Taxes are challenging at the best of times, but when everything you own fits into a suitcase and you’re changing locations frequently — as many digital nomads do — stuffing receipts into a shoe box isn’t an option. As a person who travels for a living, I’ve been filing taxes from abroad for a dozen years.
Over time, I’ve tweaked and re-tweaked my system. Now, I file taxes quickly and efficiently. Here’s my system.
Know What’s Deductible
Most digital nomads are self-employed or employed as contractors, which is similar to being self-employed. While this might seem daunting, it’s actually awesome, because you can deduct any expense that is connected to earning your income. This includes your laptop and all related technology, your phone, SIM cards and phone plans, internet service, office space, banking and PayPal fees, accounting and legal expenses, professional fees, association memberships, professional courses, employee/virtual assistant salaries and more.
As a travel writer, I deduct all my travel-related expenses, which, as a digital nomad, is almost everything I spend. And, because I maintain a website as part of my online career, I deduct web hosting, email marketing services, advertising expenses and any other website-related costs, too.
Note that some expenses may only be partially deductible, depending on the nature of the expense and local tax regulations. Not sure what you can claim? I highly suggest consulting a tax preparer who can give you the lowdown. More on this later.
Track Receipts as You Go
Since my life and office goes everywhere with me, I have to be incredibly organized. Good thing it’s easy to do with the help of some killer travel-friendly smartphone apps. My app of choice for tracking tax-deductible expenses is Trail Wallet; it manages and converts multiple currencies, has customizable categories, allows data exports for further organization, and you can even store a photo of the corresponding receipt. This is great, because although I’m a dinosaur and I still keep paper receipts, apparently it’s unnecessary; in the event of an audit, many governments now accept digital records of receipts.
Organize in Spreadsheets
After exporting my tax-deductible expenses to a spreadsheet, I organize the information so it can easily be processed by my tax preparer. I break expenses down by category (e.g., office expenses), then by subcategory (e.g., phone and internet). I break it down even further by the currency I paid for these expenses in (i.e., U.S. dollars, Australian dollars, British Pounds, etc.).
I similarly organize my income. As a self-employed freelancer, I juggle income from multiple sources, including publications I write for, book sales, affiliate income and more. Since tax slips are not generated for all forms of income, and since many of these payers are in foreign countries/currencies, the onus is on me to claim my worldwide income on my home country’s tax return.
Up Next: How to Calculate Estimated Taxes
Hire an Expert
When I was a financial planner, I filed my taxes online. One year, however, I did a “test run” with a tax preparer, who saved me over $3,000 in taxes compared to what I came up with. Ever since, I’ve used a tax preparer.
Your tax preparer needn’t be a chartered accountant; they tend to cost more. My tax preparer has been doing this his entire life and is more than qualified. The trick is to develop a relationship with your tax preparer prior to traveling. You’ll sign various paperwork allowing them to access your tax slips online and file on your behalf, so this is important.
File (and Fly) Away!
Regardless of where I am in the world, I send my income and expense spreadsheets to my tax preparer, who files on my behalf. If I need to pay taxes, I can do so through my bank account online, and if I’m due a refund, it’s automatically deposited.
This is a quick overview of how I file taxes as a digital nomad. I wrote a much larger tax guide, which includes do it yourself tax tips and tax preparer suggestions for U.S. digital nomads, as well as Canadians, Australians, and U.K. citizens.
Click through to read why it’s worth it to hire a tax accountant to do your taxes.
More From Our Smart Money Squad
- I Wanted to See the World — So I Made Travel My Job
- Work and Play: 4 Ways to Actually Make Money While Traveling
- I Get Paid to Travel the World (and It’s Harder Than You Think)
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