As a digital nomad, have you stayed in an Airbnb for months at a time and wondered about the legality of writing off your housing as a business expense? Some digital nomads often believe all kinds of rent are deductible, so let’s dive into those details.
That Digital Nomad Lifestyle
According to the State of Independence in America research brief conducted by MBO partners in 2018, 4.8 million US independent workers describe themselves as digital nomads, and an additional 17 million aspire to someday become nomadic on top of that. The benefits are appealing: a work-life balance and the chance to immerse yourself in various cultures, to name a few. Technological advances, the rise in co-living spaces, and the growth of online marketplaces have made opportunities for digital nomads possible.
A digital nomad’s lifestyle can result in a fair share of expenses, including travel, lodging, meals, and other housing expenses. What are the tax ramifications of these expenses for the US taxpayer? Are they deductible as business expenses? How does the housing exclusion come into play for the international traveler? To determine the answers, one needs to look into the location of their tax home.
The IRS grants the deductibility of travel expenses when you are traveling away from your tax home for business purposes. They include expenses that are common, accepted, helpful, and appropriate in one’s line of trade or business.
If you travel outside the US, these expenses must generally be allocated between time spent for business and pleasure, with a few exceptions.
Where Is Your Tax Home?
So, as a digital nomad, how do you determine where your tax home is?
- Generally, it is your regular place of business, regardless of the location of your family home, or
- It is the location of your main place of business when you have several places of business, or
- It is where you live if you don’t have a main place of business due to the nature of your work, or
- If you don’t have a regular place where you live or a main place of business, you are considered an itinerant, and your tax home is where you work. In this situation, as you are considered never to be away from your tax home, and travel expenses are not a business deduction. Avoid this if possible.
Your tax home does not change for a temporary assignment (generally defined as one year or less) at a single location, and business-related travel expenses are deductible in this case. However, this changes if the location of your new assignment is expected to last over one year; travel expenses will not be deductible.
What If You’re an Itinerant?
For the international digital nomad who realizes that his tax home is where they work, and therefore, their Airbnb expenses are not deductible travel expenses, there may be a silver lining. Spending over 12 months backpacking through Europe, sightseeing in Japan, and trekking in Africa qualify for a tax home outside the US, meaning you could qualify for the Foreign Earned Income Exclusion (which allows you to exclude up to $105,900 of income in 2019), with the housing exclusion available for Airbnb expenses, or a portion deductible as home office expenses. But keep in mind: you can’t have an abode in the US!
Let Greenback Handle Your Digital Nomad Taxes
Taxes for the digital nomad can be tricky, but Greenback can help. Get started with us today.