.S. tax allocated to USVI income ($4,539 x 0.122 = $554), and enter that amount on line 35.

Part IV.   Part IV is used to show payments of income tax to the USVI only. The Morenos had no tax withheld by the U.S. Virgin Islands, but made estimated tax payments to the USVI of $400, which they entered on lines 37 and 39. They 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 enter “Form 8689” and show the amount. The Morenos do not complete Form 1116 because they receive credit on Form 1040, line 72, for the tax paid to the USVI.

  The income tax they owe to the USVI ($154) is shown on Form 8689, line 44. They enter this amount on line 45. They also include this additional amount ($154) on the dotted line next to the entry space and in the total on Form 1040, line 72. The Morenos will pay their USVI tax at the same time they file the copy of their U.S. income tax return with the U.S. Virgin Islands.

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Form 4563, page 1 for John Black

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Form 5074, for Tracy Grey

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Form 8689, page 1 for Juan and Carla Moreno


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