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Www myfreetaxes com Publication 721 - Introductory Material Table of Contents Reminders IntroductionOrdering forms and publications. Www myfreetaxes com Tax questions. Www myfreetaxes com Useful Items - You may want to see: Reminders Future developments. Www myfreetaxes com  For the latest information about developments related to Publication 721, such as legislation enacted after it was published, go to www. Www myfreetaxes com IRS. Www myfreetaxes com gov/pub721. Www myfreetaxes com Phased retirement. Www myfreetaxes com   The new phased retirement program was signed into law by the Moving Ahead for Progress in the 21st Century Act and will be available for retirement eligible individuals once the regulations for this program are effective. Www myfreetaxes com This new program will allow eligible employees to begin receiving annuity payments while working part-time. Www myfreetaxes com For more information, go to the Office of Personnel Management (OPM) website at www. Www myfreetaxes com opm. Www myfreetaxes com gov. Www myfreetaxes com Roth Thrift Savings Plan (TSP) balance. Www myfreetaxes com  You may be able to contribute to a designated Roth account through the TSP known as the Roth TSP. Www myfreetaxes com Roth TSP contributions are after-tax contributions, subject to the same contribution limits as the traditional TSP. Www myfreetaxes com Qualified distributions from a Roth TSP are not included in your income. Www myfreetaxes com See Thrift Savings Plan in Part II for more information. Www myfreetaxes com Rollovers. Www myfreetaxes com  You can roll over certain amounts from the CSRS, FERS, or TSP, to a tax-sheltered annuity plan (403(b) plan) or a state or local government section 457 deferred compensation plan. Www myfreetaxes com See Rollover Rules in Part II. Www myfreetaxes com Rollovers by surviving spouse. Www myfreetaxes com  You may be able to roll over a distribution you receive as the surviving spouse of a deceased employee or retiree into a qualified retirement plan or an IRA. Www myfreetaxes com See Rollover Rules in Part II. Www myfreetaxes com Thrift Savings Plan (TSP) beneficiary participant accounts. Www myfreetaxes com  If you are the spouse beneficiary of a decedent's TSP account, you have the option of leaving the death benefit payment in a TSP account in your own name (a beneficiary participant account). Www myfreetaxes com The amounts in the beneficiary participant account are neither taxable or reportable until you choose to make a withdrawal, or otherwise receive a distribution from the account. Www myfreetaxes com Benefits for public safety officer's survivors. Www myfreetaxes com  A survivor annuity received by the spouse, former spouse, or child of a public safety officer killed in the line of duty generally will be excluded from the recipient's income. Www myfreetaxes com For more information, see Dependents of public safety officers in Part IV. Www myfreetaxes com Uniformed services Thrift Savings Plan (TSP) accounts. Www myfreetaxes com  If you have a uniformed services TSP account, it may include contributions from combat zone pay. Www myfreetaxes com This pay is tax-exempt and contributions attributable to that pay are tax-exempt when they are distributed from the uniformed services TSP account. Www myfreetaxes com However, any earnings on those contributions are subject to tax when they are distributed. Www myfreetaxes com The statement you receive from the TSP will separately state the total amount of your distribution and the amount of your taxable distribution for the year. Www myfreetaxes com If you have both a civilian and a uniformed services TSP account, you should apply the rules discussed in this publication separately to each account. Www myfreetaxes com You can get more information from the TSP website, www. Www myfreetaxes com tsp. Www myfreetaxes com gov, or the TSP Service Office. Www myfreetaxes com Photographs of missing children. Www myfreetaxes com  The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Www myfreetaxes com Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. Www myfreetaxes com You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. Www myfreetaxes com Introduction This publication explains how the federal income tax rules apply to civil service retirement benefits received by retired federal employees (including those disabled) or their survivors. Www myfreetaxes com These benefits are paid primarily under the Civil Service Retirement System (CSRS) or the Federal Employees' Retirement System (FERS). Www myfreetaxes com Tax rules for annuity benefits. Www myfreetaxes com   Part of the annuity benefits you receive is a tax-free recovery of your contributions to the CSRS or FERS. Www myfreetaxes com The rest of your benefits are taxable. Www myfreetaxes com If your annuity starting date is after November 18, 1996, you must use the Simplified Method to figure the taxable and tax-free parts. Www myfreetaxes com If your annuity starting date is before November 19, 1996, you generally could have chosen to use the Simplified Method or the General Rule. Www myfreetaxes com See Part II, Rules for Retirees . Www myfreetaxes com Thrift Savings Plan. Www myfreetaxes com   The Thrift Savings Plan (TSP) provides federal employees with the same savings and tax benefits that many private employers offer their employees. Www myfreetaxes com This plan is similar to private sector 401(k) plans. Www myfreetaxes com You can defer tax on part of your pay by having it contributed to your traditional balance in the plan. Www myfreetaxes com The contributions and earnings on them are not taxed until they are distributed to you. Www myfreetaxes com Also