Digital Nomads: Here’s Your Quick Guide to Finances & Taxes and Your Remote Business
Finances and Your Digital Nomad Business
You need money to run a successful digital nomad business because trips across the world don’t pay for themselves. Here are our six tips on staying financially healthy as a digital nomad.
- Get a Business Bank Account: You must keep your business and personal finances separate. It will make your administration and financial management easier, plus it’s a legal requirement for protecting your assets. Talk to your bank about setting up a business account for your digital nomad company.
- Get a Certified Public Accountant (CPA): A CPA is essential to running your business successfully. In addition to advising on taxes, preparing and filing your tax return and keeping taxes to a minimum, they can also provide financial advice. They will be able to instruct you on expenses, profitability, good financial management, estimated taxes and more. They should be experienced in taxes and financial advice while traveling the world or living outside the United States.
- Make Sure You Have Savings in Place: There’s nothing as stressful as relying on your new business to give you enough money to pay the bills. Your digital nomad business probably won’t be successful straight away. That’s why it’s essential to have savings in place so you can meet your international living and working expenses until your business brings in decent revenue. We recommend having between three and six month’s worth of expenses saved up, the more the better.
- Get Financing for Your Business: In some cases, you may need to get financing to cover cash flow gaps for your digital nomad business. You can go to your bank and ask for a loan. If you decide to do this, you must have a solid business plan, revenue, and finance projections and a plan to pay back any money you borrow. The Small Business Administration also lists financing you may be eligible for. There are also a number of online small business loan options, most of which require you to be in business for at least one year and to have a minimum FICO score of 650.
- Set up Merchant Accounts to Accept Debit and Credit Cards: If you want to take online debit and credit card payments, you have a few options. You can use integrated services like Square, PayPal, Stripe, etc. You will need to use one of these options if you want to accept cards. Some financial software services such as FreshBooks allow you to connect online credit card payments to your invoices.
- Get Accounting Software: Speaking of financial software, bookkeeping and accounting software is essential for keeping track of your digital nomad business finances. Good financial management is vital to your peace-of-mind and online accounting software will give you the insight you need. There are plenty of options to choose from, with some popular ones being: QuickBooks, FreshBooks, FreeAgent, ZipBooks, Wave Accounting, Xero, Bench and more. It also might be helpful to find a bookkeeper to track and manage your monthly expenses, so you’re not overwhelmed every year at tax time. You can find bookkeepers on UpWork.com.
Did you know the United States is the only country where even if you don’t live there anymore, you have to pay taxes to the United States government if you’re a citizen. Taxes are a fact of life and if you’re in business there are various ways you will need to file and pay them.
- File with the IRS — let the IRS know you are setting up a business.
- Federal income tax — you will need to pay income tax on any profits or earnings you take from your digital nomad business. In most cases, profits from the business will “flow through” to your individual tax return and you will be taxed there.
- Self-employment tax — unlike employees, the earnings from your digital nomad business will be taxed under a self-employment tax (FICA and Medicaid). This is just over 15% of your earnings. If you file your digital nomad business as an LLC and want to save money on taxes, you can elect to be taxed as an S Corporation. See our S Corporation Tax Calculator to understand how this can save you taxes as a digital nomad.
- State tax — most states do have a state income tax. If yours does, you will be taxed on your earnings as normal. To register for state tax, see your Secretary of State website. Even if you’re not living in a state, you likely need to register your nomadic business as an LLC and collect mail at an address in the state. So, you’ll be liable for this state’s tax.
- Expat tax relief — If you’re a full-time digital nomad living outside the United States for the majority of the year, you can receive tax benefits such as the Foreign Tax Credit, the Foreign Earned Income Exclusion, and the Foreign Housing Allowance. Connect with your CPA or do your research to understand how you can tax advantage of these tax breaks for digital nomads.
- Payroll tax — if you pay employees, you will be liable for payroll tax. If you’re a solopreneur traveling the world or just hiring other contract freelancers, you don’t need ot worry about this!
- Other taxes — in certain circumstances, you may need to pay some other types of taxes. Talk to your accountant to find out what else you may be liable for.
As a rule of thumb, we recommend keeping back around a third of your earnings to pay your taxes. We can prepare and file your tax returns for you.