It’s that time of year again 😬

U.S. tax szn officially opened on Monday. From maximizing the Foreign Earned Income Exclusion to understanding key deadlines and tax tools, we’ve got you covered.

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💸Tax Tips (Part 1): Here’s how U.S. digital nomads and expats can navigate federal income taxes for big savings.

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Finance

Nomad Tax Season 2025 (Part 1)

U.S. tax season officially opened yesterday, January 27. Here’s the quick rundown on what digital nomads and expats should know.

(Disclaimer: always consult a qualified tax pro for personal advice.)

1. Foreign Earned Income Exclusion (FEIE)

• What It Is: U.S. taxpayers living overseas can exclude a portion of their foreign-earned income from U.S. taxation if they meet certain qualifications.

• Tax Year 2024 Limit: Up to $126,500 of foreign-earned income can be excluded.

In order to qualify, you must pass either the Bona Fide Residence Test (resident of a foreign country for an entire calendar year) or the Physical Presence Test (physically present in a foreign country for at least 330 full days during any 12-month period).

Nomad Hack: By staying on the move and not settling down in a high-tax jurisdiction, digital nomads who earn under the FEIE limit can avoid paying income taxes to any country (U.S. taxpayers will still owe Social Security and Medicare tax, though).

[Read more in our complete guide to the FEIE.]

2. Foreign Tax Credit (FTC)

• What It Is: This credit taxpayers to reduce their U.S. federal income tax liability by the amount of income taxes they have paid to a foreign country or U.S. possession.

• Limits: You can combine the FEIE and the FTC, but not on the same income.

Example: You earn $150,000 abroad and pay $40,000 in foreign income taxes. Use the FEIE to exclude $120,000 from U.S. taxable income, and the FTC to claim a credit for the $40,000 in foreign taxes paid on the remaining $30,000.

3. Foreign Housing Exclusion/Deduction

• What It Is: Expats can deduct reasonable foreign housing expenses, such as rent, utilities, and insurance, that exceed a specific threshold (16% of the FEIE).

• Limits: The exclusion or deduction is capped at 30% of the FEIE for most locations.

Deadlines

The normal deadline for filing in the U.S. is April 15. However, expats and nomads living overseas can potentially take advantage of several extensions:

• U.S. citizens and resident aliens living abroad automatically receive a two-month extension, moving the deadline to June 17, 2025 (since June 15 is a weekend). However, any taxes owed still must be paid by April 15 to avoid interest.

• You can file Form 4868 to request an extension until October 15, 2025.

• For even more time, taxpayers can use Form 2350 to request an extension beyond October 15 if they qualify for the FEIE.

Tax services

• Consider expat-focused tax software such as MyExpatTaxes. Eligible taxpayers with basic filing needs can also qualify for free software through the IRS Free File program.

  [Read more in our article on the best tax software for expats and nomads.]

• For professional help, look into expat-focused firms such as Greenback Expat Tax Services [read more in our article on the best professional tax services.]

Part 2 coming soon

Stay tuned for the next installment, where we will talk about what nomads should know regarding U.S. state taxes.

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