Imagine working remotely from the Alps, living in B&Bs full-time as a location independent consultant. Sound like a dream only Phileas Fogg could realize? 🇺🇸 Uncle Sam may be able to help.
Have you filed your taxes yet? Here’s something to consider for next year’s tax return: if you are a full-time traveler, or want to become one, you can substantially reduce your US tax burden. It’s like… an incentive to travel!
So how does tax day work for digital nomads like travel photographers? First, don’t just skip filing: as long as you are a US citizen, you must file US taxes. You definitely don’t want expensive postcards from Uncle Sam. However, if you’re outside the US for most of the year, you may be off the hook for income taxes!
The TL;DR version is you can claim Foreign Earned Income Exclusion on the first $100,000 of your income if you can prove you’ve been outside the US for 330 out of 365 days (Physical Presence Test). However, this won’t get you out of the ~15% self-employment tax for Social Security and Medicare. To reduce those taxes, you need to work with an expert who can help you set up the appropriate business structure—often as a “foreign disregarded entity.”
You can usually reduce your state income taxes as well, but it’s downright tricky to avoid in certain states (looking at you, California), so if you plan to turn digital nomad it is worth establishing residency in another state first.
I am definitely not an accountant and never want to be—filing this year’s 1040 murdered my soul. So don’t trust or ask for my advice. Instead, here are some fabulous resources on the nitty gritty of expat tax law:
- Digital Nomad Tax Questions Answered by a U.S. Tax Attorney
- How to Structure Your Non-US Business or Profession
- US Expat Tax Hacks for American Digital Nomads
- My Fstoppers post via Nomad Capitalist
If you live outside the US for 330+ days of the year, get in touch with an expert who specializes in expat tax law. When you can potentially save tens of thousands of dollars, it’s worth investing in a professional who knows what they’re doing so you don’t get in trouble with Uncle Sam.
Some back-of-the-hand math suggests I could easily cover the cost of living difference abroad—plus flights, AirBnBs, car rentals—with that money. Happy tax day indeed!
My excuses for not traveling full-time are disappearing. 💸 One year off the grid, anyone?
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