the TSP offers a Roth TSP option. Www myfreetaxes com Contributions to this type of balance are after tax and qualified distributions from the account are tax free. Www myfreetaxes com See Thrift Savings Plan in Part II. Www myfreetaxes com Comments and suggestions. Www myfreetaxes com   We welcome your comments about this publication and your suggestions for future editions. Www myfreetaxes com   You can write to us at the following address: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. Www myfreetaxes com NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. Www myfreetaxes com Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. Www myfreetaxes com   You can send your comments from www. Www myfreetaxes com irs. Www myfreetaxes com gov/formspubs/. Www myfreetaxes com Click on “More Information” and then on “Comment on Tax Forms and Publications”. Www myfreetaxes com   Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. Www myfreetaxes com Ordering forms and publications. Www myfreetaxes com   Visit www. Www myfreetaxes com irs. Www myfreetaxes com gov/formspubs/ to download forms and publications, call 1-800-TAX-FORM (1-800-829-3676), or write to the address below and receive a response within 10 days after your request is received. Www myfreetaxes com Internal Revenue Service 1201 N. Www myfreetaxes com Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. Www myfreetaxes com   If you have a tax question, check the information available on IRS. Www myfreetaxes com gov or call 1-800-829-1040. Www myfreetaxes com We cannot answer tax questions sent to either of the above addresses. Www myfreetaxes com Useful Items - You may want to see: Publication 524 Credit for the Elderly or the Disabled 575 Pension and Annuity Income 590 Individual Retirement Arrangements (IRAs) 939 General Rule for Pensions and Annuities Form (and Instructions) CSA 1099R Statement of Annuity Paid CSF 1099R Statement of Survivor Annuity Paid W-4P Withholding Certificate for Pension or Annuity Payments 1099-R Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. Www myfreetaxes com 5329 Additional Taxes on Qualified Plans (including IRAs) and Other Tax-Favored Accounts See How To Get Tax Help near the end of this publication for information about getting publications and forms. Www myfreetaxes com Prev  Up  Next   Home   More Online Publications
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Www myfreetaxes com 4. Www myfreetaxes com   Filing U. Www myfreetaxes com S. Www myfreetaxes com Tax Returns Table of Contents Who Must FileFiling Requirement if Possession Income Is Excluded When To FileExtension of Time To File Where To File Special Rules for Completing Your U. Www myfreetaxes com S. Www myfreetaxes com Tax ReturnU. Www myfreetaxes com S. Www myfreetaxes com Armed Forces. Www myfreetaxes com Deductions if Possession Income Is Excluded Foreign Tax Credit if Possession Income Is Excluded Self-Employment Tax Additional Medicare Tax Net Investment Income Tax Paying Your TaxesEstimated Tax Double TaxationCompetent Authority Assistance The information in chapter 3 will tell you if a U. Www myfreetaxes com S. Www myfreetaxes com income tax return is required for your situation. Www myfreetaxes com If a U. Www myfreetaxes com S. Www myfreetaxes com return is required, your next step is to see if you meet the filing requirements. Www myfreetaxes com If you do meet the filing requirements, the information presented in this chapter will help you understand the special procedures involved. Www myfreetaxes com This chapter discusses: Filing requirements, When to file your return, Where to send your return, How to adjust your deductions and credits if you are excluding income from American Samoa or Puerto Rico, How to make estimated tax payments and pay self-employment tax, and How to request assistance in resolving instances of double taxation. Www myfreetaxes com Who Must File If you are not required to file a possession tax return that includes your worldwide income, you must generally file a U. Www myfreetaxes com S. Www myfreetaxes com income tax return if your gross income is at least the amount shown in Table 4-1, later, for your filing status and age. Www myfreetaxes com If you were a bona fide resident of American Samoa or Puerto Rico and are able to exclude your possession income from your U. Www myfreetaxes com S. Www myfreetaxes com tax return, your filing requirement may be less than the amount in Table 4-1. Www myfreetaxes com For details, see the information under Filing Requirement if Possession Income Is Excluded , later. Www myfreetaxes com 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. Www myfreetaxes com For more information, see the Form 1040 instructions. Www myfreetaxes com Filing Requirement if Possession Income Is Excluded If you were a bona fide resident of American Samoa or Puerto Rico and qualify to exclude possession income on your U. Www myfreetaxes com S. Www myfreetaxes com tax return, you must determine your adjusted filing requirement. Www myfreetaxes com Generally, your filing requirement is based on the total of your (and your spouse's if filing a joint return) personal exemption(s) plus your standard deduction. Www myfreetaxes com Personal exemption. Www myfreetaxes com   When figuring your filing requirement, your personal exemption is allowed in full. Www myfreetaxes com Do not reduce it for this purpose. Www myfreetaxes com Do not include exemptions for your dependents. Www myfreetaxes com Allowable standard deduction. Www myfreetaxes com   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. Www myfreetaxes com Because the standard deduction applies to all types of income, it must be divided between your excluded income and