Remember that Spain will give you credit for taxes paid in the US, except for those you pay only because you are a US citizen. If you have received no taxable income from the US, then congratulations, your life is easy and don't read this article.
The correct order of doing things is this:
- Figure out how much you would owe to the US if you were not a US citizen, but a normal non-US person living in Spain. For example, if a Spaniard has a brokerage account in the US, they would file a 1040-NR return using the rules established in the US/Spain tax treaty for how much tax the US gets to keep on US source income. Generally the rules are:
- Salary for work in the US: complicated. Read tax treaty
- US Bank interest: nothing
- Tax exempt dividends in mutual funds: nothing
- Capital gains dividends in mutual funds: nothing
- Ordinary dividends in mutual funds: 15% (no difference between qualified vs non-qualified)
- Make an estimated payment for this amount in the US. Do not file a 1040-NR, you are not allowed to as an American, just file a 1040-ES estimated tax payment. This is important since you cannot take a credit for foreign taxes paid in Spain unless you’ve actually paid them.
- File your Spanish taxes (before June 30), using the taxes you calculated as foreign taxes paid. Note that you do not put this in the "taxes paid" column when you enter your investment income, foreign tax credits come in a separate section near the end.
- Put the calculations in (1) aside and fill out a regular 1040. Use the taxes paid in Spain as a foreign credit on your US taxes.