How to use the Foreign earned income exclusion for digital nomads?
Digital nomads, you don’t know how to use the foreign earned and income exclusion? Then, you have arrived to the right place. At USTAXFiling.in, we guide you to claim your foreign earned income exclusion. Do you want to more about it? Click here for more details.
Digital nomads might be on the hook for United States taxes, but they are qualified for the tax breaks available to other expats. If they wish to claim their foreign earned income exclusion then digital nomads must decide their tax home, travel schedules as well as if the needs suit their lifestyle.
Taxes for Digital Nomads 101: Do You Need to File a United States Income Tax Return?
There is no doubt about it that the landscape of the agents is continuously transforming. Advances in technology have made it almost the rule to telecommute- not only from home but from any corner in the globe with an internet connection. Individuals are not at all tied to office space and they love it. The digital nomads know that there are endless opportunities as individuals move from one country to another, all while having a stable job.
Though the concept that travelling the world as well as earning for a living is appealing to us, it is also vital to keep in mind that you are on the hook to file a United States income tax return to report your income, even if you have left the country.
How Do Digital Nomads become qualified for the Foreign Earned Income Exclusion?
As you know that, the foreign earned income exclusion, as well as foreign housing exclusion (for self-employed persons, deductions), offer digital nomads to exclude a particular amount of income earned in abroad from their United States taxes ($105,900 for the tax year). It is also necessary to note that the FEIE applies to earn money that is bonus, salary or wages and it is not applicable for the unearned income that is dividends, pension distributions or interest rates.
To claim the Housing deduction or exclusion and foreign earned income exclusion you must:
- Have a tax home in abroad
- Have foreign earned income
- Meet the physical presence test or bona fide residence criteria
What Is meant by Tax Home—and How Is It applicable for Digital Nomads?
The IRS defines your income tax home as your primary place of employment, the post of duty or employment regardless of where you are maintaining a house. It is the area where you are indefinitely or permanently involved in work whether you are an employee or self-employed person.
If you are a digital nomad then there must be no single place you must be working. So, what does this means? In such a case, where you don’t have a primary place to do business, your tax house may be where you stay regularly.
To become eligible for a digital nomad for the bona fide residence test, you should establish that you have been a bona fide resident of a country or countries for an uninterrupted span that includes tax year that is January 1 – December 31 to those who file their tax returns on the calendar basis, among other things. You can take short trips to the United States or other destinations for business or holidays but you should have a clear intention of returning from those holidays.
How Do I become eligible Under the Physical Presence Test?
Another option for digital nomads to become eligible for the FEIE is to clear the physical presence test. The physical presence test is based on the days you were present in a foreign country or countries in that year, unlike the bona fide residence test.
As a digital nomad, you can become eligible for the physical presence test easily than the bona fide residence test.
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USTAXFiling.in is the leading tax consultant company to help you in every possible way. For a digital nomad, our USTAXFiling.in experts resolve all their queries and help them to claim their foreign earned income at earliest. You can connect right now with USTAXFiling.in for further details.