It is critical to know about the basic of your US expat tax preparation before moving abroad. You´ll be better prepared to file a complete and precise expatriate tax return and optimize your tax breaks on your US expat taxes.

We want to share with you 5 fundamental tips regarding US expat tax compliance and planning so you do not get overwhelmed upon arriving to Spain.

What Are The Five Fundamentals Of US Expat Tax:

1. Identify the correct documents to file to get the special tax credit and exclusion breaks on your expatriate tax when filing abroad.
2. Recognize your state of departure! Every state has its own individual regulations
3. Make sure you continue getting your important mail (Keep your address updated with the IRS).
4. Note the filing dates for your US expat taxes.
5. Understand the treatment of US income compared to the treatment of foreign income.

Let´s unpack each of these key basic tips on their own merit:

Tip #1: Every State Jurisdiction Has Its Own Tax Regulations

The first object on your expat tax preparation agenda should be to decide whether you need to dissolve ties with the State that you previously resided in. A few states are more aggressive than others in making it hard for its former residents. These states keep collect taxes from US expatriates even if these expats have been out of the state for years. By determining the practicality of your ties with your former state of residence, you´ll be able to give yourself the best prospect to avoid paying redundant taxes.

Certain states are a lot less favourable to expats than others. Specifically California, South Carolina, Virginia and New Mexico make it quite challenging to cut ties even if you are not leaving in any of these states. Frequently, the expat has the responsibility to prove to the state jurisdiction that (s)he is not planning to return to reside in the state. That is why, in this instance, tax preparation is key and sever physical ties such as mortgages, bills and/or bank accounts before leaving can make the difference between tax efficiency and unnecessary State taxes.

Tip #2: Make Sure to Forward Your US Tax Documents

We find that the best way to receive this info is to consider getting electronic statements for your bank statements, credit cards, mortgages, etc. Also, you should definitely contact 1-888-5OPT OUT (1-888-567-8688). You will be able to confirm with the credit rating bureaus to keep them from selling your details. You do not want credit card offers to clog your mailbox.

You will also need to inform the IRS if you are expecting to change your address in order to receive your mail and correspondence from the IRS. There are a three ways to do this. You can change your address before filing your return, you can just change the address on the mailing label and the IRS will update your records this way. If you change it after you file your taxes, you must notify the post office and send a completed US Federal Form 8822 to the IRS. This will ensure you receive your refund checks. Finally, you may change your address when you file your tax return.

Tip #3:  How to benefit from Special Tax Credits and Exclusions on your Expatriate Tax Return

Let´s get one myth out of the way to start. An American living abroad almost always will need to file US expat taxes even though you are not filing in Spain or whichever jurisdiction you are residing in. There is hence a potential to be tax twice on the same income in the US and Spain (or any tax jurisdiction you reside in).

There are methods available to mitigate that potential double taxation and reduce it a minimum, often to zero.

You get some special tax credits and exclusions on your expatriate tax return to ease the encumbrance. There are two methods that you can use to help save money when filing your US tax return from abroad:

• US Federal Form 2555, Foreign Earned Income Exclusion and
• Form 1116, Foreign Tax Credit.

US Federal Form 2555 (or the Foreign Earned Income Exclusion) essentially protects a large amount of the income (at $99,200 on 2014 and at $100,800 on 2015) that you earned while living in Spain from US taxation. One usual false conclusion is that one needs not to file if income is under the Foreign Earned Income Exclusion. This is completely incorrect assumption. Even if you make less than $99,200 in a year, you will still need to file your US expat taxes for that year.

US Federal Form 1116 (or the Foreign Tax Credit) shields those who are paying income taxes to the Spanish government (or any other foreign government). An important element is that the foreign tax credit comes with a few constraints that you need to acquaint yourself with before you attempt to fill this form. Fundamentally, Form 1116 provides you with a US tax credit for the taxes you paid to a foreign government. You may hate the IRS, but truth is that Uncle Sam is not completely unreasonable. In fact, America recognizes that if you have paid Spain (or any other country) already you will not be able to pay that same money to the US. You need to qualify for residency in the foreign country or be outside the US for 330 days each year in order to claim those foreign tax credits. One warning though: These forms are complex, so you should seriously contemplate professional help to complete them for you.

Tip #4: Understand the Treatment of Your US Income

This tip is particularly important for income other than employment or business income.

For instance, if you have a house rented or if you receive interest and dividends in the US, this will be taxed differently than it would be in Spain (or your foreign country of residence). The Foreign Earned Income Exclusion (filed through Form 2555) counterweighs income for employees who are living overseas and is only for foreign earned income. Consequently, your US based income will still be subject to the identical taxes as it would be if you were living within the US.

One last important note: In addition to filing your US expatriate tax return, it is also paramount that you disclose any offshore bank accounts that you have to the US Treasury each year. If you have over $10,000 USD or the foreign equivalent in one or more foreign accounts, you are required to report this every year. Failure to do so may yield sharp fines starting at $10,000, prosecution or both. You report your foreign bank accounts on Form 90-22-1 FinCEN114. This form is due on June 30^th, and there are no extensions. It is filed separately from your US expat taxes.

Tip #5: Be Informed of The Deadlines

Generally, the deadline to file and pay your taxes is April 15^th (this can differ if the 15^th is a weekend or holiday). However, if you are an American living abroad, the deadlines to file your US expat taxes are extended until the 15^th of June. This automatic extension exist for you manage in case Spain (our any other country of residence) has different filing deadlines and to receive your foreign tax documents to substantiate you claims for the Foreign Earned Income Exclusion or the Foreign Tax Credit. There´s also an additional extension request that can be done to push your filing date to October 15^th by completing Form 4868. Please be reminded you need to submit the form FinCEN 114 (Foreign Bank Account Report or “FBAR”) to the Treasury, it must be received by June 30th each year, and there are no extensions available.

As you can see, there are a lot of expat tax preparation basics that you must study before moving overseas. Expat tax preparation is incredibly important, and you must do due diligence before you leave in order to ensure that you file your US expat taxes correctly and you save as much as possible.

More On Expat Tax Preparation

If you have further questions on expat tax preparation or would like to learn more about our expat tax services, please contact us.