When I decided to pack everything up and leave Texas to live abroad, I honestly didn’t put any thought into taxes. I didn’t even have a job, just some savings and the hope that I would find something once I landed in my destination. I would be able to figure it out once I was there, right?
Almost 2 years later, I can look back and laugh at my naivety – it’s taxes, it’s not going to be a simple solution! Especially as I am now working as a digital nomad, freelancing and doing consultancy.
As a member of many different digital nomad groups, I saw the question being asked again and again: ‘How do you deal with taxes as a digital nomad from the US?’
The thing is, it’s not a subject that has a simple answer. It depends on where you’re living, how long you’ve been gone, where your income comes from, how much you’re earning, even what state you lived in before you left. Not only that, but trusting the advice from other digital nomads can be a shaky proposition. If you wouldn’t trust your Aunt Linda to prepare your taxes, there is no reason you would trust one of these folks either, at least not until you see their accounting degree.
Things I learnt about taxes for digital nomads from the US
As I found during my own tax research, the biggest exclusion available to Digital Nomads – and the one that most people apply to their taxes – is the Foreign Earned Income Exclusion (FEIE). This allows you to exclude up to $100k of income provided that your income is earned abroad and you have spent enough time outside of the US.
How much time is enough? At least 330 days in any 365-day period, at least for the Physical Presence Test (PPT).
For the PPT, you can’t be in the US for more than 35 non-consecutive days over a 365-day period. So, if you’re home for two weeks over the holidays, then visit for another two weeks for a wedding in September and that’s it for US travel for the year, then you’re golden when it comes to filing. Interestingly, you must be on land for this to count, so if you spend half the year on a boat in international waters, it doesn’t count towards time spent outside of the US.
There is another presence test, which is the Bona Fide Residence Test. It doesn’t really apply to digital nomads though, as we move around far too much. It’s more for US expats who have set up residence in another country, pay taxes there, and – most importantly – don’t have any plans to leave their country of residence and return to the US.
A really important thing to remember is that, no matter what, you’re going to have to pay some taxes.
Set aside 30% of your income each month, ideally in a savings account that you don’t have easy access to, and set that aside for tax season. Future you will thank you for it! Even better, if you get these exclusions on your taxes, you then get to do something fun with that money you put aside.
The scariest thing about taxes is that if you don’t do them right, you can get in a heap of trouble. I had been putting in some time researching the topic when I came across the Digital Nomad Tax Guide from Taxes for Expats which proved to be an invaluable asset figuring out what exactly I needed to do.
After attempting to puzzle through my own tax situation, I decided that it would be safer to pay a bit extra and get expert advice. For what it’s worth, I find it much less stressful to pay someone to help me with my taxes and get that peace of mind.
I did some research and read many reviews about tax services for US expats. This made me decide that I wanted to find a tax prep firm that did up-front pricing, had live people I could reach out to any time I had any issues or concerns, and had a solid track record. I also wanted to have a consultation with the firm beforehand, so I could make sure I could trust the company, ask any questions I might have, and gauge if I trusted them with my taxes.
Taxes For Expats does a free consultation, so I decided to call them. I found several other firms who advertised tax prep for expats, but many of them didn’t list prices, charged for consults, or were difficult to reach. Finally, I had 3 firms that offer expat tax services on my list to call for consultations. After the calls, I decided on using Taxes For Expats, who I had the most positive consultation with.
I made an account, called their helpline, and spoke to a real live person immediately. I have to say, being able to speak to someone who knew the answers to all of my questions was a real relief after days of googling tax questions without coming up with many solid answers. They gave me the complete pricing up front – no surprise costs down the line for me! – and so I completed my Tax Questionnaire, signed up with them, and then honestly forgot about it while they did the work for me.
Digital nomad life
So many different aspects of the Digital Nomad lifestyle can be difficult. Finding good housing, communicating through language differences and dealing with shoddy internet are stressful enough. So there is no reason to make life even harder for yourself by trying to figure out tax law by yourself.
The two most important parts of handling taxes overseas are to be informed and to be prepared. Know about the exemptions you might be qualified to receive, know how to make sure you do qualify for them, and make sure you set aside money throughout the year. If you do those things, you’ll be able to make it through tax season with the least grief possible!
Are you a digital nomad or are you thinking about becoming a digital nomad? Then also check out Spend Life Traveling’s other articles about the Digital Nomad Lifestyle.
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Disclaimer: This post about taxes for digital nomads from the US is sponsored by Taxes For Expats. However, all opinions are my own.