income from other sources. Www myfreetaxes com 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. Www myfreetaxes com S. Www myfreetaxes com income tax     Gross income from all sources (including excluded possession income)   Example. Www myfreetaxes com Barbara Spruce, a U. Www myfreetaxes com S. Www myfreetaxes com citizen, is single, under 65, and a bona fide resident of American Samoa. Www myfreetaxes com During 2013, she received $20,000 of income from American Samoa sources (qualifies for exclusion) and $8,000 of income from sources outside the possession (subject to U. Www myfreetaxes com S. Www myfreetaxes com income tax). Www myfreetaxes com Her allowable standard deduction for 2013 is figured as follows:   $8,000 $28,000 × $6,100 (regular standard deduction) = $1,743   Adjusted filing requirement. Www myfreetaxes com   Figure your adjusted filing requirement by adding the amount of your allowable standard deduction to the amount of your personal exemption. Www myfreetaxes com You must file a U. Www myfreetaxes com S. Www myfreetaxes com income tax return if your gross income is at least the amount shown on line 3 of the following worksheet. Www myfreetaxes com    1. Www myfreetaxes com Enter the allowable standard deduction you figured earlier under Allowable standard deduction . Www myfreetaxes com If your filing status is married filing separately, enter -0-   2. Www myfreetaxes com Personal exemption. Www myfreetaxes com If your filing status is married filing jointly, enter $7,800; if someone can claim you as a dependent, enter -0-; otherwise, enter $3,900   3. Www myfreetaxes com Add lines 1 and 2. Www myfreetaxes com You must file a U. Www myfreetaxes com S. Www myfreetaxes com income tax return if your gross income from sources outside the relevant possession is at least this amount   Table 4-1. Www myfreetaxes com 2013 Filing Requirements Chart for Most Taxpayers IF your filing status is. Www myfreetaxes com . Www myfreetaxes com . Www myfreetaxes com AND at the end of 2013 you were*. Www myfreetaxes com . Www myfreetaxes com . Www myfreetaxes com THEN file a return if your gross income** was at least. Www myfreetaxes com . Www myfreetaxes com . Www myfreetaxes com single under 65 $10,000 65 or older $11,500 married filing jointly*** under 65 (both spouses) $20,000 65 or older (one spouse) $21,200 65 or older (both spouses) $22,400 married filing separately any age $3,900 head of household under 65 $12,850 65 or older $14,350 qualifying widow(er)  with dependent child under 65 $16,100 65 or older $17,300 * If you were born on January 1, 1949, you are considered to be age 65 at the end of 2013. Www myfreetaxes com ** 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 can exclude part or all of it). Www myfreetaxes com Do not include social security benefits unless (a) you are married filing a separate return and you lived with your spouse at any time during 2013, or (b) one-half of your social security benefits plus your other gross income is more than $25,000 ($32,000 if married filing jointly). Www myfreetaxes com If (a) or (b) applies, see the instructions for Form 1040 or Publication 915, Social Security and Equivalent Railroad Retirement Benefits, to figure the taxable part of social security benefits you must include in gross income. Www myfreetaxes com *** If you did not live with your spouse at the end of 2013 (or on the date your spouse died) and your gross income was at least $3,900 you must file a return regardless of your age. Www myfreetaxes com Example 1. Www myfreetaxes com James and Joan Thompson, one over 65, are U. Www myfreetaxes com S. Www myfreetaxes com citizens and bona fide residents of Puerto Rico during the entire tax year. Www myfreetaxes com They file a joint income tax return. Www myfreetaxes com During 2013, they received $35,000 of income from Puerto Rico sources (qualifies for exclusion) and $6,000 of income from sources outside Puerto Rico (subject to U. Www myfreetaxes com S. Www myfreetaxes com income tax). Www myfreetaxes com Their allowable standard deduction for 2013 is figured as follows:   $6,000 $41,000 × $13,400 ( standard deduction for 65 or older (one spouse) ) = $1,961   The Thompsons do not have to file a U. Www myfreetaxes com S. Www myfreetaxes com income tax return because their gross income subject to U. Www myfreetaxes com S. Www myfreetaxes com tax ($6,000) is less than their allowable standard deduction plus their personal exemptions ($1,961+ $7,800= $9,761). Www myfreetaxes com Example 2. Www myfreetaxes com Barbara Spruce (see Example under Allowable standard deduction, earlier), however, must file a U. Www myfreetaxes com S. Www myfreetaxes com income tax return because her gross income subject to U. Www myfreetaxes com S. Www myfreetaxes com tax ($8,000) is more than her allowable standard deduction plus her personal exemption ($1,743 + $3,900 = $5,643). Www myfreetaxes com If you must file a U. Www myfreetaxes com S. Www myfreetaxes com income tax return, you may be able to file a paperless return using IRS e-file. Www myfreetaxes com See your form instructions or visit our website at IRS. Www myfreetaxes com gov. Www myfreetaxes com When To File If you file on a calendar year basis, the due date for filing your U. Www myfreetaxes com S. Www myfreetaxes com income tax return is April 15 following the end of your tax year. Www myfreetaxes com 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. Www myfreetaxes com If any due date falls on a Saturday, Sunday, or legal holiday, your tax return is due on the next business day. Www myfreetaxes com For your 2013 tax return, the due date is April 15, 2014. Www myfreetaxes com 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. Www