The life of a digital nomad can be exciting and gratifying. There are also a number of common challenges that it’s important to be prepared to face head-on. Here are five things you may not expect to change when you become a digital nomad.
1. Your Taxes
American citizens who are also digital nomads travelling through different countries must file taxes in the United States. The Foreign Housing Exclusion can help reduce your tax bill under certain circumstances.
This often-overlooked money-saving tax break can help ex-pats and digital nomads. It reduces the amount of money they owe the IRS at tax time. It may even help make living overseas more affordable.
You may be able to deduct certain living expenses from your taxable income. During the time you are travelling as a digital nomad. The IRS created the Foreign Housing Exclusion to help offset some of the additional expenses that may accompany living in a foreign country.
If you live in one country for an entire year or 330 days out of any consecutive 12-month period, you may be able to claim the Foreign Housing Exclusion. The IRS has determined base housing costs, and if your qualifying expenses exceed these costs, you may be able to deduct them for that tax year.
Some of the housing expenses allowed by the IRS include household repairs, furniture rentals, parking fees and property insurance. Domestic labour costs, mortgage payments and furniture purchases are not countable toward your Foreign Housing Exclusion deduction.
The Foreign Housing Exclusion is just one of many potential tax deductions you may be able to claim, depending on your situation. Talk with a tax advisor familiar with helping digital nomads. Handle their finances to learn more about how to save money on taxes.
2. Your Citizenship
After a period of time as a digital nomad, you may decide you like the lifestyle enough to make your situation permanent. Or, you may decide to settle down in a foreign country. Whether to renounce your U.S. citizenship is an important decision requiring a great deal of research.
Of course, no matter how far or how long you travel. There’s never a requirement that a citizen of the United States renounces their citizenship.
The most important thing to understand about renouncing your citizenship is that you can’t change your mind or reverse the action. The process can be complicated and it takes time.
You’ll start by getting a non-US passport. Without it, you would be considered “stateless” which could make it impossible to travel, rent or purchase property, receive medical services or work. If you don’t have a valid foreign passport, the United States will deny your request to renounce citizenship.
There are a number of forms you must fill out before your renunciation appointment. You’ll also need to bring your U.S. birth certificate and your foreign passport. The appointment must take place at a U.S. consulate or embassy in a foreign country, and you are required to appear in person. There’s a flat fee required to renounce citizenship, and you must swear under oath that you are doing it without outside influence and you understand the potential consequences.
After renouncing your citizenship, you’ll remain a U.S. citizen until you file your final tax return and pay your income tax debts. If you haven’t consistently filed taxes during the past five years, a tax professional can help to bring you into compliance with the IRS so you can move forward with the process.
You will require to pay the United States exit taxes. So it’s crucial to work with a qualified accountant that understands how renouncing your citizenship could potentially affect your finances.
3. Your Relationship With Minimalism
Digital nomads that travel frequently quickly learn which personal items, clothing and equipment they can’t live (comfortably) without. Even if you indulged in the joys of collecting trinkets in your previous life. You’ll quickly adapt to life as a minimalist.
Many digital nomads invest in reliable technology. Versatile clothing that stands the test of time and things that make travelling easier and more comfortable. For some, this new way of thinking represents and big and important change.
4. Your Tolerance for Weak Technology
Your ability to make a living as a digital nomad depends on your access to reliable technology. You must have 24/7 on-site high-speed internet access or you can’t work and make money as a digital nomad. While you may be lucky and have consistently excellent internet access, eventually you will run into a situation where your connectivity doesn’t live up to your expectations.
While you can (and should) take the matter up with your property manager or landlord. It’s crucial to have a backup plan. Make sure you have access to a strong cellular connection and a hotspot that you can use until you can establish a reliable internet connection.
Just to be safe, create a financial safety net that allows you to change locations or purchase equipment. It can help you get and stay online if necessary.
5. Your Boundaries
While the lack of restrictions around where and when you travel vaporize as you launch into a nomadic lifestyle. You must custom-build new restrictions to keep your work and personal lives balanced and healthy.
If your family, friends, customers or the company you work for exists in a different time zone. You must construct a custom-made routine that includes working hours, time to explore and time to connect with loved ones. It may be on the other side of the world.
Maybe your company headquarters are in Los Angeles, but you plan to spend the summer in Sydney. If you want to be available during regular business hours, your “working hours” in Syndey would be between 1 am and 10 am. While you may easily acclimate to the situation. Be sure to set boundaries around when you are willing to work so you don’t end up on the clock 24/7.
For many, becoming a digital nomad is a dream come true. Understanding the potential pitfalls and creating a support system and safety nets for yourself. It can help you get the most out of your experiences.
