If you are not required to file a possession tax return that includes your worldwide income, you must generally file a U.S. income tax return if your gross income is at least the amount shown in Table 4-1 for your filing status and age.

If you were a bona fide resident of American Samoa or Puerto Rico and are able to exclude your possession income from your U.S. tax return, your filing requirement may be less than the amount in Table 4-1. For details, see the information below under Filing Requirement if Possession Income Is Excluded.

Some individuals (such as those who can be claimed as a dependent on another person's return or who owe certain taxes, such as self-employment tax) must file a tax return even though the gross income is less than the amount shown in Table 4-1 for their filing status and age. For more information, see the Form 1040 instructions.

Filing Requirement if Possession Income Is Excluded

If you were a bona fide resident of American Samoa or Puerto Rico and qualify to exclude your possession income on your U.S. tax return, you must determine your adjusted filing requirement. Generally, your filing requirement is based on the total of your personal exemption(s) plus your standard deduction.

Personal exemption.   When figuring your filing requirement, your personal exemption is allowed in full. Do not reduce it for this purpose. Do not include exemptions for your dependents.

Allowable standard deduction.   Unless your filing status is married filing separately, the minimum income level at which you must file a return is based, in part, on the standard deduction for your filing status and age. Because the standard deduction applies to all types of income, it must be divided between your excluded income and income from other sources. Multiply the regular standard deduction for your filing status and age (this is zero if you are married filing a separate return; all others, see Form 1040 instructions) by the following fraction:

  

	Gross income subject to U.S. tax
	Gross income from all sources (including excluded possession income)

Example.

Barbara Spruce, a U.S. citizen, is single, under 65, and a bona fide resident of American Samoa. During 2005, she received $20,000 of income from American Samoa sources and $8,000 of income from sources outside the possession. Her allowable standard deduction for 2005 is figured as follows:

$8,000 $28,000

×

$5,000 (standard deduction)

=

$1,429

Adjusted filing requirement.   Figure your adjusted filing requirement by adding the amount of your allowable standard deduction to the amount of your personal exemption. You must file a U.S. income tax return if your gross income is at least the amount shown on line 3 of the following worksheet.

  

1.	Enter the allowable standard deduction you figured earlier under Allowable standard deduction. If your filing status is married filing separately, enter -0-
2.	Personal exemption. If your filing status is married filing jointly, enter $6,400; if someone can claim you as a dependent, enter -0-; otherwise, enter $3,200
3.	Add lines 1 and 2. You must file a U.S. income tax return if your gross income from sources outside the relevant possession is at least this amount

Example 1.

James and Joan Thompson, one over 65, are U.S. citizens and bona fide residents of Puerto Rico during the entire tax year. They file a joint income tax return. During 2005, they received $35,000 of income from Puerto Rican sources and $6,000 of income from sources outside Puerto Rico. They do not itemize their deductions. Their allowable standard deduction for 2005 is figured as follows:

$6,000 $41,000

×

$11,000 (standard deduction)

=

$1,610

The Thompsons do not have to file a U.S. income tax return because their gross income ($6,000) is less than their allowable standard deduction plus their personal exemptions ($1,610 + $6,400 = $8,010).

Example 2.

Barbara Spruce (see Example under Allowable standard deduction), however, must file a U.S. income tax return because her gross income subject to U.S. tax ($8,000) is more than her allowable standard deduction plus her personal exemption ($1,429 + $3,200 = $4,629).

If you must file a U.S. income tax return, you may be able to file a paperless return using IRS e-file. See your form instructions or visit our website at www.irs.gov.

Table 4-1.2005 Filing Requirements Chart for Most Taxpayers

IF your filing status is...	AND at the end of 2005 you were *...	THEN file a return if your gross income ** was at least...
single	under 65	$8,200
	65 or older	$9,450
married filing jointly ***	under 65 (both spouses)	$16,400
	65 or older (one spouse)	$17,400
	65 or older (both spouses)	$18,400
married filing separately	any age	$3,200
head of household	under 65	$10,500
	65 or older	$11,750
qualifying widow(er) with dependent child	under 65	$13,200
	65 or older	$14,200

* If you were born on January 1, 1941, you are considered to be age 65 at the end of 2005.