myfreetaxes com 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. Www myfreetaxes com See your form instructions for a list of designated private delivery services. Www myfreetaxes com Extension of Time To File You can get an extension of time to file your U. Www myfreetaxes com S. Www myfreetaxes com income tax return. Www myfreetaxes com Special rules apply for those living outside the United States. Www myfreetaxes com Automatic 6-Month Extension If you cannot file your 2013 return by the due date, you can get an automatic 6-month extension of time to file. Www myfreetaxes com Example. Www myfreetaxes com If your return must be filed by April 15, 2014, you will have until October 15, 2014, to file. Www myfreetaxes com 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. Www myfreetaxes com 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. Www myfreetaxes com You may also be charged penalties (see the Instructions for Form 4868). Www myfreetaxes com How to get the automatic extension. Www myfreetaxes com   You can get the automatic 6-month extension if you do one of the following by the due date for filing your return. Www myfreetaxes com E-file Form 4868 using your personal computer or a tax professional. Www myfreetaxes com E-file and pay by credit or debit card. Www myfreetaxes com Your payment must be at least $1. Www myfreetaxes com You may pay by phone or over the Internet. Www myfreetaxes com Do not file Form 4868. Www myfreetaxes com File a paper Form 4868. Www myfreetaxes com If you are a fiscal year taxpayer, you must file a paper Form 4868. Www myfreetaxes com See Form 4868 for information on getting an extension using these options. Www myfreetaxes com When to file. Www myfreetaxes com   You must request the automatic extension by the due date for your return. Www myfreetaxes com You can file your return any time before the 6-month extension period ends. Www myfreetaxes com When you file your return. Www myfreetaxes com   Enter any payment you made related to the extension of time to file on Form 1040, line 68. Www myfreetaxes com If you file Form 1040A, U. Www myfreetaxes com S. Www myfreetaxes com Individual Income Tax Return, or Form 1040EZ, Income Tax Return for Single and Joint Filers With No Dependents, include that payment in your total payments on Form 1040A, line 41, or Form 1040EZ, line 9. Www myfreetaxes com Also enter “Form 4868” and the amount paid in the space to the left of the entry space for line 41 or line 9. Www myfreetaxes com You cannot ask the Internal Revenue Service to figure your tax if you use the extension of time to file. Www myfreetaxes com Individuals Outside the United States and Puerto Rico You are allowed an automatic 2-month extension (until June 16, 2014, if you use the calendar year) to file your 2013 return and pay any federal income tax due if: You are a U. Www myfreetaxes com S. Www myfreetaxes com citizen or resident, and On the due date of your return: 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 You are in military or naval service on duty outside the United States and Puerto Rico. Www myfreetaxes com However, if you pay the tax due after the regular due date (generally April 15), interest will be charged from April 15 until the date the tax is paid. Www myfreetaxes com If you serve in a combat zone or qualified hazardous duty area, you may be eligible for a longer extension of time to file. Www myfreetaxes com For more information, see Publication 3, Armed Forces' Tax Guide. Www myfreetaxes com Married taxpayers. Www myfreetaxes com   If you file a joint return, only one spouse has to qualify for this automatic extension. Www myfreetaxes com However, if you and your spouse file separate returns, this automatic extension applies only to the spouse who qualifies. Www myfreetaxes com How to get the extension. Www myfreetaxes com   To use this special automatic extension, you must attach a statement to your return explaining what situation qualified you for the extension. Www myfreetaxes com (See the situations listed under (2), earlier. Www myfreetaxes com ) Extension beyond 2 months. Www myfreetaxes com   If you cannot file your 2013 return within the automatic 2-month extension period, you can get an additional 4-month extension, for a total of 6 months. Www myfreetaxes com File Form 4868 by the end of the automatic extension period (June 16, 2014 for calendar year taxpayers). Www myfreetaxes com Be sure to check the box on Form 4868, line 8, if appropriate. Www myfreetaxes com   In addition to this 6-month extension, taxpayers who are out of the country (as defined under (2) earlier) can request a discretionary 2-month additional extension of time to file their returns (to December 15 for calendar year taxpayers). Www myfreetaxes com   To request this extension, you must send the IRS a letter explaining the reasons why you need the additional 2 months. Www myfreetaxes com Send the letter by the extended due date (October 15 for calendar year taxpayers) to:  Department of the Treasury Internal Revenue Service Austin, TX 73301-0215 USA   You will not receive any notification from the IRS unless your request is denied for being untimely. Www myfreetaxes com Where To File Use the addresses listed below if you have to file Form 1040 with the United States and you are excluding possession income from American Samoa or Puerto Rico. Www myfreetaxes com If you are not including a check or a money order, send your U. Www myfreetaxes com S. Www myfreetaxes com tax return and all attachments to:   Department of the Treasury Internal Revenue Service Austin, TX 73301-0215 USA If you are including a check or a money order, send your U. Www myfreetaxes com S. Www myfreetaxes com tax return and all