Some digital nomads and RVers (people who live in recreation vehicles) don’t really have a home state. They don’t even have a permanent residence!1 Instead, they carry their belongings with them, and travel to a new place on their own schedule.
This is a great lifestyle, but it can be hard to know how to file your taxes. The IRS (Internal Revenue Service, the federal tax authority in the US) and state tax authorities don’t really acknowledge that digital nomads exist, and expect filers to have a permanent address.
Many nomads put some US address on their federal tax return2, whether it’s a friend’s place, family house, or just the last place they lived before they started their nomadic life.
What many nomads don’t realize is that when you put a US address on your federal tax return, the state3 you put down can legally collect tax from you! Even though you physically left, the state can still be entitled to tax you.
No one wants to pay tax to a state where they don’t even live. In this post I’ll show you one way RVers have dealt with this issue for decades.
Sidenote: Taxation is extremely complex for Americans! This post is about one strategy, but there are many others. Let us know your favorites in the comments!
Move to a no-income tax state before you start your trip
To minimize4 state income tax on your trip, move to a state that doesn’t have an income tax before you start your nomad life.
If your former state tries to collect tax from you, supply them with evidence of your move.
Note that moving out of a state isn’t always enough to sever your tax burden. For example, if you work remotely for an office in New York, you can still owe income tax there, no matter where you live.
In New York, if a taxpayer is a nonresident but their primary business office is located in New York, telecommuting days are still considered “days worked in the state” and the taxpayer will continue to owe New York State income tax on that income even though the taxpayer was physically working outside New York.
RVers have been doing this for decades, and there are businesses that guide people through the process for a fee. But you aren’t required to use a business to help you. Follow this guide to do it yourself!
Some states aggressively tax people who don’t live there
A very brief warning: You should be especially careful if you’re starting from California, New Mexico, South Carolina, Virginia, or New York. In some circumstances these states continue to tax residents who move abroad, assuming they are only temporarily abroad and will return.
Step 1: Pick a no-income tax state to move to
The US has 50 states, and nine of them don’t have an income tax. (Don’t worry, they tax their residents in other ways, such as a sales tax and property tax!)
All nine of these states5 are suitable for a digital nomad looking to simplify their taxes.
The states highlighted in red and yellow don’t have an income tax on wages. Move to one!
If you already live in one of these states, congratulations! You’re done. Start your trip. The red states have fewer taxes and fewer filing requirements so choose one of them if possible.
If you have a connection to one of the states without an income tax, choose that one! You’ll need to travel to the state you move to, and you can combine that with visiting your family and friends.
Otherwise, simply choose a state that you like spending time in and might settle in when your travels are through.
What if I started my trip already?
If you are already abroad, and you previously lived in the fifty states, you have a tax domicile in one of the states. If you’re worried about your state tax burden, you might benefit from returning to the US long enough to move to one of the nine states without income tax, and then returning to your travels.
Step 2: Move to the state you chose
To make an ironclad case that you moved, you need to do two things.
Completely abandon the state you’re leaving
Register your presence in your new state
Abandon the state you’re leaving
To succeed in this process, understand what kind of person state tax authorities are trying to catch cheating on their taxes. Generally, it’s someone who didn’t really leave the state, but tries to evade taxes by saying that they did.
For example, someone who lives in New York City and owns a house in Florida will say they live in their Florida house for tax purposes. But New York will try to collect from them if, for example, their spouse is in New York, their kids go to school there, their doctors are there, their pets are there, their vehicles are located and registered there, and other factors like these.
Another example would be a married couple with children who own a house in Los Angeles. They rent a small studio apartment in Nevada, and use it as their address for tax purposes. California tax authorities will investigate whether this family is really living in a small studio in Nevada when they have a house in California.
This line-drawing exercise can get very complicated. To make things simple for yourself, completely abandon the state you’re leaving. Don’t rent an apartment in the state you’re abandoning. If you own real estate there, use it as a rental property, so no one can say that you live in it.
Register your presence in your new state
First, you need an address in your new state.
One idea is to move in with friends or family there for a few weeks while you set things up. That way they can collect your mail for you during your trip.
You can rent a short-term rental, but make sure you’re allowed to receive mail there. Some owners of AirBnbs and similar services don’t want their tenants receiving mail. You can find a normal furnished short-term sublet on Craigslist and similar sites.
Many states won’t issue a new driver’s license to someone using a PO Box or virtual mailbox service. Before you spend money on something like that, make sure you can use it to establish residency.
Texas allows a mailbox for the address on your new driver’s license. Here is one story about moving to Texas without renting an apartment there.
South Dakota is also popular with RVers using a mailbox service.
Once you have an address in your new state, transfer everything to your new address. Get a driver’s license in your new state, get a library card, and change your address with your bank and credit cards.
You can also strengthen your case by finding a new doctor in your new town and getting a checkup (make sure your insurance covers them!) Nothing is too small. Keep records of all of this in case you’re audited and need to prove you really moved.
If you have a vehicle, get new license plates.
Step 3: Travel with peace of mind
Congratulations! By doing some work ahead of time, you’ve saved yourself some potential trouble in the long run.
If you haven’t already, consider signing up for a virtual mailbox service while you travel. For a fee, they scan your mail and email it to you.
Taxes are hard for nomads
Moving to a no-income tax state before your trip is only one part of a nomad’s tax strategy. What else would you like to know about taxes? Or about the fun parts of being a nomad? Let me know in the comments, or tweet at me.
I call this lifestyle “full nomad”. In contrast, a “semi-nomad” has a place, but they leave it empty while they take very long trips.
Every American must file a federal tax return every year, even if you owe $0.
Not every state aggressively pursues ex-residents who moved abroad. However, when you pay your federal income tax, the IRS will notify the relevant state tax authority about your income, and they might reach out to you if you’re using an address in that state to receive mail while you’re abroad. This can be avoided by moving to a no income tax state before you start your trip.
Moving out of a state isn’t always enough to eliminate your income tax burden there.
The states without income tax are: Washington, Nevada, Wyoming, South Dakota, Texas, Alaska, Florida, New Hampshire and Tennessee