Don't know where/how to begin to file taxes living in Spain. Help please!

[TBG07]

Hello everyone. A bit of background info. I'm a US citizen from Texas (no state taxes) and I've been living in Spain since 2014 as an active duty member but retired last year in Feb 2019. I applied for a Spanish (non-lucrative) visa shortly after I retired and travelled back to the US several times but no longer than 183 days to visit family and apply for the Spanish visa. I purchased a Spanish property in March of 2018 before I retired while I was living in Spain (I had already full intentions to retire in Spain) and am now getting to the point where I must officially claim myself as a Spanish resident and (I suppose) claim this property and myself in both the US and Spain for worldwide tax purposes. Since after filing my taxes in 2019 I'm now considered a Spanish resident (living in Spain for over 183 days) on my second visa (since my first visa expired June 2020). The only "income" I receive is from my retirement pay which is sufficient enough to financially support myself and meet the requirements for a Spanish visa while living overseas. 

My confusion is what forms do I have to file (both US and Spanish) in the upcoming 2021 filing year and what all should I expect to be taxed, property, retirement pay, Spanish community/region taxes, etc.  I also read I might be eligible for tax exemptions and/or reimbursement for taxes I'll have paid to the Spanish tax system after I file my taxes in 2021. 

Any information would be greatly appreciated.

Thank you

[pk]

@TBG07  first the non-country specific  portion ---- ( a ) as an expat,  you will file  form 1040 as normal  , you may also  need to file a form 2555 ( establishing foreign  tax home ) and thus be able to exclude your foreign earnings from US taxes  ( up to an yearly limit );  (b) you will still be able to claim all the benefits  ( credits / deductions etc.) just as if you were residing in US of A; (c) as a citizen you do not have to visit the USA once a year  but you cannot  be in the USA ( for any purposes) for more than 30 days out of a 12 month   test period  to comply with the Physical Presence test ( form 2555) in order to preserve eligibility of excluding  foreign earned income. Since you have been abroad since 2014 and never had to file form 2555,  and exclude your income, this may be new to you -- for any earned/self-employed income  from here onwards .  You did not have to file form 2555 because your employer was US govt. -- it was not foreign income.

 Now for the country specific part ----   generally he tax treaties between USA and  your resident country would exclude  that country  from taxing  US govt. paid  pension.  Also social security from the USA may come under a totalization agreement.  Suggest you read up  the  tax treaty --- >  https://www.irs.gov/pub/irs-trty/spain.pdf

 and   https://www.treasury.gov/resource-center/tax-policy/treaties/Documents/Treaty-Protocol-Spain-1-14-20....

Hope this helps.  Is there more I can do for you ?

[TBG07]

Thank you @pk  for this info! I will take some time to review and digest the information you've provided. No other questions at the moment. It's a lot to take in since it will be my first entire year to officially file as a Spanish visa holder/resident. I didn't know about visiting in the US for over 30 days, I will surely keep that in mind as I plan future trips.  

[Opus 17]

Generally speaking, if you are a US person (citizen, green card holder, or resident alien) you must file a US income tax return that reports all your world-wide income and pays US tax, no matter where you actually live.  This is tricky to do with Turbotax since it is officially limited to US residents.   One way is to have someone in the US buy you a copy of the desktop program on CD to ship to you to install on your own computer.  You can also buy the desktop version as a download as long as you have a US credit card with a US billing address.  You may be able to use Turbotax Online but you will need a US credit card with a US billing address.  If you are expecting a refund, the IRS will only do direct deposit to a US bank account, if you don't have one, they will mail a check to whatever address you specify.  

On your US tax return, you can claim a deduction or credit if you also pay foreign income taxes on the same earnings (if Spain taxes your US retirement pay).

You can also claim an exemption from US tax on foreign earned income (income earned from working) if you are overseas at least 11 months.  However, passive or unearned income (such as pension benefits) are not eligible for the exclusion and will always be subject to US income tax. 

https://www.irs.gov/individuals/international-taxpayers/taxpayers-living-abroad

[TBG07]

Thank you both @Opus 17  @pk  I think I understand what you both have mentioned (explained below) but I will continue to seek the advice of a trained tax professional or an international tax preparation office.

Since I have a retirement visa that does not allow me to work while living in Spain and when I've filed my taxes in the past with TurboTax online without issue, I understand that the Physical Presence test only applies to those who work in the location they physically reside. So correct me if I'm wrong, but I believe I can travel to the US for more than 30 days but no longer than 183 out of Spain without worry. My retirement is paid to me by the US government therefore I will continue to file my taxes with the US to claim that pay for tax purposes.  I will than turn around and provide proof to the Spanish Tax office that I only collect this annual pension from the US and that it's exempt from being taxed in Spain. The property I purchased in Spain is the only other concern I will have to consider, since I don't own a home property in the US. 

Thanks again

[Opus 17]

I don't understand where you are getting your numbers.

The "substantial presence test" is only used to determine if an alien (not a citizen or green card holder) is a US person for income taxes.  As a US citizen, you owe the federal government a US tax return reporting all your worldwide income, no matter how many days you live overseas.  

The "physical presence test" is used to determine if you qualify for the foreign earned income exclusion, and you must be physically overseas at least 330 days, not 183 days.  Since you don't have foreign earned income, this is not relevant to you.

Basically, if your only income is a US pension, you must report it on a US tax return and pay US income tax on it, no matter where in the world you live and no matter how many days you live there.  Whether or not you also owe income tax in the country where you are living overseas is not something we can advise you on. 

There might be rules that apply to your Visa, we also can't help you on those. 

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[TBG07]

@Opus 17 Didn't mean to cause any confusion. I just posted these numbers in case someone else was going to chime in on my topic. The reason I posted what I did was because of the (Spanish requirement in my case) Spanish tax law now clearly states that, if a person is in Spain for 183 days in a calendar year, he/she become a Spanish tax resident, and must pay the appropriate Spanish taxes.

According to another member on this site "as a citizen you do not have to visit the USA once a year but you cannot  be in the USA ( for any purposes) for more than 30 days out of a 12 month test period  to comply with the Physical Presence test ( form 2555) in order to preserve eligibility of excluding  foreign earned income.

I'm just trying to make sure I understand as much as I can before I have to file next year.

Thanks again

[Opus 17]

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@TBG07 wrote:

According to another member on this site "as a citizen you do not have to visit the USA once a year but you cannot  be in the USA ( for any purposes) for more than 30 days out of a 12 month test period  to comply with the Physical Presence test ( form 2555) in order to preserve eligibility of excluding  foreign earned income.

The above is correct but read carefully, it applies to the earned income exclusion only.

As a US citizen you must report all your world-wide income on a US tax return.  If you pay foreign taxes, you can take a deduction or credit for those foreign taxes you paid.  If you have foreign earned income, you may be able exclude that income from taxation, which is better than including the income and then taking the deduction or credit.  The 330 day rule and the "physical presence test" apply to the foreign earned income exclusion only. You said you won't have earned income in Spain, so you really should not pay attention to any postings that talk about the foreign earned income exclusion. 

The earned income exclusion does not apply to unearned income (pensions, capital gains, interest and dividends, etc).  That is always subject to US tax and you can take the foreign tax deduction or credit if you paid foreign tax on the same income.