4 Things for Digital Nomads to Keep in Mind
Digital nomadism is on the rise, If you’re considering this option, there are several points of interest you need to keep in mind.
We’ll hereby include the four most important ones or, rather, which detail both sides of the coin — the good and the somewhat challenging.
If you’re planning to relocate, to begin with, the first starting point is — taxes. Therefore, let’s get started.
As you may already know, expat taxes in Australia and expat taxes in Azerbaijan are not the same. This rule applies to every country on the planet, so before you pick a country to relocate to, double-check their taxation rules.
Depending on what you discover, you may want to found a sole proprietorship or keep country-hopping to avoid excess taxes.
There are two things to keep in mind here: the Streamlined Filing Procedures and preventing double taxation. Let’s explain each of these in a bit more detail.
The Streamlined Filing Procedures
The Streamlined Filing Procedures were introduced a while ago, namely in 2012. They are, in fact, an alternative to the IRS’ programs as they were specifically designed for Americans living outside the U.S. who need to catch up on missed taxes.
Under this program, digital nomads are required to file only a small number of tax returns, which is exactly what makes The Streamlined Filing Procedures beneficial for many people.
You qualify for the program if:
- You can demonstrate that the reason for not filing taxes in the past was because you didn’t know you were required to
- You have been living outside the U.S. for at least 330 full days during one or more of the three most recent tax years
- You haven’t had an abode in the U.S. for one or more of the three most recent tax years
- You can produce and mail off a signed statement (Form 14653) certifying the above-mentioned
Preventing Double Taxation
Prepare yourself for a huge surprise.
Did you know that even though you are required to pay state taxes no matter where you are, you do not actually own anything?
What does this mean?
It means that there are a couple of ways to prevent being taxed on foreign-earned income. The three common strategies are The Foreign Tax Credit, The Foreign Earned Income Exclusion, and Tax Treaties.
The Foreign Tax Credit (FTC)
The FTC is designed to help expats claim a dollar-for-dollar credit on foreign income taxes. If you have obtained a foreign tax liability, you qualify for the program.
The Foreign Earned Income Exclusion (FEIE)
The FEIE is applicable to expats who can pass either the Bona Fide Residency test or the Physical Presence Test. You can exclude up to $107,620 of your foreign earned income in tax year 2020.
The U.S. has in place tax treaties with more than 70 countries. Not all of them follow the same pattern or hold the same benefits, so make sure to look up the specific agreement before relocating.
Data security is paramount.
Not only is remote work more prone to security risks, but it is also crucial to protect against phishing and hacking attempts. This is especially the case if you’re relying on online banks and payment services for a living.
You should take data security seriously and learn a bit about what you can do to protect your data, money and well-being.
Data security is aimed at protecting data and digital information from unauthorized access and comprises an indefinite complex set of steps that include:
- Physical security of hardware and software devices
- Digital security of administrative and access controls
- Logical security of software applications
The best-known effective data security strategies include strong password protocols, protection of sensitive data (encryption, for example), efficient data usage policy, and use of multi-factor authentication.
Digital transformation is the use of digital technologies to change or create business processes and client experience.
For digital nomads, it is of paramount importance to retain their clients since they won’t be able to secure regular payments otherwise. Digital transformation also improves data collection and access, contributing to increased productivity and improved business outcomes.
If you’re running a business, this process is certainly more complex, but if you’re a one-man-show, you can start by replacing obsolete procedures and manual tasks. Simply look up the best tools that will suit each purpose.
We leave the best for the last.
Scilicet, digital nomads may choose to start an online business, which would go with them everywhere!
There are numerous ideas in this regard — from dropshipping to selling online courses — so consider all options before picking just one solution.
After all, the whole point of digital nomadism is freedom. If you’re going to grow roots in front of your screen, it matters but little where you are located.
Digital nomadism is exciting, liberating and eventful, but it doesn’t equal eternal holidays. Before you decide on your next location, make sure you have some savings on the side. Alas, even though this lifestyle is tempting, it’s by no means cheap, so plan ahead.