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How Digital Nomads Can Save On Taxes

Even if you’re traveling the world, if you’re an American you still need to pay taxes.

Digital nomad

Being a digital nomad is more popular than ever before, and for excellent reasons; it’s never been easier or more rewarding to take up a life on the open road that’s powered by your ability to earn a living in the digital marketplace. Freelancers everywhere are beginning to realize that the life of a digital nomad isn’t devoid of taxes, however, and the savviest amongst them are also beginning to grow aware of various strategies that can help you save on taxes.

Living life as a digital nomad shouldn’t entail stressing out about your taxes. These days you can connect with a CPA online from your home in Dallas, Los Angeles, New York City, or any other US city. Here’s how digital nomads can keep more of what they earn.

Foreign income is still taxed

One of the first thing that American digital nomads need to understand is that the federal government will still tax you after you cross America’s borders and venture into the international arena. As long as you’re an American citizen earning income, you’ll likely have to pay Uncle Sam whatever he’s owed. You thus need to understand that the foreign income you generate as a digital nomad is still taxed, but that doesn’t mean you can’t take advantage of certain tax loopholes that could end up saving you huge sums of cash.

The Foreign Earned Income Exclusion (FEIE), for instance, allows you to earn up to around $100,000 from providing personal services without having to pay income tax. You’ll need to spend most of your year in a foreign country in order to qualify for this loophole, making it an ideal tool of any digital nomad who hasn’t returned home in a while. You should review a helpful Q&A from a tax lawyer that elucidates how digital nomads can avoid that specific income tax. Don’t forget to hire a real professional yourself before filing your taxes, either, as digital advice can never hold a candle to the expertise provided to you by a real life lawyer who you hire yourself.

Now that you’re aware of tax loopholes, you should be focused on incorporating your business, as digital nomads who haven’t yet incorporated are doing themselves a serious disservice. Registering as an LLC won’t just help you avoid paying extensive tax burdens but will also enable you to market your services more legitimately while wooing over customers who would otherwise shun your operation. The best LLC for nomads isn’t always easy to determine, as every business is different, but with a quick review of LLCs you should be moving in the right direction.

Dodge penalties and claim deductions

The next step towards saving on taxes as a digital nomad is to dodge steep penalties while claiming deductions which will reduce your overall tax burden. You should always be ready and willing to read up on tax watch-outs for digital nomads, as there are many ways to inadvertently stumble into a legally dubious situation that could ultimately end up embroiling you in serious trouble. Avoiding stiff penalties is the only surefire way to retain your financial independence, as crossing Uncle Sam when it comes to taxation can end up costing you truly huge sums of money.

Besides familiarizing yourself with local and regional tax laws to avoid specific penalties, you should also be constantly striving to claim as many deductions as possible. Your work equipment is likely tax deductible, for instance, and even travel meals can be tax deductible under the right circumstances. You should set some time aside to learn about the various tax deductions you can take advantage of if you’re thinking about becoming a digital nomad but worry about the financial stress it could force you to undergo.

Being a digital nomad isn’t just about seeing the world – it’s also about making the most of the opportunities available to you. When it comes to paying taxes, many freelancers have no idea that they’re radically overpaying the government and could seriously save huge sums of cash by claiming deductions and dodging easily-avoided penalties. If you have serious inquires about the nature of your taxes, you should never hesitate to find a legal professional to answer your specific questions. Remember that what works for one digital nomad may not necessarily work out for another. Before long, however, you’ll learn that any dedicated digital nomad can easily reduce their tax burden by relying on a sound financial strategy.


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