** Gross income means all income you received in the form of money, goods, property, and services that is not exempt from tax, including any income from sources outside the United States (even if you may exclude part or all of it). Do not include social security benefits unless you are married filing a separate return and you lived with your spouse at any time in 2005.

*** If you did not live with your spouse at the end of 2005 (or on the date your spouse died) and your gross income was at least $3,200, you must file a return regardless of your age.

If you file on a calendar year basis, the due date for filing your U.S. income tax return is April 15 following the end of your tax year. If you use a fiscal year (a year ending on the last day of a month other than December), the due date is the 15th day of the 4th month after the end of your fiscal year. If any due date falls on a Saturday, Sunday, or legal holiday, your tax return is due on the next business day.

For this purpose, “legal holiday” means a legal holiday in the District of Columbia or in the state where the return is required to be filed. It does not include a legal holiday in a foreign country, unless it is also a legal holiday described in the previous sentence.

If you mail your federal tax return, it is considered timely if it bears an official postmark dated on or before the due date, including any extensions. If you use a private delivery service designated by the IRS, generally the postmark date is the date the private delivery service records in its database or marks on the mailing label. See your form instructions for a list of designated private delivery services.

Extensions of Time To File

You can get an extension of time to file your return. Special rules apply for those living outside the United States.

Automatic 6-Month Extension

If you cannot file your 2005 return by the due date, you can get an automatic 6-month extension of time to file.

Example.

If your return must be filed by April 17, 2006, you will have until October 16, 2006, to file.

Although you are not required to make a payment of the tax you estimate as due, Form 4868 does not extend the time to pay taxes. If you do not pay the amount due by the regular due date (generally, April 15), you will owe interest on any unpaid tax from the original due date to the date you pay the tax. You may also be charged penalties (see the instructions for Form 4868).

How to get the automatic extension.   You can get the automatic 6-month extension if you do one of the following by the due date for filing your return.

• E-file Form 4868 using your personal computer or a tax professional.

• E-file and pay by credit card. You may pay by phone or over the Internet. You do not file Form 4868.

• File a paper Form 4868. If you are a fiscal year taxpayer, you must file a paper Form 4868.

See Form 4868 for information on getting an extension using these options.

When to file.   You must request the automatic extension by the due date for your return. You can file your return any time before the 6-month extension period ends.

When you file your return.   Enter any payment you made related to the extension of time to file on Form 1040, line 69. If you file Form 1040A or Form 1040EZ, include that payment in your total payments on Form 1040A, line 43, or Form 1040EZ, line 10. Also print “Form 4868” and the amount paid in the space to the left of line 43 or line 10.

You cannot ask the Internal Revenue Service to figure your tax if you use the extension of time to file.

Individuals Outside the United States

You are allowed an automatic 2-month extension (until June 15, 2006, if you use the calendar year) to file your 2005 return and pay any federal income tax due if:

1. You are a U.S. citizen or resident, and

2. On the due date of your return:

   1. You are living outside of the United States and Puerto Rico, and your main place of business or post of duty is outside the United States and Puerto Rico, or

   2. You are in military or naval service on duty outside the United States and Puerto Rico.

However, if you pay the tax due after the regular due date (generally April 15), interest will be charged from that date until the date the tax is paid.

If you served in a combat zone or qualified hazardous duty area, you may be eligible for a longer extension of time to file. For more information, see Publication 3, Armed Forces Tax Guide.

Married taxpayers.   If you file a joint return, only one spouse has to qualify for this automatic extension. If you and your spouse file separate returns, this automatic extension applies only to the spouse who qualifies.

How to get the extension.   To use this special automatic extension, you must attach a statement to your return explaining what situation qualified you for the extension. (See the situations listed under (2), above.)