attachments to:  Internal Revenue Service P. Www myfreetaxes com O. Www myfreetaxes com Box 1303 Charlotte, NC 28201-1303 USA Also send your U. Www myfreetaxes com S. Www myfreetaxes com return to these addresses if you are attaching Form 5074 or Form 8689. Www myfreetaxes com If you are not in either of the above categories, send your return to the address shown in the Form 1040 instructions for the possession or state in which you reside. Www myfreetaxes com Special Rules for Completing Your U. Www myfreetaxes com S. Www myfreetaxes com Tax Return If you are not excluding possession income from your U. Www myfreetaxes com S. Www myfreetaxes com tax return, follow the instructions for the specific forms you file. Www myfreetaxes com However, you may not qualify to claim the earned income credit (EIC). Www myfreetaxes com Earned income credit. Www myfreetaxes com   Even if you maintain a household in one of the possessions discussed in this publication that is your main home and the home of your qualifying child, you cannot claim the earned income credit on your U. Www myfreetaxes com S. Www myfreetaxes com tax return. Www myfreetaxes com This credit is available only if you maintain the household in the United States or you are serving on extended active duty in the U. Www myfreetaxes com S. Www myfreetaxes com Armed Forces. Www myfreetaxes com U. Www myfreetaxes com S. Www myfreetaxes com Armed Forces. Www myfreetaxes com   U. Www myfreetaxes com S. Www myfreetaxes com military personnel stationed outside the United States on extended active duty are considered to live in the United States during that duty period for purposes of the EIC. Www myfreetaxes com Extended active duty means you are called or ordered to duty for an indefinite period or for a period of more than 90 days. Www myfreetaxes com Once you begin serving your extended active duty, you are still considered to have been on extended active duty even if you do not serve more than 90 days. Www myfreetaxes com Income from American Samoa or Puerto Rico excluded. Www myfreetaxes com   You will not be allowed to take deductions and credits that apply to the excluded income. Www myfreetaxes com The additional information you need follows. Www myfreetaxes com Deductions if Possession Income Is Excluded Deductions that specifically apply to your excluded possession income, such as employee business expenses, are not allowable on your U. Www myfreetaxes com S. Www myfreetaxes com income tax return. Www myfreetaxes com 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. Www myfreetaxes com S. Www myfreetaxes com tax return. Www myfreetaxes com 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). Www myfreetaxes com Figuring the deduction. Www myfreetaxes com   To find the part of a deduction that is allowable, multiply the deduction by the following fraction. Www myfreetaxes com   Gross income subject to U. Www myfreetaxes com S. Www myfreetaxes com income 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). Www myfreetaxes com Moving expense deduction. Www myfreetaxes com   Generally, expenses of a move to a possession are directly attributable to wages, salaries, and other earned income from that possession. Www myfreetaxes com Likewise, the expenses of a move back to the United States are generally attributable to U. Www myfreetaxes com S. Www myfreetaxes com earned income. Www myfreetaxes com   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. Www myfreetaxes com S. Www myfreetaxes com tax return. Www myfreetaxes com For more information, see Moving expense deduction in chapter 3 under the name of the relevant possession. Www myfreetaxes com   If you are claiming expenses for a move from a U. Www myfreetaxes com S. Www myfreetaxes com possession to the United States, use Form 3903 to figure your deductible expenses and enter the amount on Form 1040, line 26. Www myfreetaxes com For purposes of deducting moving expenses, the possessions are considered part of the United States. Www myfreetaxes com See Publication 521, Moving Expenses, for information about what expenses are deductible. Www myfreetaxes com Self-employment tax deduction. Www myfreetaxes com   Generally, if you are reporting self-employment income on your U. Www myfreetaxes com S. Www myfreetaxes com return, you can include the deductible part of your self-employment tax on Form 1040, line 27. Www myfreetaxes com This is an income tax deduction only; it is not a deduction in figuring net earnings from self-employment (for self-employment tax). Www myfreetaxes com   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. Www myfreetaxes com   If only part of your self-employment income is excluded, the part of the deduction that is based on the nonexcluded income is allowed. Www myfreetaxes com This would happen if, for instance, you have two businesses and only the income from one of them is excludable. Www myfreetaxes com   For purposes of the deduction only, figure the self-employment tax on the nonexcluded income by multiplying your total self-employment tax (from Schedule SE (Form 1040)), Self-Employment Tax) by the following fraction. Www myfreetaxes com   Self-employment income subject to U. Www myfreetaxes com S. Www myfreetaxes com income tax     Total self-employment income (including excluded possession income)   The result is your self-employment tax on nonexcluded income. Www myfreetaxes com Include the deductible part of this amount on Form 1040, line 27. Www myfreetaxes com Individual retirement arrangement (IRA) deduction. Www myfreetaxes com   Do not take excluded income into account when figuring your deductible IRA contribution. Www myfreetaxes com Standard Deduction The standard deduction is composed of the