The US tax code is a number of thousand pages lengthy, not one thing most digital nomads are likely to learn after an extended day at work. Sadly, not understanding the fundamentals could be simply as damaging to your funds as failing to make use of correct tax calculator when figuring out the quantity of your annual debt.
That will help you keep away from such expensive issues, listed here are 5 issues to know:
No. 1. (Virtually) Everybody Should File Federal Revenue Tax
US digital nomads virtually at all times should file federal revenue taxes. America is one in all solely two international locations (the opposite being Eritrea) that has citizenship-based taxation. Merely put, which means that all US residents, no matter the place they stay, should file taxes if their revenue exceeds a minimal threshold.
The minimal quantity varies barely from yr to yr, however in 2022 it was $12,950 for these below 65. When you earned extra, you have to to use. You are able to do this your self or with the assistance of software program or tax professionals.
No. 2. Not everybody must file a state tax return.
Though most digital nomads should file federal revenue taxes, however not all should file state revenue taxes. It is because not all states have revenue taxes.
Particularly, eight states—Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming—don’t have any revenue tax on earned wages, and New Hampshire taxes solely curiosity and dividends. When you stay in one in all these states, chances are you’ll not should pay.
After all, taxes should not at all times so easy. Generally for those who stay in no state revenue tax however principally working the place they’re, you may nonetheless should pay.
No. 3. You might have to pay self-employment taxes
Whereas some digital nomads work for an organization, most are self-employed as impartial contractors. When you fall into the latter group and earn greater than $400 per yr, then you might be accountable for self-employment taxes.
These taxes are cut up at 12.4% for Social Safety and a couple of.9% for Medicare, totaling 15.3% of your revenue. Whether or not you pay these taxes every year or quarterly, it is a good suggestion to put aside the quantity you suppose you owe to keep away from any nasty surprises.
No. 4. You may exclude revenue earned overseas
When you qualify for the International Earned Revenue Exclusion (FEIE), you may exclude as much as $120,000 out of your taxable revenue. The aim of the FEIE is to keep away from double taxation or taxation in the USA and your nation of international residence.
To be eligible, you’ll have to go both the bona fide residence take a look at or the bodily presence take a look at. Usually talking, to go the primary one, you’ll have to stay completely overseas with no quick plans to return to the US. Within the second case, you’ll have to be outdoors the US for 330 days out of any 12 month interval.
No. 5. Further reporting could also be required
Relying in your monetary scenario, the IRS could require further reporting. Two frequent ones are the International Financial institution Account Report (FBAR) and the International Account Tax Compliance Act (FATCA). Each contain reporting of economic property held in international accounts.
Understanding some fundamentals of the US tax system is vital for digital nomads who earn revenue whereas residing overseas. The 5 factors outlined above are an awesome begin, however for any detailed questions, make sure to seek the advice of the specialists.