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Wednesday, October 4, 2023

Digital Nomad Taxes: Everything You Need to Know

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A Cook, Software analyst & Blogger.
Digital Nomad Taxes
Pic credit – pixabay

Dealing with tax problems can be a difficult and stressful situation. Some people need to visit Tax Law Advocates’ website to learn about debt forgiveness, others owe years of back taxes, and some even get their wages garnished.

Taxes can already be complicated, but this is taken to the next level if you are a digital nomad. A digital nomad is someone who travels frequently while working remotely. There are concerns about where you pay your taxes, how much to pay, when to file, and so much more.

Without any further ado, this guide is going to go over some things you need to know as a digital nomad filing taxes.

Be Aware of What You Are Responsible for Paying

The first thing you need to know is what you are responsible for paying, and to who. If you are an American citizen working and living abroad, you will be responsible for filing US taxes. This is because the tax system in the USA is based on citizenship, and not residency like many other countries in the world.

Every country will have their own rules, so make sure to know what you are responsible for doing if your country of residence is not the USA. But in addition to paying taxes where you are a resident/citizen, the country you are living and working in might also require you to pay taxes on income earned in that country. 

To make sure you are doing things right for your unique situation, consider reaching out to a tax professional. They will have detailed knowledge about what you need to do, who you pay, how you should file, and more.

Know Your Deductions

Pic credit – pixabay

With most digital nomads being self-employed, it is also a good idea to know the various deductions you may be able to use to bring down your taxable income. These are the expenses you have incurred making an income.

These deductions can include your computer equipment, internet and phone costs, website costs, legal fees, office stationery, travel, education courses, and more. There could also be things like a foreign tax credit or a foreign housing deduction specifically for digital nomads and similar individuals.

By knowing these deductions and filing them correctly, you can dramatically decrease the amount of taxes you are responsible for paying every year. Not everything you spend will be a deductible expense, so make sure to only include what you are allowed to.

Keep Track of Everything

When you’re constantly on the go and moving from place to place to work and travel, keeping track of everything can be challenging. However, you need to make an effort to keep track of your expenses, receipts, income, invoices, and more.

All of these documents are very valuable come tax time, and can help you file a complete and proper return. You also need to have a record of everything in case you are asked to prove or confirm anything. If something happens and you need all of your records, it will be much easier if you kept track of them all year and don’t have to hunt them down.

Consider keeping everything on a spreadsheet or in a folder, and ensure you are keeping it updated. If expenses are in the form of physical receipts or other documents, keep them somewhere safe and secure. In addition to keeping these tracked for a year, you should also keep them in your possession for a few years after the fact, just in case.

We hope that this guide has been able to help you learn all you need to know about digital nomad taxes.

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