Extensions beyond 2 months.   If you cannot file your return within the automatic 2-month extension period, you can get an additional 4-month extension, for a total of 6 months. File Form 4868 by the end of the automatic extension period (usually June 15). Be sure to check the box on line 8 of Form 4868.

  In addition to this 6-month extension, taxpayers who are out of the country (as defined in the Form 4868 instructions) can request a discretionary 2-month additional extension of time to file their returns (to December 15 for calendar year taxpayers).

  To request this extension, you must send the IRS a letter explaining the reasons why you need the additional 2 months. Send the letter by the extended due date (October 15 for calendar year taxpayers) to:

Internal Revenue Service Center
Austin, TX 73301-0215

  You will not receive any notification from the IRS unless your request is denied for being untimely.

If you have to file Form 1040 with the United States, send your return to:

If you do not qualify to exclude possession income on your U.S. return, mail your return to the address shown in the Form 1040 instructions for the possession or state in which you reside.

If you are not excluding possession income from your U.S. tax return, follow the instructions for the specific forms you file.

However, if you are excluding income from American Samoa or Puerto Rico, you will not be allowed to take deductions and credits that apply to the excluded income. This section contains the additional information you need.

Deductions

Deductions that specifically apply to your excluded possession income, such as employee business expenses, are not allowable on your U.S. income tax return.

Deductions that do not specifically apply to any particular type of income must be divided between your excluded income from sources in the relevant possession and income from all other sources to find the part that you can deduct on your U.S. tax return. Examples of such deductions are alimony payments, the standard deduction, and certain itemized deductions (such as medical expenses, charitable contributions, real estate taxes, and mortgage interest on your home).

Figuring the deduction.   To find the part of a deduction that is allowable, multiply the deduction by the following fraction.

	Gross income subject to U.S. tax
	Gross income from all sources (including excluded possession income)

Adjustments to Income

Your adjusted gross income equals your gross income minus certain deductions (adjustments).

Moving expense deduction.   Generally, expenses of a move to a possession are directly attributable to wages, salaries, and other earned income from that possession. Likewise, the expenses of a move back to the United States are generally attributable to U.S. earned income.

  If you are claiming expenses for a move to a relevant possession, how and where you will deduct the expenses depends on your status as a bona fide resident and if any of your possession income is excluded on your U.S. tax return. For more information, see Moving expense deduction in chapter 3 under the name of the relevant possession.

  If you are claiming expenses for a move from a U.S. possession to the United States, use Form 3903 to figure your deductible expenses and enter the amount on Form 1040, line 26. For purposes of deducting moving expenses, the possessions are considered part of the United States. See Publication 521, Moving Expenses, for more information.

Self-employment tax deduction.   Generally, if you are reporting self-employment income on your U.S. return, you can deduct one-half of your self-employment tax on Form 1040, line 27. This is an income tax deduction only; it is not a deduction in figuring net earnings from self-employment (for self-employment tax).

  However, if you are a bona fide resident of American Samoa or Puerto Rico and you exclude all of your self-employment income from gross income, you cannot take the deduction on Form 1040, line 27, because the deduction is related to excluded income.

  If only part of your self-employment income is excluded, the part of the deduction that is based on the nonexcluded income is allowed. This would happen if, for instance, you have two businesses and only the income from one of them is excludable.

  Figure the self-employment tax on the nonexcluded income by multiplying your total self-employment tax (from Schedule SE) by the following fraction.

	Self-employment income subject to U.S. tax
	Total self-employment income (including excluded possession income)

The result is your self-employment tax on nonexcluded income. Deduct one-half of this amount on Form 1040, line 27.

Individual retirement arrangement (IRA) deduction.   Do not take excluded income into account when figuring your deductible IRA contribution.

Standard Deduction

The standard deduction and the additional standard deduction for taxpayers who are blind or age 65 or over do not apply to any particular type of income. To find the amount you can claim on Form 1040, line 40, multiply your standard deduction by the fraction given earlier in this chapter under Figuring the deduction. Also, see the Example under Allowable standard deduction, near the beginning of this chapter. In the space above line 40, print “Standard deduction modified due to income excluded under section 931 (if American Samoa) or 933 (if Puerto Rico).”

