The Digital Nomads’ Guide to Filing Taxes Outside the US

by
Amanda Gray
Updated 
November 18, 2022
November 18, 2022
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Reviewed by
Sarah York, EA
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Reviewed by
Sarah York, EA

Sarah is a staff writer at Keeper and has her Enrolled Agent license with the IRS. In 2022, she was named one of CPA Practice Advisor’s 20 Under 40 Top Influencers in the field of accounting. Her work has been featured in Business Insider, Money Under 30, Best Life, GOBankingRates, and Shopify. Sarah has nearly a decade of public accounting experience, and has worked with clients in a wide range of industries, including oil and gas, manufacturing, real estate, wholesale and retail, finance, and ecommerce. Sarah has extensive experience offering strategic tax planning at the state and federal level. During her time in industry, she handled tax returns for C corps, S corps, partnerships, nonprofits, and sole proprietorships. Sarah is a member of the National Association of Enrolled Agents (NAEA) and maintains her continuing education requirements by completing over 30 hours of tax training every year. In her spare time, she is a devoted cat mom and enjoys hiking, painting, and overwatering her houseplants.

The Digital Nomads’ Guide to Filing Taxes Outside the US
by
Amanda Gray
Updated 
November 18, 2022
November 18, 2022
Icon check
Reviewed by
Sarah York, EA

Ten years ago, while living in Berlin, Germany, I got my first gig writing for a local magazine. Before I knew it, I was working as a freelance writer. 

In cities like Berlin, companies liked to hire freelancers to work on a per-project basis. On paper, this seemed great. I could make my own schedule and do remote work wherever I wanted (like an 18th-century fortress in Serbia). Yet, there wasn’t much guidance for freelance expats working abroad.

As a writer juggling numerous small jobs, staying on top of tax forms, potential write-offs, and invoicing quickly got overwhelming. 

To make things easier for other expats, this guide covers everything American digital nomads need to know about paying taxes from abroad. Learn how to make the best of a complicated tax situation, so you can stay on the IRS’ good side and even get a little money back at the end of the tax year.

Contents

Do you have to pay US taxes if you live abroad? 

I’m sure you were hoping for a different answer, but yes. You must file taxes in the United States, whether you live there or not. 

The US is one of the only countries that taxes based on citizenship, not place of residency. So if you’re American, your worldwide income gets taxed. That means you have to file taxes even if you earned zero US-based income.

Do all expat workers have to file US taxes?

Yes — as long as you made enough to file. This applies to both self-employed digital nomads and traditionally employed remote workers.

Do freelancers working abroad have to pay self-employment taxes?

Yes. If you’re freelancing, doing gig work, or running a small business abroad, you’ll need to file self-employment tax — no matter where you’re based. That’s true whether you’re writing freelance in Berlin, teaching English in Beijing, or working as a contract tour guide in Buenos Aires. 

Keeper’s guide to self-employment tax will help you get your bearings here. And you can also estimate what you’ll owe using our tax bill calculator for freelancers. But for now, here are the basics: 

  • You’ll need to pay self-employment tax if you earned more than $400 from self-employment
  • Your self-employment tax rate is a flat 15.3% — 12.4% for Social Security, and 2.9% for Medicare 

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Do digital nomads have to pay state taxes?

Maybe. You’ll generally only owe state tax if you still count as a state resident. (And if you’re lucky to be from one of the nine states that don’t require residents to pay income tax, that’s great!)

Even if you’re currently calling another country home, you might still be considered a resident of the state you previously lived in.

How to know if you’re considered a resident of a state

Many states stop considering you a resident if you haven’t lived there for about half a year. But that’s not true of all states.

Here are some indicators that you might still be a state resident:  

  • Holding a driver's license
  • Being registered to vote 
  • Owning property there
  • Having a permanent address there
  • Having lived there at any point during the tax year 
  • Having received any income from the state itself (like unemployment, Social Security, or other government benefits)

Do you ever have to pay state taxes if you’re not a resident?

Very rarely. If you’re not a resident and haven’t lived in your former state at any point during the year, you’ll only need to worry about state taxes if you earned income from a source within the state. 

That means having an employer, customer, or physical business location there.

Once you know whether you have to pay state taxes, or just federal, it’s time to figure out when to file.

When do digital nomads have to file taxes?

For most expats, the tax filing deadline is actually June 15 — not April 15. (In the past, it’s sometimes been extended an extra month, to July 15.)

That’s because Americans who are living abroad on the day of the standard tax deadline get an automatic two-month extension.

