Which digital nomad deductions can I claim for my taxes?
As a digital nomad, keeping track of your expenses is crucial for monitoring your cash flow and maximizing your tax deductions.
And because you travel all around the world, it’s sometimes a bit more difficult than when you live a traditional lifestyle.
Do you want to optimize your tax setup as a digital nomad? Contact me!
Key Takeaways on Tax Deductions for Digital Nomads
- Tax deductions for digital nomads follow the general tax rules.
- Interpretation of the deductions can differ for digital nomads with no fixed working place.
- Various categories of expenses are generally deductible for digital nomads.
- Always check the specific rules of the country where you file for taxes.
Understanding How Tax Deductions Work for Digital Nomads
There is no such thing as specific tax deductions for digital nomads.
Just like any other taxpayer, we are subject to the same tax rules. And, these rules also determine which deductions you can claim.
Basically, you need to remember that only costs related to your actual business activity will be tax deductible.
Yet, the practical interpretation of this can differ from a person with a fixed working place.
Country-Specific Considerations for Deductions
Which tax deductions you qualify for depend on where you are a tax resident as a digital nomad.
There are many elements that will have an impact on this. For example, US citizens will always need to file taxes in the US. While other people might still be paying taxes to their (former) home country.
So, your tax residency will determine which costs you can deduct to which extent.
Therefore, it’s always recommended to ask for some guidelines from your accountant to check which expenses qualify as a digital nomad deduction and which ones don’t.
Nevertheless, I created a list with some common deductible expenses for digital nomads.
Common Deductible Expenses for Digital Nomads
Hereby a list of categories of digital nomad deductions you can claim most of the time.
Digital Equipment
As a digital nomad, we rely on digital equipment like laptops, smartphones, and tablets to work remotely.
The cost of purchasing, maintaining, and upgrading these items will mostly be tax-deductible.
Home Office Expenses
If you work from a home office while on the road, you may be able to deduct a portion of your rent and other expenses that relate to your home office.
So, if you rent an AirBnB you might be able to deduct part of the cost. Normally, you won’t be able to deduct the full cost as the part of the cost related to the part you actually use to live is considered a private expense.
Depending on your country, there may be specific guidelines for calculating this deduction, so be sure to check with your local advisor.
Coworking Space
Another option is to work from a coworking space instead of from home.
Many digital nomads opt to work from coworking spaces as it also adds a social component. The membership fee for the coworking will be tax deductible just like if you would rent a traditional office space.
You can deduct the cost of renting a desk or private office, as well as any associated expenses like high-speed internet and office supplies.
Travel Expenses
If you travel for work, you can deduct your transportation costs, such as flight or train tickets, and car rentals. You can also deduct your housing expenses (e.g. AirBnB) and meals.
However, the deduction will only apply if there is a direct link to your business. This could, for example, be the case if you need to visit a certain place to have an in person meeting.
Yet, just traveling for the sake of it as a digital nomad won’t be sufficient to label these costs as business expenses.
Therefore, if you need to be in a specific place at a specific time for a business reason, that will be okay. If you travel to place just because you like to spend some time there, the cost will not be accepted.
Keep track of your expenses and receipts, as well as the purpose of each trip, to ensure you are compliant with tax regulations.
Online Tools and Services
As a digital nomad, you likely rely on a variety of online tools and services to support your work.
These could be project management software, virtual meeting platforms, and cloud storage solutions.
The cost of these items are tax-deductible.
Professional Services
As a digital nomad you can hire a virtual assistant, accountant, or other professional to help you with your work.
You can deduct their fees as a business expense.
Insurance Premiums
You can deduct the cost of insurance premiums related to your business, such as liability insurance or business interruption insurance.
Any private insurance (e.g. travel insurance or health insurance) will most likely not deductible as it is a private cost.
Advertising and Promotion
You can deduct expenses related to advertising and promoting your business, such as the cost of creating and distributing marketing materials.
You can also deduct the cost of running ads in order obtain new clients.
Training and Education
If you invest in training and education to enhance your skills and knowledge, you may be able to deduct the cost of registration fees, online courses, and other related expenses.
The same can apply if you visit conferences in order to enhance your knowledge and to network.
Here, I also want to refer to what we discussed about travel expenses. If you go to a place with a specific business purpose, you can deduct the costs for this.
Bank and Payment Processor Fees
Digital nomads often use banks and payment processors to receive payments from clients and manage their finances.
The cost of these fees are tax-deductible.
My Tax Advice for Maximizing Deductions
My advice for maximizing deductions is to not focus too much on them. This might sounds weird but let me clarify…
The easiest way to save on taxes is not necessarily to optimize your expenses. Too many people make all kind of useless expenses just because they’re tax deductible.
It’s way better to spend your energy on what your business actually needs to grow, rather than waste all your energy to save just a few bucks in taxes.
Moreover, the best strategy for optimizing your taxes is to actually review your whole setup.
All too often I speak to people who are stuck with a certain setup that actually doesn’t suit them and it costs them a lot of energy to save a little bit in taxes here and there with small deductions.
Going back to the drawing board can actually set you up for future financial success and can simplify your setup in the process.
Mistakes to Avoid at All Cost
- Avoid mixing personal and business expenses: this will make a mess of things and might result in discussions with the tax authorities.
- Failing to keep proper records: if you want to digital nomad deductions, you’ll have to show proof of the expense.
- Not seeking professional advice: to ensure you understand the deductibility of certain expenses, you’ll need to talk to a professional.
- Not aligning your setup with your lifestyle: as a digital nomad you have more options to optimize your taxes than a person with a traditional job, use it to your advantage!
Work With Me
If navigating tax deductions feels overwhelming, I’m here to help you simplify the process and maximize your savings.
Don’t leave money on the table—reach out today for personalized guidance tailored to your unique digital nomad lifestyle.
Let’s make your taxes work for you!
Contact me now to get started.