Ah, the dubious pleasures of trying to learn something from the Internet. Didn’t help that I had a 2 spreadsheet errors plus a brain fart. <:-| I’ll try again.
It took a bleep-load of digging to learn enough about Spanish income taxes to post a
meaningful meaningless comparison. I dug some more, verifying from disparate sources. Then I plugged some realistic numbers for income (IRA withdrawal), interest, dividends, capital gains and Social Security into a calculator. I’d owe Uncle Sam about $13,000. No state tax because my domicile is in Florida.
Spanish income tax is simple enough to use a spreadsheet, but the first time I screwed it up anyway. I knew the tax was going to be more from the much higher rates and smaller standard deduction. Also knew the double taxation treaty said I’d owe Spain only the difference between Spanish and US tax laws. That’s
$10,600 $8,000 more. (Lower this time because I correctly excluded Social Security.)
Spain has a wealth tax on worldwide assets. Uh, some autonomous regions have a wealth tax. Pensions (which includes IRAs) are excluded from assets. No wealth tax for me in any foreseeable future.
Only $8,000 more in taxes means I put Spain back in consideration for my next country.
The rest is for tax nerds only. I owe it all to an expat blogger in Spain who apparently knows more about taxes than most. The IRS gives Foreign Tax Credits to US citizens who pay taxes to foreign countries on income sourced there. That does me no good because all my income is sourced in the US. Spain and the US have a treaty to prevent double taxation. It says Spain may tax foreign pensions, which means both the US and Spain tax US pensions of US citizens living in Spain. How did that slip through the treaty? The US either let it or fixed it, because in the instructions for IRS form 1116 – Foreign Tax Credit is:
That turns a US source of income into foreign source income in the eyes of the IRS, qualifying for the foreign tax credit. Of course, there is another IRS form (8833) where one must justify how the foreign country is violating the tax treaty. Pension violations must be common, as 8833 isn’t required for pension based claims. If all this is true, correct and assuming I got it right this time, then my additional income tax cost from living in Spain would be about $400. Woo hoo!