US Nomads and Taxes: Common Pitfalls and Safer Paths

US Nomads and Taxes: Common Pitfalls and Safer Paths

ByEvan Parker

Taxes and nomad life in the US: not the hottest dinner party topic, but if you’re traveling the world while earning in dollars, you’ll want to get this right. The IRS isn’t famous for its sense of humor, and state tax boards can be even less forgiving. Over the past seven years working everywhere from coffee shops in Bali to mountain cabins in Colorado, I’ve seen (and made) plenty of mistakes. Here’s how to avoid the big ones and keep more of your money in your pocket—without ads for “magic loopholes” or promises of a tax-free life.

State Ties: Your “Invisible Baggage”

Let’s start with state taxes. Most US nomads fixate on federal rules, but your state could be the real tax trap. Even if you’re never physically in, say, California, if the state considers you a resident, you might owe a chunk of change.

Quick story: A friend of mine moved out of New York, traveled Asia for two years, and kept using his NY address for bank mail. He thought he was in the clear—until NY sent him a tax bill for every year he was gone. “But I wasn’t even there!” didn’t work as an excuse.

Domicile vs. Residence: What’s the Difference?

This is where most people stumble. Your state “domicile” is your permanent home, the place you intend to return to. “Residence” is just where you happen to be living. You can be a resident of zero states (on paper), but your domicile sticks until you prove you changed it.

Common triggers that keep you tied to a state:

  • Keeping your driver’s license or voter registration there
  • Using a parent’s or friend’s address for legal stuff
  • Owning a home or having a lease
  • Storing your “stuff” (even in a storage unit)
  • Returning for holidays or medical appointments

Some states, like California and New York, are infamous for aggressively chasing former residents. Others (Texas, Florida, Nevada, etc.) have no state income tax and make it easier to sever ties.

Federal Taxes: FEIE, Self-Employment, and What You Can (and Can’t) Skip

FEIE: The Foreign Earned Income Exclusion

Ever heard of the FEIE? It lets US citizens exclude up to $120,000+ (2023 figure) of earned income from federal tax, if you qualify. But “qualify” is the key word.

  • Physical Presence Test: You’re outside the US for 330 days in any 12-month period.
  • Bona Fide Residence Test: You establish a legitimate residence in a foreign country.

But here’s the catch: FEIE doesn’t apply to passive income (investments, rental, dividends), and it doesn’t exempt you from self-employment tax (15.3%). That surprises a lot of freelancers and business owners.

Self-Employment Tax: No Escape (Usually)

If you’re self-employed, you generally owe 15.3% on your net profits, no matter where you are. There’s a loophole for some countries with Social Security Totalization Agreements (like the UK, Canada, Australia), but most digital nomads don’t qualify unless they’re officially employed by a local company. Setting up a foreign LLC or using crypto wallets doesn’t make you invisible.

Bottom line: If you’re a US citizen or green card holder, the IRS expects you to file every year, everywhere. There’s no “out of sight, out of mind.”

What to Do in the First 15 Minutes: Checklist

Here’s what I recommend every US nomad do at least once a year—ideally, before tax season kicks off:

Task Tools/Notes
Check your state residency status Look up “statutory resident” rules for your last state. See Million Mile Secrets Guide
Review your mailing addresses Switch banks, credit cards, and IRS mail to a new domicile (e.g., Texas mailbox service)
Update driver’s license/voter registration This is key to breaking ties; see your new state’s DMV site
Calculate FEIE eligibility Use FEIE calculator
Estimate self-employment tax Try TaxAct calculator
Organize expense receipts Scan with apps like Expensify or Google Drive
Set calendar reminders for tax deadlines April 15 (or June 15 abroad), FBAR due April 15

Record-Keeping: Your Boring Superpower

Most expats and nomads get tripped up not by complicated rules, but by sloppy records. The IRS doesn’t care about your travel blog—they want receipts. Here’s a quick system that’s saved my bacon more than once:

  • Use one credit/debit card for business expenses only
  • Store scanned receipts in a dedicated cloud folder (Dropbox, Google Drive)
  • Tag expenses monthly: “meals,” “lodging,” “transport,” “software,” etc.
  • Keep a simple spreadsheet of income and expenses (Google Sheets or Notion)
  • Back up everything, twice

I once got audited for a year I spent mostly in Mexico. Because I’d saved all my Airbnb receipts and flight info, the process was annoying—but painless. The IRS agent was actually impressed (“Most people don’t have this stuff”).

Useful Tools and Links

There’s no one-size-fits-all solution, but these tools can help cut down the headache:

Final Thoughts: Don’t Overthink—But Don’t Ignore

Getting your nomad taxes right isn’t about tricking the system—it’s about knowing the basics, avoiding obvious mistakes, and keeping your paperwork in order. I’ve seen people overcomplicate things so much they nearly missed deadlines, and others ignore the rules until the IRS comes calling. The sweet spot is somewhere in between: handle the essentials, automate what you can, and keep good records. That way, you spend less time worrying about taxes and more time enjoying the places you actually want to be.

Some links in this post may be affiliate links. You’ll pay the same price, but I may earn a small commission to help keep this blog running (and caffeinated).

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