Filing Taxes as a Digital Nomad: What To Do When You Have No Primary Residence
With the rise of remote work, it’s now possible to work from almost anywhere, and some people are taking full advantage of this by working from multiple locales throughout the year. But what happens when it comes time to file taxes? Which state or states do you have to file with? What do you do if you’ve lived out of a van or stayed in short-term rentals?
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To help you work through this complex tax situation, GOBankingRates spoke with Lisa Greene-Lewis, CPA and tax expert with TurboTax.
Where To File Taxes If You Lived in Multiple States Last Year
“If you lived in different states and earned income while living as a digital nomad, there are some key things you need to know when determining which state to file your taxes in,” Greene-Lewis said. “If you work as an employee in different states from what is considered your permanent place of residence, you may be on the hook for taxes in multiple states, and may have to file a resident return and non-resident returns in those states.”
States generally apply two tests to determine if you will be taxed as a resident of their state, the first of which is the 183-day test.
“The test is based on the amount of time you spent in the other state,” Greene-Lewis said. “In order to be taxed as a resident of a given state, you must spend 183 days there during the year and maintain permanent residence. If you are coming up on six months in another state, you may want to consider going back home if you can to avoid preparing a resident and non-resident tax return.”
You may also be able to avoid having to pay taxes in both states if both your home state and the other state have a reciprocal agreement that enables you to avoid double taxation, Greene-Lewis said.
In addition to the 183-day test, states may also apply a domicile test.
“The domicile test is based on the true home base location of your business, the time you spend in the state and the location of your prized possessions, like your property and bank accounts,” Greene-Lewis said. “If you are self-employed, you file based on the state where you are doing work, and you will also be required to pay self-employment taxes and file your self-employment taxes if you earn $400 or more.”
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Where To File Taxes If You Have No Permanent Residence
In today’s digital-first working world, you may no longer have a permanent address, which can make figuring out your tax situation even trickier.
“If you are an employee, states will still look at how long you were in a certain state to determine if your income is taxable in that state, and they will also look at your domicile, which can be determined by where you are registered to vote, where you get your driver’s license, register your car, or open checking and savings accounts,” Greene-Lewis said. “If you are self-employed, you are generally taxed based in the state where you are doing work.”
Where To File Taxes If You Worked in a Different State Than Your Employer Is Based
If your company is based in one state, but you lived in other states throughout the year, where should you file?
“If you are an employee who chooses to work in a different state for your own convenience, you may still have to file taxes based on where your employer is located,” Greene-Lewis said.
Tax-Filing Tips for Digital Nomads
Figuring out where to file taxes as a digital nomad can be tricky, but there are ways to take advantage of the freedom to work from anywhere.
“If you are living a nomadic lifestyle, you may want to make one of the states that doesn’t have taxes — Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington and Wyoming — your ‘permanent residence,’ or work in one of the states that doesn’t have taxes since you will not need to file a return in those states,” Greene-Lewis said.
You might also want to look into any states your home state has a reciprocal agreement with when choosing where to work.
“If you are in a reciprocal state, you can fill out the state’s exemption if you don’t want taxes withheld from your work state,” Greene-Lewis said.
If you are self-employed, be sure to take advantage of the tax advantages this qualifies for.
“Self-employed digital nomads have a ton of self-employed business deductions they can take,” Greene-Lewis said. “Don’t forget to deduct things like computer equipment, website maintenance fees, supplies and car expenses if they are directly related to your business.”
Finally, to ensure you are correctly filing your taxes, Greene-Lewis recommends using tax software or meeting with a tax professional who can help guide you through the process of filing in multiple states.
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