If all your income comes from US clients and companies, you can file your taxes right through Keeper. And if you're afraid of missing a deadline, we can even take care of extensions for you.

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What to do if you forget to file taxes as an expat

My first year as a freelancer, I didn’t file taxes because I didn’t realize I had to. While having coffee one morning and scrolling the news, I stumbled upon an article about the rise of digital nomads. A young graphic designer was discussing moving to Spain and lamenting dual taxation. 

My heart sank. After panic-writing some emails, I realized I hadn’t made enough that year to have to file. I also learned that freelancers living abroad forget to file frequently enough that the IRS offers amnesty programs for late filers. 

What to do if you’re afraid you’ll file late

If you’re worried about missing your automatically extended June 15 deadline, apply for another tax extension. This gives you until October 15 to file.

This extension isn’t automatic. You’ll use Form 4868 to request it.

What to do if your taxes are already late

If you’re already late on your taxes, take advantage of Streamlined Filing Compliance Procedures — the IRS amnesty program I mentioned. This lets you sort out your taxes as long after the deadline, as long as you weren’t late because of “willful misconduct.”

You’ll get the chance to:

  • File late returns up to three years
  • Take care of penalties and fees
  • Take up to six years’ worth of past failures to report your bank accounts — more on this later!

Luckily, IRS amnesty isn’t the only perk that makes digital nomad taxes less stressful.

The perks of being a nomad: Tax breaks for expats

Between self-employment taxes and (potential) state taxes, being a digital nomad from the US may start to feel like a raw deal. But not to worry: there are plenty of write-offs that can help you save at tax time — especially if you’re self-employed.

These are the tax benefits digital nomads should know about.

Foreign Earned Income Exclusion (FEIE)

The Foreign Earned Income Exclusion lowers the amount of foreign income you can be taxed on. It applies to both W-2 and self-employed earnings. 

How much is the FEIE worth?

The exact amount varies, depending on inflation. For 2022, you can lower your taxable foreign income by up to $112,000.

That means if you earned $112,000 — or less — from foreign sources, you’ll pay no income tax on that money at all.

Can self-employed people claim the FEIE?

Yes! If you’re self-employed, you can take advantage of this tax break if:

  • Your tax home — where you work — is in a foreign country. (You could have an address in New Jersey, but work in Brussels. Brussels would be your tax home)
  • You’re a resident of a foreign country
  • You're an American citizen, or a citizen of a country that has a tax treaty with the US

Note that, for you, the Foreign Earned Income exclusion only reduces your regular income tax — not your self-employment tax. 

What kind of foreign income can you not exclude?

The FEIE only applies to W-2 and freelance income, but not to the following:

  • ✘ Pension and annuity payments 
  • ✘ Money you earned in international waters or airspace (since that’s technically outside of a foreign country)
  • ✘ Payment received as a US government employee
  • ✘ Investment income, including interest, dividends, or capital gains

How do you claim the Foreign Earned Income Exclusion?

In general, you’ll fill out Form 2555, a nine-page form.

Part of a blank Form 2555, for the Foreign Earned Income Exclusion

But there’s also another version of the FEIE form, 2555-EZ. This one’s only two pages.

Part of a blank Form 2555-EZ, the short version of the Foreign Earned Income Exclusion Form

Who can use Form 2555-EZ?

If you’re wondering why not everyone takes this option, it’s because you have to meet a lot of requirements to take the “EZ” way out, namely:

  • W-2-only work 
  • Less than $112,000 in earnings for 2022 (and less than $120,000 for 2023)
  • Documentation for any travel and business done outside of the US
  • Information about your employer, whether it’s a foreign company or an American company with an office abroad 

If you’re a W-2 employee working as a digital nomad, this form will help you save time when you file.

Foreign Housing Deduction

The Foreign Housing Deduction is a tax deduction exclusive to self-employed workers. (W-2 employees can take advantage of a similar tax break, the Foreign Housing Exclusion).

It’s found on the FEIE form, Form 2555, in sections VI, VIII, and IX. (It’s not on EZ version of the form, of course, since only W-2 workers can use that form.)

Part VI of a blank Form 2555, for the Foreign Housing Exclusion and Deduction

Who qualifies for the Foreign Housing Deduction?

To qualify for this write-off, you need to prove that you were a resident of your home base abroad for the whole tax year. 

The IRS has a physical presence test to help you figure out if you qualify. In a nutshell, you’ll need to have lived abroad for 330 days during a 12-month period — although the days don’t have to be consecutive.

