US Tax Accountant for Digital Nomads in Estonia
Although Estonian tax laws are among the simplest and most competitive in the world, expatriates and digital nomads living in the country will find that the same cannot be said of United States tax laws. Unfortunately, a digital nomad working outside the US may be required to settle their tax status with the Internal Revenue Service.
Ted Kleinman, CPA, can help navigate the body of tax laws that confront Americans working abroad. To hear more about the services US Tax Help offers, call today (541) 923-0903.
Do I Still Pay Taxes in the US if I Work in Estonia?
The United States is one of the few countries in the world where taxes are determined by citizenship instead of geographic location. That means all US citizens working overseas have to file their taxes in the United States, no matter where they may work or reside. The type of tax, number of exemptions and rate of taxation can all vary based on a number of factors, just as if the work was done in the US. However, there are some unique benefits that nomads can reap under certain circumstances.
How to File Taxes if You Are Living and Working in Estonia
Although the filing process can be more complicated for nomads, they can benefit from a very helpful tax credit, the Foreign Earned Income Exclusion, which allows United States citizens and permanent residents to reduce their income tax burden up to a certain cap. To qualify, nomads have to pass either the bona fide residence test or the physical presence test, then seek approval from the IRS.
- The bona fide residence test is a determination of whether a citizen or resident has resided outside the United States for an entire tax year, without interruption.
- The physical presence test requires that a citizen or resident spend at least 330 days outside the United States over a 12-month period. The days do not have to be consecutive.
Keep in mind, however, that neither test comes with a guaranteed tax credit. A number of factors – including the nature of work being done, type of residence used and the existence of any tax treaties between the US and country of residence – can influence the final determination of the IRS.
Claiming Deductions as a Digital Nomad
By its very nature, the nomad lifestyle comes with certain expenses that can be turned into deductions through the alchemy of accounting. Taking care to keep extensive records can really pay off here. Travel-related expenses such as fuel, meals and mileage can add up to significant savings on a nomad’s final tax bill. Moving expenses can be another useful deduction, but beware – if an employer reimburses those expenses, things can get complicated.
Purchasing equipment for work can be another helpful deduction. Computers, software and other tools of the trade can prove expensive, so recouping some of those losses might be worthwhile. Also, if there are costs related to the use of a work space, whether it’s rented and shared or private and personal, they may be deductible as well.
Tax Penalties for US Citizens Working in Estonia
Along with the benefits of working as a digital nomad comes the chance for some serious mistakes. These pitfalls are almost inevitable when dealing with the myriad tax codes facing a long-term international traveler, and they can be further complicated by self-employment or the establishment of a foreign business.
Self-employed nomads are required to submit reports to the IRS throughout the year, not just in April; failure to comply can result in pretty severe penalties. Similarly, if a nomad has financial assets outside the country, they may be required to come into compliance with the Foreign Account Tax Compliance Act or Report of Foreign Bank and Financial Accounts, each of which carries its own potential for fines if mishandled.
An expired or improper visa can also spell trouble for nomads if it is discovered by the authorities of their host country. In Estonia’s case, a number of visa options are available. The D-visa is probably the most practical for nomads, as it allows for employment in Estonia without having to establish residency. By comparison, working on a tourist visa can lead to penalties, or even deportation.
Our Tax Specialists Can Help Digital Nomads in Estonia
Ted Kleinman, CPA, has more than 30 years’ experience as a professional accountant. His specialization in international taxation makes him uniquely qualified to guide digital nomads through the complicated process of filing taxes with the IRS. Ted can lend his expertise online through the US Tax Help website, making him a perfect option for those working abroad. Call (541) 923-0903 for more information.