regular standard deduction amount and the additional standard deduction for taxpayers who are blind or age 65 or over. Www myfreetaxes com To find the amount you can claim on Form 1040, line 40, first figure your full standard deduction according to the Instructions for Form 1040. Www myfreetaxes com Then multiply your full standard deduction by the following fraction. Www myfreetaxes com   Gross income subject to U. Www myfreetaxes com S. Www myfreetaxes com income tax     Gross income from all sources (including excluded possession income)   In the space above line 40, enter “Standard deduction modified due to income excluded under section 931 (if American Samoa) or section 933 (if Puerto Rico). Www myfreetaxes com ” This calculation may not be the same as the one you used to determine if you need to file a U. Www myfreetaxes com S. Www myfreetaxes com tax return. Www myfreetaxes com Itemized Deductions Most itemized deductions do not apply to a particular type of income. Www myfreetaxes com However, itemized deductions can be divided into three categories. Www myfreetaxes com Those that apply specifically to excluded income, such as employee business expenses, are not deductible. Www myfreetaxes com Those that apply specifically to income subject to U. Www myfreetaxes com S. Www myfreetaxes com income tax, which might also be employee business expenses, are fully allowable under the Instructions for Schedule A (Form 1040), Itemized Deductions. Www myfreetaxes com Those that do not apply to specific income must be allocated between your gross income subject to U. Www myfreetaxes com S. Www myfreetaxes com income tax and your total gross income from all sources. Www myfreetaxes com The example given later shows how to figure the deductible part of each type of expense that is not related to specific income. Www myfreetaxes com Example. Www myfreetaxes com In 2013, you and your spouse are both under 65 and U. Www myfreetaxes com S. Www myfreetaxes com citizens who are bona fide residents of Puerto Rico during the entire tax year. Www myfreetaxes com You file a joint income tax return. Www myfreetaxes com During 2013, you earned $20,000 from Puerto Rican sources (excluded from U. Www myfreetaxes com S. Www myfreetaxes com gross income) and your spouse earned $60,000 from the U. Www myfreetaxes com S. Www myfreetaxes com Government. Www myfreetaxes com You have $16,000 of itemized deductions that do not apply to any specific type of income. Www myfreetaxes com 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). Www myfreetaxes com You determine the amount of each deduction that you can claim on your Schedule A (Form 1040), Itemized Deductions, by multiplying the deduction by the fraction shown under Figuring the deduction , earlier under Deductions if Possession Income is Excluded. Www myfreetaxes com   Medical Expenses   $60,000$80,000 × $4,000 = $3,000  (enter on line 1  of Schedule A)     Real Estate Taxes   $60,000$80,000 × $5,000 = $3,750  (enter on line 6  of Schedule A)     Home Mortgage Interest   $60,000$80,000 × $6,000 = $4,500  (enter on line 10 or 11 of  Schedule A)     Charitable Contributions (cash contributions)   $60,000$80,000 × $1,000 = $750  (enter on line 16 of Schedule A)   Enter on Schedule A (Form 1040) only the allowable portion of each deduction. Www myfreetaxes com Overall limitation on itemized deductions. Www myfreetaxes com   If your adjusted gross income (discussed earlier) is over $300,000 if married filing jointly or qualifying widow(er); $275,000 if head of household; $250,000 if single; or $150,000 if married filing separately; see the Itemized Deductions Worksheet in the Instructions for Schedule A (Form 1040), to figure your itemized deductions. Www myfreetaxes com Personal Exemptions Personal exemptions are allowed in full even if excluding possession income. Www myfreetaxes com However, depending upon your adjusted gross income and filing status, the amount you can deduct may be reduced. Www myfreetaxes com See the Deduction for Exemptions Worksheet—Line 42 in the instructions for Form 1040. Www myfreetaxes com Foreign Tax Credit if Possession Income Is Excluded If you must report American Samoa or Puerto Rico source income on your U. Www myfreetaxes com S. Www myfreetaxes com tax return, you can claim a foreign tax credit for income taxes paid to the possession on that income. Www myfreetaxes com However, you cannot claim a foreign tax credit for taxes paid on possession income that is excluded on your U. Www myfreetaxes com S. Www myfreetaxes com tax return. Www myfreetaxes com The foreign tax credit is generally figured on Form 1116. Www myfreetaxes com If you have income, such as U. Www myfreetaxes com S. Www myfreetaxes com Government wages, that is not excludable, and you also have possession source income that is excludable, you must figure the credit by reducing your foreign taxes paid or accrued by the taxes based on the excluded income. Www myfreetaxes com You make this reduction for each separate income category. Www myfreetaxes com To find the amount of this reduction, use the following formula for each income category. Www myfreetaxes com Excluded income from possession sources less deductible expenses based on that income x Tax paid or accrued to the possession = Reduction in foreign taxes Total income subject to possession tax less deductible expenses based on that income Enter the amount of the reduction on Form 1116, line 12. Www myfreetaxes com For more information on the foreign tax credit, see Publication 514. Www myfreetaxes com Example. Www myfreetaxes com Jason and Lynn Reddy are U. Www myfreetaxes com S. Www myfreetaxes com citizens who were bona fide residents of Puerto Rico during all of 