This is quite a complicated question but here goes:

My wife and I own a small tour based online business in the US. We currently reside in Spain. I know there a is double taxation agreement between the US and Spain but I need to know if I sell my services to clients in Spain and deposit that money in my business account in the US do I still just pay taxes in US?

it depends; if you deposit the sales income in your personal bankaccount /merchant biz acct. then no need to pay tax on your income to US. Aslongas you are a US citizen/resident/ or a US resident for tax purposes, then yes you must pay tax to US since you are subject to US tax on your US source and world wide income that you earn in Spain in this case;however, you can claim any income taxes that youpay to Spain on your US return on Sch A of 1040 or on line 48 of 1040 or on your biz return , 1120 or 1065. If you are not a US citizen, then, no you do not have to pay tax to US as your income that you earned in Spain is not subject to US taxes. Also, even if you are not a US citizen/a resident/ a resident for tax purposes, but you set up a biz in US then you need to pay tax on your income to US.In general, a nonresident alien usually is subject to U.S. income tax only on U.S. source income. Note; In C-Corp the revenue of the company is taxed ; In LLC the company is not taxed at all, and are passed through to you. State taxes depend on where the company is formed. The reason why we hear delaware so often is that delaware does not have any State Taxes except for a franchise fee to be paid annually

Thanks Wnhough

no problem~~