Tax Preparation Help  
Publication 570 2008 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, single, and under 65. He was a bona fide resident of American Samoa during all of 2007. 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, 2006. 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 2007. 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 2007 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 2007.

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 2007, 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 take the standard deduction for married filing jointly, both are under 65, and they have no dependents.

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 attachments, 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 ($4,831). 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. Next, they find what percentage of their adjusted gross income 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 ($4,831 x 0.122 = $589), and enter that amount on 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 they entered 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 ($189) is shown on Form 8689, line 44. The Smiths also include this additional amount ($189) 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.
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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 Gerald and Lily Smith

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