We met an individual recently who wanted to know what specific taxes a US digital nomad needs to pay while living abroad. Digital nomads are individuals who typically fund their travels and livelihood through the help of a laptop and wifi (ie: Freelancing, YouTuber, Blogger, Online Shop Owner). Digital nomads live abroad, and if you’re a US digital nomad, you’re still tied to tax filing obligations for the IRS.
Tips for Freelancing US Digital Nomads (Sole Proprietors) in 2022:
1. All your income from being self-employed (or even a remote employee) will be treated as earned income. If you are physically working abroad when earning this income, then it is considered foreign earned income which you might be able to exclude from US taxation. Yay!
2. Did you spend a full 330 full days outside the US for a 12 month period beginning/ending in 2021 (Physical Presence Test)? Then claim the Foreign Earned Income Exclusion for up to the maximum amount (which is a bit over $100,000).
Keep in mind, you probably won’t qualify under the Bona Fide Residence Test since you’ll be traveling the world as a nomad. Thus, you won’t really reside anywhere long enough to set up residency. It does get a bit tricky to calculate your exclusion when you have business expenses though (that’s why the MyExpatTaxes‘ tax software can be a lifesaver!).
3. As a self-employed individual, you will also owe self-employment taxes (15.3% of your net business profit). You would only be exempt from this if you had proof that you were covered by self-employment/social security benefits in a foreign county with a totalization agreement with the US – The IRS provides more information.
A US digital nomad will most likely owe self-employment taxes. You can try to optimize this by setting up your company as an S-corp and then paying yourself as an employee (not self-employed). A bit more complicated – but might be worth it.
If you need more help, read up on these blogs to sort out the madness (and benefits!) of expat taxes:
A Convenient Way to File Taxes
Looking for a convenient way to file your taxes when you’re a digital nomad? Come to us at MyExpatTaxes. Our software offers a super quick, easy and affordable tax software specifically designed for US expats!
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