2013. Www myfreetaxes com They file a joint tax return. Www myfreetaxes com The following table shows their excludable and taxable income for U. Www myfreetaxes com S. Www myfreetaxes com federal income tax purposes. Www myfreetaxes com   Taxable   Excludable Jason's wages from  U. Www myfreetaxes com S. Www myfreetaxes com Government $25,000     Lynn's wages from Puerto Rico  corp. Www myfreetaxes com     $15,000 Dividend from Puerto Rico corp. Www myfreetaxes com doing business in Puerto Rico     200 Dividend from U. Www myfreetaxes com S. Www myfreetaxes com  corp. Www myfreetaxes com doing business  in U. Www myfreetaxes com S. Www myfreetaxes com * 1,000     Totals $26,000   $15,200 * Income from sources outside Puerto Rico is taxable. Www myfreetaxes com   Jason and Lynn must file 2013 income tax returns with both Puerto Rico and the United States. Www myfreetaxes com They have gross income of $26,000 for U. Www myfreetaxes com S. Www myfreetaxes com tax purposes. Www myfreetaxes com They paid taxes to Puerto Rico of $4,000 ($3,980 on their wages and $20 on the dividend from the Puerto Rico corporation). Www myfreetaxes com They figure their foreign tax credit on two Forms 1116, which they must attach to their U. Www myfreetaxes com S. Www myfreetaxes com return. Www myfreetaxes com They fill out one Form 1116 for wages and one Form 1116 for the dividend. Www myfreetaxes com Jason and Lynn figure the Puerto Rico taxes on excluded income as follows. Www myfreetaxes com   Wages: ($15,000 ÷ $40,000) × $3,980 = $1,493   Dividend: ($200 ÷ $200) × $20 = $20 They enter $1,493 on Form 1116, line 12, for wages and $20 on the second Form 1116, line 12, for the dividend. Www myfreetaxes com Self-Employment Tax Self-employment tax includes both social security and Medicare taxes for individuals who are self-employed. Www myfreetaxes com A U. Www myfreetaxes com S. Www myfreetaxes com citizen or resident alien who is self-employed must pay self-employment tax on net self-employment earnings of $400 or more. Www myfreetaxes com This rule applies whether or not the earnings are excludable from gross income (or whether or not a U. Www myfreetaxes com S. Www myfreetaxes com income tax return must otherwise be filed). Www myfreetaxes com Bona fide residents of the possessions discussed in this publication are considered U. Www myfreetaxes com S. Www myfreetaxes com residents for this purpose and are subject to the self-employment tax. Www myfreetaxes com Forms to file. Www myfreetaxes com   If you have net self-employment income and are subject to self-employment tax, file one of the following with the United States. Www myfreetaxes com If you are required to file Form 1040 with the United States, complete Schedule SE (Form 1040) and attach it to your Form 1040. Www myfreetaxes com If you are not required to file Form 1040 with the United States and you are a bona fide resident of American Samoa, the CNMI, Guam, Puerto Rico, or the USVI, file Form 1040-SS. Www myfreetaxes com If you are a resident of Puerto Rico, you can file the Spanish-language Form 1040-PR instead. Www myfreetaxes com Do not file forms 1040-SS or 1040-PR with Form 1040. Www myfreetaxes com If you are required to pay Additional Medicare Tax (discussed later) on your self-employment income, attach Form 8959, Additional Medicare Tax to Form 1040, Form 1040-SS, or Form 1040-PR, as applicable. Www myfreetaxes com Chapter 11 Bankruptcy cases. Www myfreetaxes com   While you are a debtor in a chapter 11 bankruptcy case, your net profit or loss from self-employment will be included on the income tax return (Form 1041, U. Www myfreetaxes com S. Www myfreetaxes com Income Tax Return for Estates and Trusts) of the bankruptcy estate. Www myfreetaxes com However, you—not the bankruptcy estate—are responsible for paying self-employment tax on your net earnings from self-employment. Www myfreetaxes com   Use Schedule SE (Form 1040), Form 1040-SS, or Form 1040-PR, as determined above, to figure your correct amount of self-employment tax. Www myfreetaxes com   For other reporting requirements, see Chapter 11 Bankruptcy Cases in the Instructions for Form 1040. Www myfreetaxes com Additional Medicare Tax Beginning in 2013, a 0. Www myfreetaxes com 9% Additional Medicare Tax applies to Medicare wages, railroad retirement (RRTA) compensation, and self-employment income that are more than: $125,000 if married filing separately, $250,000 if married filing jointly, or $200,000 if single, head of household, or qualifying widow(er). Www myfreetaxes com Medicare wages and self-employment income are combined to determine if income exceeds the threshold. Www myfreetaxes com A self-employment loss should not be considered for purposes of this tax. Www myfreetaxes com RRTA compensation should be separately compared to the threshold. Www myfreetaxes com Your employer is responsible for withholding the 0. Www myfreetaxes com 9% Additional Medicare Tax on Medicare wages or RRTA compensation it pays to you in excess of $200,000. Www myfreetaxes com You should consider this withholding, if applicable, in determining whether you need to make estimated tax payments. Www myfreetaxes com There are no special rules for U. Www myfreetaxes com S. Www myfreetaxes com citizens and nonresident aliens living abroad for purposes of this provision. Www myfreetaxes com Wages, RRTA compensation, and self-employment income that are subject to Medicare tax will also be subject to Additional Medicare Tax if in excess of the applicable threshold. Www myfreetaxes com For more information, see Form 8959, Additional Medicare Tax, and its instructions or visit www. Www myfreetaxes com irs. Www myfreetaxes com gov and enter the following words in the search box: