(NerdWallet) – Where would you live if you could work from anywhere? The idea of geographic independence had remained just that for many workers — an idea — until the pandemic offered an opportunity to try it in action. Many U.S. workers found themselves working from home in 2020, which actually turned out to be “work from anywhere,” giving them a firsthand taste of digital nomadism.
Now, as more companies promise ongoing flexible remote-working opportunities in 2021 and beyond, some employees are weighing the benefits, complexities and uncertainties of giving up a permanent home for good.
Yet there’s far more to becoming a digital nomad than packing your stuff into storage. From taxes to transportation, here are five factors to keep in mind before hitting the road as a U.S.-based nomad.
1. Taxes
While domestic nomads don’t have to worry about overseas tax rules, they must still navigate the complex web of state income taxes. Since each state has its own independent rules, this can get overwhelming in a hurry.
“The general idea for freelancers is that states want to tax people based on where their butt is, doing work,” explains Adam Nubern, the founder of Nuventure CPA, which specializes in digital nomad taxation. “So if your butt is in Arizona doing work, then Arizona is more often than not going to want to tax you.”
Freelancers and others who earn self-employment income must either navigate these rules on their own or hire a professional to do so for them. And full-time employees earning W-2 income face another challenge: Pitching nomadism to their employers.
“Set expectations that your employer will not want to do this,” Nubern says. “They may have to file in each state you will be in. The complexity, especially for a small employer, can be a massive knowledge and compliance hurdle.”
For example, if you spend a tax year in six different states, your employer could be expected to file returns in each, navigating the reciprocal tax agreements between them. Some states even lack these agreements, so “they will not give a dollar-for-dollar tax credit for the amount you pay to the other state,” according to Nubern. In other words: You could get taxed twice.
2. Quality of life
Geographic independence is about much more than byzantine tax codes, of course. The big appeal of becoming a digital nomad is that it allows you to work where you want rather than live where you work. What makes for a high quality of life differs from person to person, but it’s important to start thinking about what matters most to you.
“I personally love staying in places that have great hiking and nature, right outside of the major U.S. cities,” says Julia Lipton, founder of venture capital fund Awesome People Ventures, who is approaching her four-year mark as a nomad. She cites Sausalito and Encinitas in California; Beacon, New York; and the Oregon coast as examples of beautiful locales not far from urban cores.
Consider listing several locations and scoring each across several criteria, including (based on your preferences):
- Weather.
- Public transit.
- Walkability.
- Arts and culture.
- Food.
And keep in mind that the stakes are much lower as a digital nomad. If you don’t enjoy 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 “Silicon Valley exodus” has seen tech workers fleeing the expensive Bay Area for greener, more affordable pastures.
Yet for digital nomads, estimating the real cost of living requires more than simply adding up the cost in a particular area and dividing it by the time spent there. That’s because nomadism incurs additional costs, including:
- Transportation within and between destinations.
- Higher short-term lodging costs.
- Higher food costs (if you eat out more).
Plus, unlike internationally traveling digital nomads who can leverage extremely low costs in other countries, U.S.-based nomads confront bigger financial hurdles.
“When I first started doing this, I was living in places like Thailand where for $500, I could live in a hut on the beach,” Lipton says. “In the U.S., especially because I like to be near my friends in expensive cities, it’s harder to make the math work.”
Cost-of-living calculators are helpful for determining the relative priciness of potential destinations (Hawaii is really expensive, as it turns out), but don’t capture the cost of moving around. One way to mitigate these costs is to move 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 could get a pay cut that offsets cost-of-living savings. Make sure you understand these policies before packing up.
4. Lodging
Whether hopping between cities or between national parks, finding good, affordable housing poses one of the biggest challenges to domestic digital nomads. There’s no one solution to solving the housing riddle, but some potential strategies include:
- Long-term vacation rentals.
- Traditional sublets.
- Housesitting and swapping.
- RV or van life.
These approaches are not mutually exclusive, and many nomads cycle among housing opportunities. Getting creative, combining strategies and thinking outside the box is the best way to avoid overpaying.
“I try to keep my monthly rent below $2,000. This means I have to be crafty and try to sublet local markets or make deals with people off of Airbnb,” Lipton says.
5. Transportation
Getting around is obviously a big part of being a nomad, and it’s worth considering different strategies for how to handle it. Indeed, the means of transportation will determine where you can reasonably go.
For example, you could fly between cities, and then either rent a car or rely on public transportation at your destination. This maximizes flexibility in terms of where and when you travel, but limits the range of potential home bases to major cities. Or, you could drive between destinations, which solves the problem of getting around once you’re there, but will be difficult if you’re traveling far or trying to park in dense urban centers.
Again, it all comes down to preference.
“I travel by plane and pick places where I don’t need a car,” Lipton says. “Exploring by foot is one of my favorite activities, so I try to optimize for that.“
If you’re looking to escape into 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 — there’s no need to lock yourself into a particular strategy until you find what works.
The bottom line
Location flexibility has suddenly become the new normal. Untethered to a specific office or city, many are considering uprooting themselves for good and traveling the country as digital nomads. This lifestyle affords many perks, as well as some potentially unforeseen financial consequences.
It’s all about finding the right balance of high quality of life with low cost of living while juggling tax rules and transportation options. It’s a challenge to get it all right, but part of the beauty of being a nomad is that you can take chances. If something doesn’t work: Move!
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The article 5 Considerations Before Becoming a Digital Nomad in the U.S. originally appeared on NerdWallet.
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