Make this computation before you determine if you must file a U.S. tax return, because the minimum income level at which you must file a return is based, in part, on the standard deduction for your filing status. See Filing Requirement if Possession Income Is Excluded , near the beginning of this chapter.

Itemized Deductions

Most itemized deductions do not apply to a particular type of income. However, itemized deductions can be divided into three categories.

• Those that apply specifically to excluded income, such as employee business expenses, are not deductible.

• Those that apply specifically to income subject to U.S. income tax, which might also be employee business expenses, are fully allowable under the instructions for Schedule A (Form 1040).

• Those that do not apply to specific income must be allocated between your gross income subject to U.S. tax and your total gross income from all sources.

The example below shows how to figure the deductible part of each type of expense that is not related to specific income.

Example.

In 2005, you and your spouse are both under 65 and U.S. citizens who are bona fide residents of Puerto Rico during the entire tax year. You file a joint income tax return. During 2005, you earned $15,000 from Puerto Rican sources and your spouse earned $45,000 from the U.S. Government. You have $16,000 of itemized deductions that do not apply to any specific type of income. These are medical expenses of $4,000, real estate taxes of $5,000, home mortgage interest of $6,000, and charitable contributions of $1,000 (cash contributions). You determine the amount of each deduction that you can claim on your Schedule A (Form 1040), by multiplying the deduction by the fraction shown under Figuring the deduction, earlier.

	Medical Expenses
	$45,000 $60,000	×	$4,000	=	$3,000 (enter on line 1 of Schedule A)

	Real Estate Taxes
	$45,000 $60,000	×	$5,000	=	$3,750 (enter on line 6 of Schedule A)

	Home Mortgage Interest
	$45,000 $60,000	×	$6,000	=	$4,500 (enter on line 10 or 11 of Schedule A)

	Charitable Contributions (cash contributions)
	$45,000 $60,000	×	$1,000	=	$750 (enter on line 15a or 15b of Schedule A)

Enter on Schedule A (Form 1040) only the allowable portion of each deduction.

Personal Exemptions

Personal exemptions are allowed in full even if you are excluding possession income. However, depending upon your adjusted gross income and filing status, the amount you can deduct may be reduced (phased out). See the instructions for Form 1040.

You may find that not all of your income tax has been paid through withholding by either the United States or the possession. This is often true if you have income that is not subject to withholding, such as self-employment, interest, or rental income. In this situation, you may need to make estimated tax payments.

Self-Employment Tax

Self-employment tax includes both social security and Medicare taxes for individuals who are self-employed.

A U.S. citizen or resident alien who is self-employed must pay self-employment tax on net self-employment earnings of $400 or more. This rule applies whether or not the earnings are excludable from gross income (or whether or not a U.S. income tax return must otherwise be filed). Bona fide residents of the possessions discussed in this publication are considered U.S. residents for this purpose and are subject to the self-employment tax.

If you must file Form 1040 with the United States, figure your self-employment tax on Schedule SE (Form 1040) and attach it to your Form 1040.

If you are a bona fide resident of American Samoa, the CNMI, Guam, Puerto Rico, or the USVI who has net self-employment income, and you do not have to file Form 1040 with the United States, use Form 1040-SS to figure your self-employment tax.

If you are a resident of Puerto Rico, you can file Form 1040-PR instead of Form 1040-SS. Form 1040-PR is the Spanish-language version of Form 1040-SS.

A mutual agreement procedure exists to settle issues where there is inconsistent tax treatment between the IRS and the taxing authorities of the following possessions.

These issues usually involve allocations of income, deductions, credits, or allowances between related persons; determinations of residency; and determinations of the source of income and related expenses.

Your request must contain a statement that assistance is requested under the mutual agreement procedure with the possession. It must also contain all the facts and circumstances relating to your particular case. You must sign and date it. To avoid unnecessary delays, make sure you include all of the following information.