Many Americans have made Spain their home either permanently or on a long-term basis. Whether it’s for retirement, a new adventure, or a career change, it’s important that expats understand US and Spanish tax laws to avoid any issues.
US citizen and Green Card holders are required to file taxes with the IRS each year, even when living abroad. However, it’s easy to overlook these filing obligations when living in a foreign country and can be extremely confusing for those who are not familiar with the intricacies of US expat taxation.
If you’re an American citizen in Spain guide to US expats in Spain taxes and are self-employed, it’s critical to understand how your earnings affect your US taxes. You must be aware of your deductions and exemptions and be able to plan accordingly. If you’re not careful, you could miss out on a substantial tax break. Thankfully, MyExpatTaxes can help you navigate the process.
In addition to tax deductions available for Americans in Spain, there are also other forms and filings that should be completed annually. For example, US citizens with foreign accounts need to file FinCEN Form 114 (FBAR). The FBAR is an annual report that lists all of your foreign bank and investment accounts that have total balances over $10,000. The US and Spain share banking information, so the FBAR is an important compliance measure for US expats in Spain. The IRS is strict about penalties for FBAR violations, so it’s best to work with a professional to ensure that you’re filing correctly.
Unlike the US, where property taxes are collected each year and are paid on top of income and social security taxes, in Spain, most taxes are paid upfront in a one-time stamp duty called AJD (Automático de Justificación Fiscal). This is paid to the treasury office at the time that you buy your property. The AJD can be included in the purchase price or added to the mortgage. It’s also possible to exclude some of your AJD payment from your US tax bill, provided that you meet all the requirements for the Expat Housing Exclusion.
The US and Spain have an income tax treaty that helps to prevent double taxation. It establishes rules for which government has the right to tax a particular type of income, based on several factors. This is especially helpful for Americans who live in Spain and earn US income from employment or investments.
There are also tax treaty benefits available for Americans in Spain who receive a US pension or other retirement account distributions. However, it’s critical to consult with a qualified expat tax specialist as these benefits can be difficult to understand and qualify for. Depending on your circumstances, you may need to declare additional assets and income in Spain, including reporting foreign financial accounts on Modelo 720 or wealth tax reporting on Modelo 714. Additionally, many U.S. retirement accounts like IRAs, 401(k)s and 529s are subject to Spanish taxes, while HSAs are generally tax-exempt in the US.