Looking for more information about the digital nomad tax deductions? You’re in the right place, we explain everything in this guide.
Any business-owning taxpayer is entitled to deductions; but what about those for the additional challenges you face as a nomadic online business?
Technological advances that allow for a wider digital market mean that it is even easier to be anywhere in the world while conducting your business.
Just because you may not have a conventional office, doesn’t mean you are not entitled to deductions on the essentials you need to properly function as a business.
A digital nomad will have a variety of deductions available to them if they are ordinary and necessary for business purposes. Any expense you incur in the name of earning your living is deductible.
Table of Contents
Digital Nomad Tax Deductions
Let’s get right into the main topic with all the deductions you can declare as a digital nomad.
The Remote Office
We understand that the slow travelling movement through Europe, sightseeing in Japan, and trekking in Africa will not usually allow for the typical work office.
There are deductions available for a remote worker to consider for a temporary workspace.
Offices Spaces and Coworking Memberships
Location-independent professionals have the freedom and ability to have a constantly moving office. This can entitle you to significant deductions for the cost of office space/co-working memberships that are internationally used.
This makes the rent-based approach of coworking spaces fiscally beneficial as members save money by only paying for the time they’re actually using the coworking space, and then they can even deduct it later during tax season.
Alongside the deduction for the office space itself, are other expenses such as renting a conference room, printing costs, and networking events that would be deductible under this consideration as well.
Unfortunately, there are costs that you may want to consider for these remote offices such as transportation and parking fees that would not be deductible as a business expense.
If you are allowed to deduct a home office, then can you deduct Airbnb as a business expense?
This is a layered question that can only really be decided on a case-by-case basis. Airbnb can be considered as a ‘travel expense’ for your business under the right circumstances.
You first need to understand that your tax home is where you work, and you can only deduct travel expenses outside your tax home.
For most Digital Nomads, Airbnb would not constitute as a travel expense as their tax home is always changing. The word temporary draws the figurative line between a digital nomad’s lifestyle and travel expenses for a business.
The Airbnb deduction would be where you have a tax home in one location, and you have to leave that location and travel temporarily for work while staying in an Airbnb.
Travel expenses away from your tax home for business purposes include expenses that are common, accepted, helpful, and appropriate in one’s line of trade or business.
Unfortunately, this isn’t the case for the majority of nomads who are traveling full-time.
Exception To The Rule
There may be a slight exception to this rule for the international digital nomad travelling from the US. Spending at least 330 days during a consecutive 12-month period, adventuring around the globe, may qualify as a tax home outside the US.
This means you could qualify for the Foreign Earned Income Exclusion which allows you to exclude up to $120,000 of income in 2023.
This can allow for Airbnb expenses or a deductible portion for a ‘home office’ -but keeping in mind that there are rules associated with this exclusion you may need to consider.
Phones and Laptops
With digital devices, there are two types of expenses you can claim as deductions: capital expenses and operating expenses.
Capital expenses include the physical devices necessary to have a functioning and growing business abroad; such as laptops, phones, tablets.
Operating expenses, however, allow for things such as internet fees, phone data and call costs. These expenses are the peanut butter and jelly for the digital nomad; you cannot have one without the other.
Laptops and Wifi
Without the appropriate equipment to use on your travels, it is unlikely your business can be successful.
The IRS’s standard for a legitimate deduction requires the item to be a usual, necessary, customary and reasonable expense for your type of work.
This is why Laptops, and all computer-related equipment, including laptop bags and accessories, would all be considered tax-deductible as an appropriate business expense for digital nomads.
To deduct laptop costs in Canada, Australia, the US, or the UK, it is allowable to deduct the amount your laptop is used for work.
This means if you use your computer only 50% for business and 50% for keeping up on Facebook or watching Netflix then you can only claim back that 50%.
A cost you may not have considered yet is the cost incurred with WIFI. Buying internet packages to work while abroad is a business essential often forgotten by remote workers.
As previously considered, it would be a reasonable expense for your work and a cost incurred in order for you to make a living.
Phones And Sim Cards
Similar to a laptop, phones are an expenditure most likely to be necessary for your business to succeed.
As long as you can give a reason to why it is a necessary and rational expense for your type of work, then it is tax-deductible and will follow the same taxable guidelines as a laptop (can only deduct the percentage used for work purposes).
Similar to WIFI is to a laptop; SIM cards are what allows your phone to connect to the local network. Using the one from another country means you’ll be roaming internationally and most likely paying a lot more.
If your phone is unlocked it is an easy swap out and allows you to conduct your business at a lower cost.
You can only deduct expenses on your tax return that you have proof for. Therefore, it is important to keep good records of your business’s expenses as well as your income.
Be diligent because self-employed people are more frequent targets of audits. Be sure to track everything –and the currency it came in to ensure you do not fall victim to the forgotten deductibles you are entitled to.
A good way to keep track is to always use the same payment method for business expenses, like a credit card tied to your business bank account.
Paying these expenses with your own personal accounts will just create a muddy mess when you try to sort everything out later or if you have an issue you need to go back to.
It is suggested to keep your business finances completely firewalled from your personal expenses.
Alongside with many deductions already discussed for digital nomads, there are a multitude more.
Wanderer’s Wealth has a business expenses checklist and spreadsheet in our shop for your business to further understand what deductions may be applicable and to keep better track of your records.
We also understand that different countries do accompany different tax rules and therefore the best way to ensure you are getting the best deductions is to reach out to Wanderer’s Wealth to see how we can help you on your adventures.
Do you want professional help with your own International Tax Strategy and Corporate Structure?
Check out our current services. We are here to guide you and help you navigate through the complex world of International Taxes and Business Structures.
We hope you have enjoyed this article. If you have any further questions please leave us a message below and we’ll get back to you as soon as we can.
NOTICE: The content of this article is not to be considered as a legal opinion or tax advice. Wanderers Wealth does not hold itself out as a legal or tax advisor. If you want to receive a legal opinion or tax advice on the matter in this article please contact us directly and we will refer you to a legal practitioner.