Why This Is Complicated

The first year I worked from Bali, I filed my US taxes like nothing changed. Sitting on a beach, still an American, still owe the IRS. Simple, right?

That assumption cost me $4,200. Missed the Foreign Earned Income Exclusion. Didn't know about the Physical Presence Test. Paid full US taxes on income I could have partially excluded.

Year two, I overcorrected. Claimed deductions I didn't qualify for. Late penalty. Interest. One very uncomfortable phone call with the IRS from a hostel in Thailand.

Three years and two accountants later, I finally get it. Would've been nice if someone had explained this before I learned it the expensive way.

Real quick: Yeah, I'm a CPA. But that doesn't mean I know your situation. Every country has different rules. Talk to someone who actually knows your circumstances.

Tax Residency (The Thing That Actually Matters)

This is the whole game. Where are you tax resident?

It's not where your passport says. It's not where you're sitting right now. It's where the tax authorities say you belong.

Most countries use the 183-day rule. Spend more than half the year somewhere? Probably tax resident there.

But there's also: where's your home base, where's your family, where are your bank accounts, where do you intend to return?

US Citizens: You're Special (Not in a Good Way)

America and Eritrea. That's it. Only two countries that tax citizens no matter where they live.

Living in Bali for five years? Still filing US taxes. Haven't been home since 2019? Still filing.

The good news: Foreign Earned Income Exclusion lets you exclude up to $132,900 (2026) according to the IRS. Foreign Tax Credit helps avoid double taxation.

The bad news: Miss a form and you lose these benefits. The paperwork is brutal.

Breaking Ties

Want to stop being tax resident somewhere? It's not as simple as leaving.

  • UK: Fewer than 16-90 days per year (depends on your ties)
  • Canada: Sever residential ties. No home, no spouse there
  • Germany: Deregister your address, don't keep a place

Get this wrong and you're paying taxes to a country you left years ago.

Your Situation

W-2 Employee Working Remote

Straightforward. Employer withholds everything. File normally.

Watch out: Move states mid-year? You might owe both states. Tell your employer.

Freelancer

More complicated. You handle:

  • Self-employment tax (15.3% on top of income tax)
  • Quarterly payments (April, June, September, January)
  • Tracking every expense

Track everything. QuickBooks, FreshBooks, whatever. Just do it all year, not in April.

Nomad Bouncing Between Countries

Here's where it gets messy.

You might be tax resident nowhere. Or everywhere. Or in some gray area that keeps you up at night.

Tax authorities share information now. Playing jurisdictional games is risky. Pick a tax home.

Deductions Worth Knowing

Self-employed only. W-2 employees lost most deductions in 2018.

Home Office

Regular method is more work but usually more money back. See our complete freelancer tax deductions guide for details.

Equipment

Laptop, monitor, chair, desk. All deductible. Section 179 lets you deduct the full cost immediately according to IRS rules.

Software

Notion, Slack, Zoom, project management tools. All business expenses.

Coworking

Memberships, day passes. Deductible. That $5 coffee while working? Technically deductible (but keep receipts).

What's NOT Deductible

Flying to Bali because you want to. Living in Lisbon because it's nice. Your nomad lifestyle is personal, not business.

Client meeting in another city? Deductible. Working poolside because Instagram? Not deductible.

The International Stuff

FBAR (Don't Skip This)

Foreign accounts over $10,000 total? File an FBAR according to IRS requirements. Every year.

Penalties for not filing: over $10,000 per account, inflation-adjusted every year. Willful violations? 50% of your account balance.

I know people who got hit with this. It's not fun.

For help managing international finances, see our guide to banking for digital nomads.

Tax Treaties

The US has treaties with 60+ countries to prevent double taxation. Check if yours applies.

VAT

Selling to consumers in the EU? You might need to collect VAT. B2B is usually exempt. This is complex. Get help.

When to Get Help

DIY works if:

  • You stayed in one country
  • Single income source
  • No foreign accounts
  • Straightforward situation

Get a professional if:

  • Multiple countries
  • Foreign bank accounts
  • US citizen abroad
  • Multiple income sources
  • Setting up an LLC or S-Corp
  • Behind on filings

What It Costs

  • Simple return: $300-500
  • International complexity: $500-1,500
  • Full expat prep: $800-2,500+

Worth it. A good accountant finds deductions you missed and keeps you out of trouble.

Frequently Asked Questions

Usually yes. Depends on tax residency, not location. US citizens always file.

Self-employed: yes, if exclusive business use. Employees: no (federal).

Self-employed: yes. Keep receipts.

Report them. Over $10,000 = FBAR required. Penalties are brutal.

No. Business travel yes. Lifestyle travel no.

Freelancers: pay quarterly or face penalties. Set aside 25-30% of everything.

Bottom Line

Look, tax residency is the whole ball game. Know where you belong legally.

Track everything throughout the year. Not the night before you file.

Foreign accounts? Report them. Cannot stress this enough. The penalties are brutal.

Get professional help if your situation is messy. That cost is nothing compared to what the IRS will charge you in penalties.

And seriously, don't be the person who just ignores all this hoping it goes away. International info sharing is real now. Countries talk to each other. Get ahead of it.