Mar 27, 20233 min read

Discover the Thrill of Being a Digital Nomad and Pocketed $25,000!

Updated: Mar 28, 2023

Working remotely from anywhere in the world can be such an amazing lifestyle, don't you think? But, let's face it, taxes can be confusing and intimidating, especially when you're on the move. Luckily, there are some great strategies you can use to save money and keep more of your earnings in your pocket. In this blog post, we're going to dive into how you can save up to $25,000 a year in US taxes as a digital nomad.

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1. Claim the Foreign Earned Income Exclusion

Did you know that you could save a whopping $25,000 a year on US federal income tax as a digital nomad? If you are a U.S. citizen or a resident alien of the United States and you happen to be living abroad, you are still required to pay taxes on the total income that you earn from all sources across the globe. Nevertheless, you may be eligible to qualify for an exclusion of your foreign earnings from your taxable income, up to a certain amount that gets adjusted on an annual basis to account for inflation. For instance, the exclusion limit was set at $107,600 in 2020, $108,700 in 2021, $112,000 in 2022, and $120,000 in 2023. Additionally, you are also allowed to exclude or deduct particular foreign housing expenses.

Let's say you make $100,000 a year in 2021 and qualify for the FEIE, you can exclude up to $108,700 of your foreign-earned income from being taxed by the US government. That leaves only $9,300 of your income to be taxed, which means you'll be keeping more of your hard-earned cash.

To qualify for the FEIE, you must meet either the Physical Presence Test or the Bona Fide Residence Test. The Physical Presence Test requires you to be physically present in a foreign country for at least 330 full days during a 12-month period. The Bona Fide Residence Test requires you to have established a proper and permanent residence in a foreign country.

2. Set up a Foreign Corporation

Another tip to save some cash on taxes as a digital nomad - setting up a foreign corporation. Basically, this means taking advantage of the lower corporate tax rates in some foreign countries. For example, if you establish your corporation in a country with a low tax rate, you can end up paying taxes at that lower rate instead of the higher US corporate tax rate.

Of course, setting up a foreign corporation isn't something you should do on your own. You'll need to work with a lawyer who knows the ins and outs of the country's laws and regulations that you want to incorporate. Plus, you'll need to make sure you're following all the legal and tax requirements of both the foreign country and the United States. But, if you do it right, it could be a game-changer for your finances.

Also read: Digital nomad visas around the world

3. Use Tax Deductions

As a digital nomad, you could be eligible for some tax deductions that could save you some serious dough. Here are a few examples:

Home office deduction

If you have a designated workspace in your home, you might be able to deduct a portion of your rent or mortgage, utilities, and other home expenses as a home office deduction.

Travel expenses

If you travel for work, you could potentially deduct expenses like airfare, lodging, meals, and transportation.

Business expenses

Anything related to running your business - like equipment, software, and office supplies - could be eligible for deduction.

These are just a few examples, but there could be more out there that apply to your situation. Be sure to do your research or talk to a tax professional to make sure you're not missing out on any opportunities to save some cash.