Most creative folks only need two things to do their jobs masterfully: some sort of mobile device and an Internet connection.
Since that’s the case, it’s not uncommon for more adventurous coders, writers, programmers and graphic artists to live out of their backpacks, so to speak, becoming digital nomads who move from couch to couch, traveling all across the globe, experiencing life while they juggle an eclectic assortment of freelance gigs.
But just as death is certain in life, so too are taxes. (Thank you, Mr. Franklin, for the reminder.) So those who hop from area code to area code—and, believe it or not, even expats who live and work oversees—still need to check in with Uncle Sam each year.
If you’re a self-employed freelancer, unless you’ve got money to burn, chances are your impending tax liability begins to hang heavily over your head the moment spring comes.
While the freelancing life is enviable in many respects—you get to work whenever you want, wherever you want, so long as you meet your deadlines—those who are self-employed have to pay a little more than 7.5% extra in taxes to make up for the Medicare and Social Security contributions a full-time employer would normally make on their behalf.
So to get ahead on your own, it’s crucial to pay attention to how you manage your finances—and where, physically, you pay your taxes.
The Virtues of Minimizing Your Tax Burden
While taxes are undoubtedly necessary in any civilized society, any self-employed creative individual would put the same expletive before the word “taxes.” Real talk: It most certainly sucks to write those checks to the good folks at the IRS.
So if you’re an American resident who loves traveling while working, it’s worth your while to spend time considering which state you should call home. After all, the more money you have in your pocket—i.e., the less you have to hand over to various levels of government—the more flexible you’ll be, making it easier to advance your career (e.g., having enough cash on hand to travel to a conference solely for networking purposes).
So where should you “reside”?
For starters, there are more than a couple of states that don’t tax income at all: Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming. How does that sound?
On top of that, New Hampshire and Tennessee hardly have any income taxes. Compare that to a state like Connecticut that will take five cents out of every dollar you earn. Or a state like California that takes an even more assuming 13.3 cents.
All Signs Points to Texas?!
Yes, yes: Texas isn’t for everyone. Still, facts are facts.
Since 2000, The Lone Star State has been responsible for a whopping 30 percent of all jobs created in the United States. Praise be to, uh, Rick Perry?
So why are so many businesses heading down to Texas? It’s quite simple: The state’s giving out the most incentives, to the tune of $19 billion in breaks each year. Texas is also known for having quite a bit less regulation, too—making it easier for businesses of all sizes to grow.
The good news is that no one’s forcing you to take up a southern drawl. You could always decide to establish residence in the Pacific Northwest and become intimate with the Hoh Rain Forest in Olympic National Park.
Or you could decide to head to Hawaii, if you don’t mind paying an extra 8.25 percent.
Is Texas the best place to set up residence as a freelancer? It’s hard to say. There are other things to consider: healthcare costs, property taxes, state-specific taxes, quality of life, etc.
But that’s why those aforementioned digital nomads are so great. They’re taking an open source approach to figuring out the best state to set up shop in—and you can contribute to the project here. What say you? Maybe it’s time to give South Dakota some more consideration.