International Tax Considerations for US-Based Digital Nomads and Location-Independent Professionals

Let’s be honest. The dream of working from a beach in Bali or a café in Lisbon comes with a less-glamorous sidekick: international tax complexity. For US-based digital nomads and location-independent professionals, the freedom to earn from anywhere is incredible. But your tax obligations? They have a funny way of following you.

Here’s the deal. The US is one of the few countries that taxes based on citizenship, not just residency. That means, no matter where you roam, you’re generally still on the hook for filing a US tax return. But then you add in foreign income, potential tax treaties, and local country rules… it gets messy fast. Let’s dive in and untangle the key things you need to know.

The Unshakable Anchor: US Citizenship-Based Taxation

First things first. You can’t outrun the IRS by getting on a plane. As a US citizen or green card holder, you must report your worldwide income. Every single year. That includes the money you make freelancing for a German client, the revenue from your online course sold to Australians, you name it.

But—and this is a huge but—you might not owe US taxes on all of it. Two main mechanisms can help: the Foreign Earned Income Exclusion (FEIE) and the Foreign Tax Credit (FTC).

The FEIE: Your First Line of Defense

For 2024, the FEIE allows you to exclude up to $126,500 of foreign-earned income from US taxation. To qualify, you must pass either the Physical Presence Test (330 full days in a 12-month period outside the US) or the Bona Fide Residence Test (proving you’ve established a tax home in another country).

Sounds perfect, right? Well, it has quirks. It only applies to earned income—wages, self-employment income. It doesn’t cover investment or passive income. And claiming it can sometimes complicate other tax benefits. It’s a powerful tool, but not a one-size-fits-all solution.

The FTC: Avoiding Double Taxation

Now, let’s say you’re working from Spain and paying income tax to the Spanish government. The Foreign Tax Credit is your friend. It lets you claim a dollar-for-dollar credit on your US taxes for income taxes you’ve already paid to another country. This is crucial for avoiding double taxation, especially if you’re in a higher-tax locale or your income exceeds the FEIE limit.

The Other Side of the Coin: Host Country Tax Obligations

This is where many digital nomads get tripped up. Just because you’re American doesn’t mean the country you’re working from ignores you. Most countries tax based on residency or physical presence. If you stay somewhere long enough to be considered a tax resident (often 183 days in a year, but rules vary wildly), you could owe taxes there.

You’re potentially creating a “tax nexus.” And honestly, navigating this requires research or professional help. Some countries offer specific “digital nomad visas” with clear tax stipulations—often a promise of no local tax on foreign-sourced income for a set period. Others? Not so much.

Common Pitfalls and Pain Points

Okay, let’s talk about the sticky stuff. The things that keep freelancers and remote professionals up at night.

• The 183-Day Rule (and its exceptions): It’s a common threshold, but many places have a “183 days in a rolling year” rule or look at “center of vital interests.” Don’t just count calendar days.
• Treaty Tie-Breakers: If two countries claim you as a resident, tax treaties have “tie-breaker” rules to assign you one tax home. These are complex but vital.
• State Taxes: Yep. Don’t forget your US state. States like California and New York are notoriously strict about domicile. If you keep an apartment, bank accounts, or professional licenses there, they may still claim you owe state income tax. Establishing domicile in a no-income-tax state like Florida or Texas before you leave is a common strategy.
• Foreign Bank Account Reporting (FBAR & FATCA): If the total value of your foreign financial accounts exceeds $10,000 at any point in the year, you must file an FBAR. FATCA Form 8938 has higher thresholds but similar requirements. The penalties for non-compliance are steep.
• Self-Employment Tax: The FEIE excludes income from income tax, but not from self-employment tax (Social Security & Medicare). You’ll typically still owe that 15.3% on your net earnings, unless you’re covered by a Totalization Agreement between the US and your host country.

Building a Sane Tax Strategy

So, what can you do? Panic isn’t a strategy. But a little planning goes a very long way.

First, track everything. Days spent in each country. Income sources. Receipts for business expenses. It’s boring, but it’s your armor.

Second, understand your visa. A tourist visa rarely permits you to work legally, even remotely. More countries are creating digital nomad visas—like Portugal’s D7, Spain’s DNV, or Croatia’s—which provide legal clarity, often including tax benefits.

Third, consider structure. For higher earners, forming a US-based LLC or S-Corp might offer better deductions and liability protection than filing as a sole proprietor. But this is deep “talk to a pro” territory.

And that leads to the final, non-negotiable point…

Why Professional Advice Isn’t Optional

Look, you’re an expert at what you do. A CPA or tax attorney specializing in expat and digital nomad taxes is an expert at this. The cost of a good advisor is almost always less than the cost of a penalty, an audit, or double taxation.

They can help you navigate the FEIE vs. FTC decision, manage state tax residency, ensure proper reporting, and plan for the future. Think of it as a necessary business expense for your location-independent life.

The Bottom Line: Freedom with Foresight

The digital nomad lifestyle is built on the promise of freedom. But true freedom isn’t about ignoring rules—it’s about understanding them well enough to move through the world with confidence and minimal friction. Your tax situation is a core part of that infrastructure.

It’s a balancing act, sure. Between US obligations and local rules, between maximizing income and minimizing liability. But with a bit of foresight and the right help, you can keep the focus on the work you love and the world you’re exploring, not the paperwork chasing you. After all, the view from that laptop is worth it.