Live tax free as a digital nomad! Is it really possible? Yes. Here’s how you can make money online and legally pay no tax.
In the 10/31/2020 blog, we discussed Tax-Free Living Offshore A lot of digital nomads live and travel outside the country. If that is applicable for you, make sure you read that blog as well.
Today, we’re going to focus on one more tax benefit that works especially for nomads, whether you’re traveling from place to place inside or outside the US.
As a US taxpayer, you will have a requirement to file a tax return as long as your income is above the minimum filing requirements. For 2019, for example, the minimum income filing requirement is $12,200. If you make less than that (and don’t owe any self-employment taxes), you don’t need to file a tax return.
This additional tax break works for people who work away from their tax home. Your tax home is generally defined as the place where you have the following:
- Voter registration
- Vehicle registration
- Driver’s license
- Location of your bank
- Location of your legal and medical professionals
- Location of any business that you own and operate
- How many contacts you have with a state
- Location of your property
- Your address on important documents, such as wills and trusts, passports and insurance policies
This may change based on your state, so make sure you check the applicable law in your area.
Now we get to the deduction.
If you are on temporary work assignment, defined as more than one day but less than one year, your housing, meal and travel expenses are deductible. Note that you have to have a permanent residence in the US in order to have a temporary assignment. If you don’t have a permanent US residence, you are considered an itinerate worker and your home is where you are at the moment. That means none of your travel, housing and meal expenses will be deductible.
If your business is in a corporate structure (S Corp, C Corp or LLC that has elected to be taxed as an S Corp or C Corp), you can reimburse actual expenses. If your business is in a Schedule C (Sole Proprietorship) or Partnership, you can take a per diem expense deduction. The IRS regularly publishes the per diem table. This tells you the amount you can take as a per diem for housing and/or meals based on the city you’re in.
Since a digital nomad is, by definition, living in a location temporarily, this could be a great deduction for you. It’s tax free to you (live tax free!) and it’s a tax deduction for the business.
Do you have a question about how this strategy will work for you, join the next coaching session.