There are nomads who do not have to pay taxes at all, but there are also many who do have to pay them. It depends on your situation and how you have structured yourself. Some do have to pay a big chunk of their income to the tax authorities.
There are different things that need to be taken into account when talking about digital nomads and their taxation. Tax filing is not an easy process for digital nomads; they have to navigate through various complexities. Digital nomads refer to those Americans who are either living in some other country or traveling abroad, and their work is remote.
Knowing and understanding the tax obligations is crucial for digital nomads if they really want to make a difference. Digital nomads also have to file a US tax return and pay taxes to the country in which they are currently living. This makes it even more complex for them.
However, the IRS or International Revenue Service provides many benefits associated with taxes for digital nomads. They can make use of those benefits to avoid double taxation. Hiring a tax accountant Savannah GA, can help you make things more accessible as a digital nomad.
What are the strategies that can help in reducing taxes for digital nomads?
There are various strategies that, as a digital nomad, you can use to reduce your tax burden to some extent. There is one you can begin with: change the personal tax residency. There are many people who are still paying taxes to their home country just because they did it in the past.
It is there even when they are not visiting or spending time in that country for most of the time. There are different tax countries that can help you with taxation, such as the Czech Republic, Paraguay, UAE, etc.
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Having detailed documents with you:
As you know, taxation is not going to be easier for you as a digital nomad; you need to keep all the records and documents in detail. Detailed documents are going to help you when you are filing your taxes. It is also going to help you in giving any potential audits that may occur otherwise.
You must be aware that auditing is a lengthy process and can take up a lot of your time. Therefore, try not to become the person who gets into audits because of insufficient documents. Here are some things that you need to keep track of:
- Sources of income
- All the expenses related to business.
- Expenses that are there when you travel.
- Agreements and any rental payments.
- When you visit a country, keep track of when you entered and when you are leaving.
You can make use of cloud-based software that can sync on other devices, keeping all your records intact. It is going to ensure that your records are up-to-date, no matter which corner you are in the world.
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Foreign earned income exclusion:
It is applicable to citizens of the United States. It can be a great way to reduce tax burden to some extent. You can almost exclude about $126,500 of that income that you earned in a foreign country.
You can get this amount reduced from your US taxes. There is, however, a physical presence test that you need to meet, or there is another one as well. It is called a Bona fide residence test.
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Double tax treaties:
Such treaties tell which country can actually have the right to tax various types of income. It helps remove double taxes or at least reduce them to a significant length. They also offer rescue tax rates that are applicable to certain types of incomes.
Hire a professional to reduce taxes!
Professionals can provide advice to you as to how you can make use of different benefits to reduce taxes and maximize deductions wherever you can. They can guide you through the complex landscape of taxes and provide you with great insight into your business or whatever work you do as a digital nomad.