What can you write off for the Foreign Housing Deduction?

Here’s just some of what the foreign housing deduction lets you write off:

  • 🛋️ Furniture rentals
  • ⚡ Utilities like gas and electric 
  • ⚒️ Housing repairs
  • 🅿️ Parking costs
  • ☔ Insurance 

If you’re working for yourself from aboard, there’s another type of tax break you shoudn’t forget about: business write-offs.

Business write-offs expats should know

I only recently realized how many expenses I could have written off as a freelance writer abroad — but didn’t.

I frequently used public transport, grabbed business meals, and spent hours traveling to events and interviews.

I was wrapped up in the excitement of covering festivals in different countries, and spending the weekend at Fashion Week felt more like fun rather than work. So I ended up missing out on tax. 

As digital nomads, though, it’s important that we acknowledge our work as work. And that includes writing off our business expenses.

If you’re a self-employed expat, some things you can write off include:

  • 📝 Office expenses (like notebooks, pens, and printer paper)
  • 🌐 Internet 
  • 📱 Phone expenses, including SIM card and cell service
  • 💻 Laptops, tablets, and tech accessories (like a portable monitor or mobile hotspot)
  • 💵 Subscriptions and fees (like a coworking space membership)
  • 📚 Continuing education to enhance your skills and professional opportunities
  • 💳 Fees on transfer services like PayPal
  • 🍽️ Business meals with clients and professional contacts
  • 🚇 Public transport to work events
  • 🚗 Lyfts, Uber, and taxis to work events

To claim these expenses, you’ll need to know exactly what you’re spending. The Keeper app will automatically track them for you and generate the records you’ll need to satisfy the IRS. You can use the app for this whether your clients are US-based, foreign, or a combination.

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No matter where your clients are based, outsourcing your recordkeeping will improve your efficiency and let you pocket more at tax time — while also helping you know your worth when it comes to charging clients.

If you’re an experienced digital nomad, you might be wondering about a specific type of write-off that doesn’t appear on the list above: travel expenses. Let’s talk about those right now.

Can digital nomads write off business travel expenses?

Sometimes. As a self-employed expat, your ability to write off travel expenses — like plane tickets, train tickets, hotels, and Airbnbs — hinges on what kind of digital nomad lifestyle you're living.

Here's the general rule of thumb: 

  • ✓ You can write off what you spend on work-related trips if you can point to a particular city as your professional base of operations
  • ✘ You can't write off travel expenses if you're constantly on the move and don't have a home base

Tax homes explained: Why you need a home base to claim travel write-offs

The IRS’s rules say that, to claim travel write-offs, you need to have a "tax home". For expats, that's just a city that serves as your home base while you're freelancing abroad.

If you don't have a tax home, you're considered a "transient" or "itinerant" worker — which means no travel write-offs. 

Here are a couple of examples that show this distinction in action:

A freelancer with a tax home

You're a freelance arts reporter who rents an apartment in San José, Costa Rica. You pitch and file most of your stories from there.

Still, you spend a lot of time in different locations too — traveling all over Latin America, the States, and occasionally Europe to interview artists and attend events.

Your tax home is in San José, and you can write off your travel costs.

An itinerant freelancer

You're a self-employed web developer who helps European and American startups build their marketing sites. Throughout the year, you live in a string of Airbnbs: everywhere from Phuket, Thailand to Seville, Spain.

You Zoom with clients during their work hours, code at night, and spend the rest of your time enjoying whatever city you're staying in.

You're an itinerant worker, so you can't write off your travel costs.

What itinerant workers can write off

Even if you don't have a tax home, you can still deduct all the other work expenses listed above — including costs like a WeWork membership. That’s something you’ll likely need for work, if you're constantly seeking reliable internet on your travels.

Note that you don’t need an LLC to claim these business write-offs. Still, some expat freelancers have good reason to register for one.

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Should self-employed expats choose an LLC or sole proprietorship? 

When I started freelancing, I opted to identify as an independent contractor — which means working as a sole proprietor.

I figured I wouldn’t be at risk of any personal injury lawsuits while writing copy in my home office. So there was no reason to get the legal protections that come with an LLC. 

Still, every expat worker has to make this decision for themself. Here’s how to think through which makes sense for you.

When an LLC makes sense

LLCs are best for established business owners with high self-employment income.

Tyler, an independent consultant based in Tslbili, Georgia, registered for an LLC. His company has only one employee — himself.

Why did Tyler make this choice? Because he’s an experienced consultant who’s worked abroad for many years, and he wanted to get taxed as an S corp.

