Digital Nomads and Their Tax Obligations

It’s hard to believe, but did you know that there are over 9,000,000 American citizens living overseas that consider themselves either a business owner, entrepreneur, or freelancer. 

What is a Digital Nomad?

A large part of overseas Expats fit into a relatively new category known as the Digital Nomad. A Digital Nomad is an individual that leverages telecommunications technologies to make their money while achieving location independence. All that is required is a good online connection and they are in business. They’re often found working in recreational vehicles, coffee shops, foreign countries, public libraries and co-working spaces. Roughly 42% of all Digital Nomads bring in over $50,000/year. That’s not too shabby! Digital Nomads currently make up a growing sector of the U.S. work force and economy.

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Tax Responsibilities Remain

While living abroad may be an Expats dream come true when it comes to living a carefree lifestyle, the reality is that the Digital Nomad is not free from the annual tax responsibilities like everyone else back home in the good ole U.S.A. Some Digital Nomads mistakingly think that they are just traveling as a tourist. Therefore, they think they are exempt from paying U.S. taxes, but this could not be further from the truth.

This thinking can be both quite dangerous and quite expensive. In fact, if you have skipped filing or paying taxes while overseas, the penalties and fines could be really big. And if you have been at it too long, you just might lose your passport in the process.

As a Digital Nomad, it is up to you to have your house in order when it comes to taxes. However, we do recognize it is very hard to keep up with the constant changes the IRS puts into place each and every tax year. Digital Nomads can easily find themselves paying too much in annual taxes without a proper understanding of the ever changing tax code and how to go about their personal business. 

Which Digital Nomads Need to File Taxes?

As an American, if you are self-employed and you earn a mere $400 or if you are paid $10,000 by an employer you are required to pay U.S. income taxes.

Call Our Orlando Office at (407) 382-6658 to Schedule Your Initial Consultation

Potential Tax Breaks for Digital Nomads

The good news is as an Expat, you may have the ability to claim the Foreign Earned Income Exclusion or FEIE. With FEIE, you can exclude roughly the first $100K of your income from U.S. income tax.

Also, if you have paid foreign income taxes, as an Expat you might qualify to claim the Foreign Tax Credit, which will provide you with a dollar for dollar tax credit. It is important to note that you cannot claim both the Foreign Earned Income Exclusion and the Foreign Tax Credit on the same income.

If you are unsure of how to get your taxes in order or take advantage of these tax breaks, we are here to help. As accountants we know exactly how to save you the most money on your U.S. taxes as you live the Digital Nomad lifestyle. If you have any tax related questions, be sure to give us a call.