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Have you ever dreamed of ditching the 9 to 5 and taking off to an exotic beach to live in the sun and sand? What if you could do so while saving money on rent and reducing your tax burden? Believe it or not, more Americans than ever are doing just that!
Remote work and digital nomadism are here to stay and only expected to grow. By 2025, 36.2 million Americans are expected to be working from home. About 16% of U.S. companies are already fully remote, and as more workers seek out the flexibility that remote work offers, more companies will have to follow suit to attract top talent.
As a result, jetting off to locations with more favorable living costs and tax laws is becoming an attractive option for Americans who are tired of their dollar not going as far at home.
Inflation hurts less when implementing something called ‘geo-arbitrage’, which basically means earning dollars in a strong economy, and living/spending them somewhere with a lower cost of living.
Paying less for a higher quality of life and lowering your tax burden may seem like a pipe dream, but it doesn’t have to be! There are ways to almost entirely eliminate your tax burden while reaping the benefits of living in an area with a lower cost of living, better weather, and more things to do. In fact, Travel Off Path has interviewed two Americans who are doing just that!
First, Some Tax Background
Before catching up with our interviewees, it’s important to understand the tax benefit being referenced and discussed. All Americans can take advantage of this tax exclusion, called the Foreign Earned Income Exclusion program (FEIE), which is a completely legal and simple way to reduce your taxable income.
Meet the Foreign Earned Income Exclusion.
Essentially, Americans who meet specific requirements can use this exclusion when filing their taxes to reduce their taxable income by $120,000 (for 2023, the amount is adjusted yearly for inflation). In order to take advantage of this, Americans must meet one of the following requirements:
- Be a valid resident of a foreign country for the entire tax year.
- Be a national or citizen of a country that has an income tax treaty in effect with the U.S. and who is a resident of a foreign country (or countries) for an entire tax year.
- Reside outside of the U.S. and be physically present in another country (or countries) for 330 days out of a calendar year.
For full details of the exclusion, check HERE.
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Latin America Is The Place To Be
While the FEIE can be used in many countries, Latin America is a great place to call home as a digital nomad. Since most nations within Latin America have attractive ‘territorial tax’ laws, meaning there is 0% tax owed when the income is from a foreign source, they make the FEIE program extremely attractive. Combine that with a lower cost of living, vibrant people, and gorgeous destinations. What’s not to love? It’s a popular choice for digital nomads and is also where our first interviewee, Vance, spends the majority of his time.
Vance started the popular podcast My Latin Life, where our CEO Kashlee Kucheran recently spent some time as a guest outlining her path to digital nomadism and running a travel news website. He spends most of his year in Latin America, “bouncing between Mexico, Panama, and Paraguay,” and his reasoning is unsurprising.
“The low cost of living is amazing – earn dollars, spend pesos. I feel more alive in Latin America. Maybe it’s the sun and increased levels of vitamin D. My Spanish is also very good now, and I am happy to have built the lifelong skill of speaking a foreign language. I am very thankful to be able to spend winters on the beach in Mexico instead of commuting to an office in the freezing cold.”
Vance lived in the Northeastern U.S., working in I.T. before learning about becoming a digital nomad and working towards building a skillset that allowed him to take the leap. One of the most influential factors was the tax benefits of becoming a digital nomad.
“I knew I was going to be a digital nomad anyway, but the FEIE really made it a no-brainer. The taxes on $112,000 of income works out to around $17,000 in federal taxes alone. You can really reduce your tax bill to 0% by implementing this one exclusion. It’s like the IRS is telling you they’ll pay you $17,000 a year to stay outside of the United States and travel the world! It can be scary to submit a tax return where you owe $0 in taxes, but it’s more common than you think and totally legit.”
Want To Live This Way Yourself? Earning an Income Online is the Key.
Vance’s story is just one of many. Now more than ever, Americans are flocking to exotic locations to take advantage of the lower cost of living and tax benefits that come with living outside of the United States. However, most people, especially those who’ve always had a more traditional career, wonder how to get started. Dylan Madden, an online marketer and entrepreneur, gives us some really great advice on how to start making an income that can follow you globally.
Firstly, “use your current day job to pay your bills, while you focus on your business during your free time. Don’t just quit your job. Make sure to focus on providing a skill to others who will happily pay you for. Of course, there are many options for earning income online as a digital nomad. However, one of the easiest and longest-lasting methods is freelancing. As there are always people looking to save their time and are willing to pay you if you can do that plus help increase their income.”
Dylan got started doing just this in 2014 when he began to write for various blogs. In 2019, he landed his first email copywriting gig, eventually leading to his current state of running two companies, including his business motivation brand Calm and Collected, and hiring more team members. For those who genuinely want it, digital nomadism is achievable with the right skills, mindset, and dedication.
Why Are Americans Leaving The U.S. To Live And Work Abroad?
In Dylan’s words, “more Americans are choosing to live and work abroad because we’re tired of rising costs of living for not much of a boost in our lifestyle. When we live a much higher quality life abroad for much cheaper.”
To prove his point, he went on to give an eye-opening example. “I have one of the best apartments in Paraguay. It’s only $1,600 a month. If I lived in the USA, the equivalent apartment would cost me upwards of $4k to $6k. Not only that, but a good steak dinner for 2 is only $45. The same meal would cost me easily $100+ in the USA.”
Becoming a digital nomad and moving out of the U.S. has allowed Dylan to live a more stress-free life, retire his mother, give to animal shelters, see 17 different countries, and build up his team so they can also live the life they want.
Where Are The Best Countries To Start Nomading For Americans?
The best places to start your digital nomad journey will depend on your budget, preferred climate, personal interests, and of course, which nations can be tax-friendly. Some of the most loved and popular for entrepreneurial nomads include:
- UAE (Dubai)
- Mexico
- Paraguay
- Panama
- Colombia
- Brazil
- Croatia
- Albania
- Georgia
It’s not hard to see the appeal. As more Americans begin to realize there are more options than sticking it out in a 9-5 for 30 years and then retiring, they will start to take advantage of the many benefits of living and working outside of the U.S.
The above interviewees are only two examples proving the effectiveness of working remotely in another country and taking advantage of completely legitimate tax incentives. There are tens of thousands more. The only question is, are you ready to join them?
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This article originally appeared on TravelOffPath.com
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