USA Double taxation


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Hi,

I've been living in Spain for the last 20 years where I worked and had a family. I've no work or business relationship with US, just visiting family and friends every so often. The other day, I found out that as a US citizen (I've double citizenship) I've the legal obligation to report my annual income to the IRS.
Is this correct? If so, doesn't it go against the double taxation that both countries have signed?

TIA
 
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If you are a U S citizen you are required to report all taxable income to the U S government.
THEN - on the tax return you are able to claim a foreign tax credit on Form 1116 for the taxes you
paid to another country on the same income.
 
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If you are a U S citizen you are required to report all taxable income to the U S government.
THEN - on the tax return you are able to claim a foreign tax credit on Form 1116 for the taxes you
paid to another country on the same income.
Thank you!
While searching and reading on Form 1116, I found Form 2555 which deals also with foreign income. Would I need to file that too?
 
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If you meet either the physical presence or bona fide residence test, then you qualify for Form 2555.
Just be certain that your occasional visits to the U. S. don't exceed the time limits, otherwise you
won't qualify.
 
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If you meet either the physical presence or bona fide residence test, then you qualify for Form 2555.
Just be certain that your occasional visits to the U. S. don't exceed the time limits, otherwise you
won't qualify.
Thank you!
 
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In response to ebolisa,
As US citizen living in a foreign country you have the filing obligations as have been responded to you.

There are several things that you need to be aware of, and my advice would be to consult a tax professional who deals with international issues (I fix a lot of tax returns and bring people in compliance after they have either attempted to do it themselves or hired someone who is not familiar with the international implications, so I can't stress enough to consult with someone in the know). If you have pension plans or investments in foreign (not US brokerage) mutual funds the complexities of the forms (PFIC) to be filed need specialized tax professional.

You have to file US tax return, on the return you have to report your worldwide income, since you are a citizen of Spain and have a family and life there, you would qualify for bona fide residence test, and will be able to exclude the income (up to a certain amount) on form 2555.

You have 2 options, one is to exclude your foreign income F 2555, (the tax on that income) but you might lose some credits, or you might take the foreign tax credit F 1116, meaning that after US calculates tax on the foreign income (Spain income), you will show how much tax you paid to Spain on that same income and it will reduce the tax in US but only on the foreign income. You need to know also that there are different rules for incomes you work for and the income that is passive for the foreign tax credit.

Second thing you need to be aware is the FATCA and FBAR regulations, this is one of the biggest reasons you need to talk to some one who knows the regulations, since the penalties are extremely large, $10,000 per form or account is not out of the ordinary, and this is the smallest number, you have to report your overseas (for US) assets and bank accounts even the ones you own with a non-US spouse for example, or just have signature authority but money is not yours.
Since you have not filed tax returns, there are no statutes that are running, meaning that even after your death, you can not escape tax filings with US.

Because you are outside of the US you can apply for the 2 month extension, your due date is 15 June not 15 April, as long as you are still in Spain and not in US.
Good luck,
Yuliya Harvey, EA, CAA, NTPI Fellow
 
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Because you are outside of the US you can apply for the 2 month extension, your due date is 15 June not 15 April, as long as you are still in Spain and not in US.
Good luck,
Yuliya Harvey, EA, CAA, NTPI Fellow
Thank you very much for the detailed information!!

I found out that there're IRS licenced/approved agents in Spain so I'll contact with one of them and normalize my status with the IRS.
 
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You are most welcome :)
Have an amazing rest of the week.
 

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