Where would you live if you could work from anywhere? The idea of ââgeographic independence was just that for many workers – an idea – until the pandemic offered the opportunity to try it in action. Many American workers found themselves working from home in 2020, which turned out to be a âjob from anywhere,â giving them a taste of digital nomadism.
Now, as more companies promise flexible and continuous remote work opportunities in 2021 and beyond, some employees are weighing the benefits, complexities and uncertainties of relinquishing a permanent home forever.
However, becoming a digital nomad is more than packing your things in storage. From taxes to transportation, here are five things to keep in mind before hitting the road as a U.S.-based nomad.
While domestic nomads don’t have to worry about overseas tax rules, they still have to navigate the complex web of state income taxes. Since each state has its own independent rules, this can quickly become overwhelming.
âThe general idea for freelancers is that states want to tax people based on where their butt is, their job,â says Adam Nubern, founder of Nuventure CPA, who specializes in taxing digital nomads. “So if your butt is in Arizona to work, then Arizona is going to want to impose you more often.”
See: Sorry, the IRS is not delaying the tax filing deadline this year
Freelancers and others who earn self-employment income must either navigate these rules on their own or hire a professional to do it for them. And full-time employees earning W-2 income face another challenge: presenting nomadism to their employers.
âSet expectations that your employer won’t want to do this,â says Nubern. “They may have to file their case in every state you are in. The complexity, especially for a small employer, can be a huge barrier to knowledge and compliance.”
Also see: How to plan for a significant post-pandemic re-entry
For example, if you spend a tax year in six different states, your employer might be required to file returns in each, going through reciprocal tax agreements between them. Some states don’t even have these agreements, so “they won’t give a dollar-for-dollar tax credit for the amount you pay the other state,” according to Nubern. In other words: you could be taxed twice.
2. Quality of life
Geographic independence goes far beyond Byzantine tax codes, of course. The great appeal of becoming a digital nomad is that it allows you to work where you want rather than living where you work. What contributes to a high quality of life differs from person to person, but it’s important to start thinking about what matters most to you.
âPersonally, I like to stay in places that are great for hiking and nature, just outside of major American cities,â says Julia Lipton, founder of venture capital fund Awesome People Ventures, which is nearing its four. years as a nomad. She cites Sausalito and Encinitas in California; Beacon, New York; and the Oregon Coast as examples of beautiful places not far from urban cores.
Consider listing multiple locations and rating each according to multiple criteria, including (based on your preferences):
Arts and culture.
And keep in mind that the stakes are much lower as a digital nomad. If you don’t like a particular destination, you can always move on.
3. Cost of living
Geographic independence can, in theory, significantly reduce your cost of living. That’s why the âSilicon Valley Exodusâ saw tech workers flee the beloved Bay Area for greener, more affordable pastures.
Yet, for digital nomads, estimating the true cost of living requires more than just adding up the cost in a particular area and dividing it by the time spent there. Indeed, nomadism entails additional costs, in particular:
Transportation within and between destinations.
Higher short-term accommodation costs.
Higher food costs (if you eat more in restaurants).
Additionally, unlike digital nomads who travel overseas who can take advantage of extremely low costs in other countries, US-based nomads face greater financial hurdles.
âWhen I first started doing this, I was living in places like Thailand where for $ 500 I could live in a hut on the beach,â Lipton says. “In the United States, mostly because I love being around my friends in expensive cities, it’s harder to get math to work.”
Cost of living calculators are useful in determining the relative price of potential destinations (Hawaii is really expensive, it turns out), but don’t capture the cost of travel. One way to mitigate these costs is to travel less: stay in each destination for several months or seasons, rather than several weeks.
Another factor to consider: some employers offer salaries based on location. So if you decide to move from the Bay Area to, say, Detroit, you might get a pay cut that offsets the cost of living savings. Make sure you understand these policies before packing.
Whether it’s moving from city to city or from national park to national park, finding good, affordable housing is one of the biggest challenges for national digital nomads. There is no one-size-fits-all solution to solving the housing conundrum, but some potential strategies include:
Long term vacation rentals.
House keeping and barter.
Motorhome or van life.
These approaches are not mutually exclusive and many nomads alternate between housing opportunities. Being creative, combining strategies and thinking outside the box is the best way to avoid paying too much.
âI try to keep my monthly rent below $ 2,000. That means I have to be smart and try to sublet local markets or make deals with people outside of Airbnb, âsays Lipton.
Following: 5 reasons you’re better off in a hotel over a vacation rental
Getting around is obviously a big part of being a nomad, and it’s worth considering different strategies to deal with it. Indeed, the means of transport will determine where you can reasonably go.
For example, you can travel between cities and then rent a car or use public transportation to your destination. This maximizes flexibility in terms of where and when you travel, but limits the range of potential home bases to larger cities. Or, you can drive between destinations, which solves the problem of getting around once there, but it will be difficult if you are traveling far or trying to park in dense city centers.
Again, it all depends on preference.
âI travel by plane and choose places where I don’t need a car,â says Lipton. âExploring on foot is one of my favorite things to do, so I try to optimize for it. “
See: Retail gasoline prices are back to pre-pandemic levels, but have yet to stop climbing
If you’re looking to get away from it all in nature, you’ll want to have a vehicle (and find a way to get reliable internet service from the road). And keep in mind that you can mix and match these strategies as you go – you don’t have to lock yourself into a particular strategy until you find what works.
The bottom line
Location flexibility suddenly became the new normal. Unattached to a specific office or city, many plan to uproot for good and roam the country as digital nomads. This lifestyle offers many benefits, as well as potentially unintended financial consequences.
It’s about finding the right balance between a high quality of life and a low cost of living while juggling tax rules and transportation options. Getting it right is a challenge, but part of the beauty of being a nomad is that you can take risks. If something doesn’t work: get moving!
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Sam Kemmis writes for NerdWallet. Email: [email protected] Twitter: @samsambutdif.