“Setting up an LLC with an S Corp status can be advantageous, as you only pay self-employment taxes on the salary you pay yourself,” he explained. “I chose this setup because it’s more tax efficient, pays me a salary, and defines business profits, which are taxed at an individual level.”

Pros of opening an LLC:

  • You and your business are separate entities, so lawsuits against your business won’t affect your personal assets.
  • Your personal assets can’t be touched to pay off business debts

Cons of opening an LLC:

  • It’s more expensive than maintaining a sole proprietorship
  • It can be hard to transfer ownership of an LLC — something to consider if you have a business partner

When a sole proprietorship makes sense

In other cases, a sole proprietorship is all you need. It's the low-maintenance option, and it's especially convenient if your self-employment income is still relatively low.

Austin, a marketing strategist, based in Phuket, Thailand, says he files taxes yearly, even though he hasn’t had to pay anything yet as a sole proprietor.

“I have not yet needed to think about write-offs, except for locally,” he explained, “as my income hasn’t been high enough for me to need to pay anything on my US taxes.”

Pros of a sole proprietorship:

  • It’s easy to start — no paperwork required
  • You don’t need to provide annual reports 
  • You can stay flexible by using your personal bank and credit card accounts

Cons of a sole proprietorship: 

  • Unlimited liability means that if something goes wrong, it’s all on you
  • Verifying your income for bank loans and credit can be more difficult 

Whether you stay a sole proprietor, or look  into LLCs, dealing with finances as an expat means adjusting to some nuances. Here’s another one you might be wondering about: dealing with your foreign bank account.

Does it matter for your taxes if you have a foreign bank account? 

Sometimes! The US keeps a close eye on foreign bank accounts. So if you meet criteria below, you’ll need to disclose them with your taxes — or face steep penalties. 

If your foreign bank accounts are small, though, you can rest easy knowing that it won't matter for tax purposes.

Why expats have to report their foreign bank accounts

After living in Berlin for several years, I moved to Slovenia for a job. There, I went through the process of re-establishing myself. I was back to dealing with health insurance, registering my apartment, and closing and opening bank accounts. 

Enter the Bank Secrecy Act. Established in 1970, it was implemented to deter money laundering and other financial crimes. It requires you to report any foreign bank accounts to the US government. 

I saw this firsthand when I went to open my account. I had to sign a form verifying that I understood my bank account information was made known to my bank in the United States. However, not every expat has to go through this process. 

When do you have to claim a foreign bank account?

You only have to report it if you have more than $10,000 total in foreign bank accounts at any point during the year.

For example, say you had:

  • $3,000 in a foreign checking account in July
  • Another $8,000 in a savings account at the same time

That puts you over the $10,000 threshold for the year, so you’ll have to report your accounts. That’s true even if you end up spending down your money and have less than $10,000 in those ccounts by December.

How do you report a foreign bank account?

You’ll fill out the Report of Foreign Bank and Financial Accounts (FBAR — sometimes called the Foreign Bank Account Report).

How do you submit your FBAR?

You don’t submit this with your tax return. Instead, you’ll e-file it through an online system built specifically for Bank Security Act forms. (You might see this called “FinCEN’s” system — that stands for Financial Crimes Enforcement Network.)

When is your FBAR due?

This form is due on April 15. However, you’ll get an automatic extension to October 15 if you don’t get it in on time — no need to specifically request an extension.

What happens if you don’t report an account?

If you forget to disclose your bank account when you should have, you’ll probably just get a warning letter if it’s your first offense. After that, penalties can be as high as $10,000 or 50% of the value of your accounts.

Luckily, the IRS won’t always make you pay such a steep price for forgetting a form. In fact, even if you’re several years behind on your FBARs, penalties are pretty unlikely as long as you’re:

  • Proactive about getting caught up
  • Accurately reporting your income on your taxes

Only a decade after I started working remotely, I’ve watched the workforce embrace and run with remote-first culture. A recent Upwork study predicts that 22% of the workforce will be remote by 2025. 

Remote work is here to stay, for traditional employees and for self-employed people who live a nomadic lifestyle. Whether you work from a home office or a cabin in the woods, understanding digital nomad taxes is essential to gaining — and maintaining — independence, no matter where in the world you work.

Amanda Gray

Amanda Gray

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Amanda Gray is a writer and illustrator who covers various topics, from coworking to travel. She is passionate about language, literature, and furniture making. An early adopter of remote work, much of her professional life had been centered around elevating and supporting freelance professionals in the creative fields.

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