Additional Medicare Tax. Www myfreetaxes com You cannot include the Additional Medicare Tax as a deductible part of your self-employment tax. Www myfreetaxes com Net Investment Income Tax Beginning in 2013, the Net Investment Income Tax (NIIT) imposes a 3. Www myfreetaxes com 8% tax on the lesser of an individual’s net investment income or the excess of the individual’s modified adjusted gross income over a specified threshold amount. Www myfreetaxes com Bona fide residents of Puerto Rico and American Samoa who may have a federal income tax return filing obligation may be liable for the NIIT if the taxpayer’s modified adjusted gross income from non-territory sources exceeds a specified threshold amount. Www myfreetaxes com The NIIT does not apply to any individual who is a nonresident alien with respect to the United States. Www myfreetaxes com Bona fide residents must take into account any additional tax liability associated with the NIIT when calculating your estimated tax payments. Www myfreetaxes com Forms to file. Www myfreetaxes com   If you are a bona fide resident of American Samoa and Puerto Rico and you are required to pay the NIIT, you must file Form 1040 with the United States and attach Form 8960, Net Investment Income Tax—Individuals, Estates, and Trusts. Www myfreetaxes com For more information, see Form 8960 and its instructions. Www myfreetaxes com Paying Your Taxes You may find that not all of your income tax has been paid through withholding by either the United States or the possession. Www myfreetaxes com This is often true if you have income that is not subject to withholding, such as self-employment, interest, or rental income. Www myfreetaxes com In this situation, you may need to make estimated tax payments. Www myfreetaxes com Estimated Tax If your estimated income tax obligation is to the United States, use the worksheet in the Form 1040-ES package to figure your estimated tax, including self-employment tax. Www myfreetaxes com Include the Additional Medicare Tax and Net Investment Income Tax if applicable. Www myfreetaxes com If you are paying by check or money order, use the payment vouchers in the Form 1040-ES package. Www myfreetaxes com Or, you can make your payments electronically and not have to file any paper forms. Www myfreetaxes com See the Form 1040-ES instructions for information on making payments. Www myfreetaxes com Double Taxation Mutual agreement procedures exist to settle issues where there is inconsistent tax treatment between the IRS and the taxing authorities of the following possessions. Www myfreetaxes com American Samoa. Www myfreetaxes com The Commonwealth of Puerto Rico. Www myfreetaxes com The Commonwealth of the Northern Mariana Islands. Www myfreetaxes com Guam. Www myfreetaxes com The U. Www myfreetaxes com S. Www myfreetaxes com Virgin Islands. Www myfreetaxes com 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. Www myfreetaxes com Competent Authority Assistance The tax coordination agreements between the United States and the possession tax departments contain provisions allowing the competent authorities of the United States and the relevant possession to resolve, by mutual agreement, inconsistent tax treatment by the two jurisdictions. Www myfreetaxes com How to make your request. Www myfreetaxes com   Your request for competent authority assistance must include all the information listed in Revenue Procedure 2006-23, 2006-20 I. Www myfreetaxes com R. Www myfreetaxes com B. Www myfreetaxes com 900 available at www. Www myfreetaxes com irs. Www myfreetaxes com gov/pub/irs-irbs/irb06-49. Www myfreetaxes com pdf. Www myfreetaxes com    Also, see Notice 2013-78, which provides proposed updates to the procedures for requesting U. Www myfreetaxes com S. Www myfreetaxes com competent authority assistance under tax treaties. Www myfreetaxes com As noted, an update to Revenue Procedure 2006-23 will be published in the future. Www myfreetaxes com   Your request must be in the form of a letter addressed to the Deputy Commissioner (International) LB&I. Www myfreetaxes com It must contain a statement that competent authority assistance is requested under the mutual agreement procedure with the possession. Www myfreetaxes com You (or a person having authority to sign your federal return) must sign and date the request. Www myfreetaxes com    Send your written request for U. Www myfreetaxes com S. Www myfreetaxes com assistance under this procedure to:   Deputy Commissioner (International) Large Business and International Division Internal Revenue Service 1111 Constitution Avenue, N. Www myfreetaxes com W. Www myfreetaxes com  Routing: M4-365 Washington, DC 20224 (Attention: TAIT) Nonresident aliens generally must present their initial request for assistance to the relevant possession tax agency. Www myfreetaxes com Credit or Refund In addition to the tax assistance request, if you seek a credit or refund of any overpayment of U. Www myfreetaxes com S. Www myfreetaxes com tax paid on the income in question, you should file a claim on Form 1040X, Amended U. Www myfreetaxes com S. Www myfreetaxes com Individual Income Tax Return. Www myfreetaxes com Indicate on the form that a request for assistance under the mutual agreement procedure with the possession has been filed. Www myfreetaxes com Attach a copy of the request to the form. Www myfreetaxes com Also, you should take whatever steps must be taken under the possession tax code to prevent the expiration of the statutory period for filing a claim for credit or refund of a possession tax. Www myfreetaxes com See Revenue Procedure 2006-54 (or its successor), section 9, for complete information. Www myfreetaxes com Prev  Up  Next   Home   More Online Publications