Thanks for mentioning this! I've actually been going back and forth between using the FTC vs FEIE. Spain's tax rates are pretty high, so I think the FTC makes more sense in my case. Plus, I like that I can still use tax-advantaged accounts in the US with the FTC approach, whereas the FEIE can disqualify me from contributing to IRAs, etc. Am I understanding correctly that with FTC, I report all worldwide income, take my standard deduction from that total, and then calculate what portion of my remaining US tax liability is attributable to my foreign income to determine how much foreign tax credit I can claim?

You've got it exactly right. With the FTC approach, you include all income (both US and foreign), subtract your standard deduction from that total, and then calculate your US tax liability on what remains. For Form 1116, you then determine what percentage of your taxable income came from foreign sources, and that's the percentage of your US tax that can be offset by foreign taxes you've paid. Since Spain has higher tax rates than the US in most brackets, your foreign tax credit will likely completely eliminate the US tax on your Spanish income, leaving you only potentially owing something on those US dividends (which the standard deduction will probably cover anyway). And you're right about the retirement account advantages too - using the FTC instead of FEIE allows you to contribute to IRAs and other tax-advantaged accounts, which is a significant benefit for long-term planning.

I had this exact issue last year! The problem was that I had entered my foreign taxes in the wrong currency. Make sure you're converting everything to USD using the yearly average exchange rate published by the IRS. Also check that you're allocating expenses properly between your foreign and US income categories on Form 1116.

Do you include things like gas expenses for going to thrift stores and yard sales on this same statement? Or are those tracked separately?

I track those separately as business expenses rather than including them on the sales summary statement. The summary statement is specifically for showing your inventory's cost basis and sales prices. Transportation costs, supplies, platform fees, and other business expenses should definitely be deducted, but they belong in different sections of your tax return. I keep a separate spreadsheet for those business expenses categorized by type (transportation, office supplies, shipping materials, etc.).

This is terrible advice. The IRS absolutely can and does audit small businesses, especially with the new lower 1099-K thresholds. A summary statement needs to show your basis for claiming costs against specific income. If you get audited with just "total sales" and "total costs" with no breakdown, you're asking for trouble.

Did you have to fill out a specific form when you got the IRS letter? My situation sounds similar and I'm worried I might get one of these letters too. Was it difficult to resolve?

I received a CP2000 notice which is basically the IRS saying "we think you made a mistake" rather than a full audit. They calculated what they thought I owed including penalties and interest. I had to fill out a response form agreeing with their assessment (since they were right), and then set up a payment plan since I couldn't afford to pay it all at once. The process wasn't too difficult, but it was stressful and the penalties added about 20% to what I would have owed if I'd just done it correctly the first time.

This is so important! I'm from Canada studying in the US and had to file both US and Canadian tax returns. My university's tax help center couldn't even assist with international student situations. I ended up using Sprintax which specializes in nonresident tax returns.

3 I've heard QuickBooks is expensive though. Are there any free or cheaper alternatives that would work for someone just starting out with one contract?

9 There are definitely more affordable options for beginners. Wave is completely free for basic accounting and receipt tracking. Also check out Stride Tax which is free and designed specifically for tracking expenses and deductions for independent contractors. When you're just starting with one contract, these simpler tools are often enough until your business grows more complex.

1 This is really smart - I never would have thought about separate accounts. Do I need to set up an LLC first or can I just open a business account as myself?

How would you even find out if your state has something like this? My mortgage documents are such a mess and half of them are probably still in boxes from when we moved two years ago.

You can usually find this information by contacting your state's housing finance agency or whatever agency administers first-time homebuyer programs in your state. Their websites often have information about recapture provisions. In my case, I had used a program called "First Home Illinois" which had its own recapture rules separate from the federal ones. I found all the details by searching the Illinois Housing Development Authority website. Your closing documents should mention if you used any state-specific mortgage assistance programs.

That's super helpful to know! Our income has been all over the place with my promotions and my wife switching jobs multiple times. So if we pay it now but our income drops next year, we could potentially get it refunded? Do you know where I can find more info about this refund form?

Yes, that's exactly right! If your income drops below the threshold amount in the year after sale, you can get a refund. The form isn't widely publicized, but you can find it by searching "IRS Form 8828-R" or "Request for Recapture of Federal Mortgage Subsidy Tax Refund" on the IRS website. You'll need to file your regular return for the year after the sale, then complete this special refund request form and submit it separately. Include documentation of your income for that year and proof that you paid the recapture tax with your previous return. In our case, we got the full amount back about 8 weeks after submitting the request.