Should I choose South Dakota or Florida for my W2 tax home as a Digital Nomad?

Hey there! Tax advisor here with experience helping remote workers with state residency questions. Let me break this down for you. Both Florida and South Dakota are great options since neither has state income tax, but there are important differences. For South Dakota, you'll need to establish physical presence, get a driver's license, register to vote, and typically use a mail forwarding service. It's true some mail forwarding services have faced scrutiny, but companies like Dakota Post are still operating successfully for nomads. The "unemployment tax issue" you mentioned is mainly a concern for employers, not you as an employee - your employer would need to register for unemployment insurance in SD if you're working from there. For Florida, the 183-day requirement is a good rule of thumb, but Florida actually looks at various factors including where you have your driver's license, where you're registered to vote, and where your vehicles are registered. It's a "preponderance of evidence" state. Regarding the FEIE, remember that you need to either: 1) establish a tax home outside the US and pass the Physical Presence Test (330 days outside US in a 12-month period), or 2) establish bona fide residence in a foreign country. Simply having a US state residency in FL or SD doesn't automatically qualify you for FEIE - you still need to meet those foreign presence requirements.

After reading about your situation, I wanted to share my experience using taxr.ai to help navigate a similar remote worker tax situation. I was moving between states while working remotely and wasn't sure how to handle my state taxes or if I could qualify for FEIE when I was planning international travel. I tried https://taxr.ai and uploaded my employment documents and travel plans. Their AI analyzed everything and gave me specific guidance on how to establish proper tax residency in a new state and exactly what I needed to do to qualify for the FEIE. They even provided documentation I could share with my employer's HR department. The best part was getting clarity on the physical presence test for the FEIE and having all the IRS regulations explained in plain English with a checklist of what documentation I needed to keep while traveling.

Just wanted to follow up on my question about using taxr.ai! I went ahead and tried it after seeing the responses here, and I'm really glad I did. I was planning a move from California to Nevada while working remotely, and was stressed about California trying to claim I was still a resident. The system analyzed my situation and gave me an exact sequence of steps to follow - when to register my vehicle, change my driver's license, close California accounts, etc. It also flagged specific California tax regulations I needed to be aware of and how to document my physical presence in Nevada. What really impressed me was the customized calendar they generated showing exactly when I needed to be physically present in Nevada to satisfy the residency requirements while still allowing me to travel internationally. I'm successfully established as a Nevada resident now and feeling much more confident about my tax situation!

I see you're considering the FEIE option, and I wanted to share that getting through to the IRS with questions about this can be nearly impossible. After spending hours on hold trying to confirm some details about my FEIE eligibility when I was working from Thailand, I discovered a service called Claimyr. With https://claimyr.com they got me connected to an actual IRS agent in about 15 minutes instead of the 3+ hours I spent on previous attempts. You can see how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent I spoke with gave me specific guidance on how my housing stipend would be treated under the FEIE and what documentation I needed to keep to substantiate my foreign residence. This was information I couldn't find clearly explained anywhere online.

I have to eat my words about Claimyr. After expressing skepticism here, I decided to try it myself because I needed clarification on how the FEIE physical presence test applies when you have brief returns to the US during your qualifying period. The service connected me to an IRS agent in about 20 minutes (compared to my previous attempts where I gave up after 2+ hours on hold). The agent walked me through exactly how to calculate my qualifying days abroad and what documentation I needed for short US visits. This saved me thousands in potential tax liability because I was misinterpreting how the 330-day rule works with brief returns to the US. Definitely worth it if you have specific questions about complex tax situations like foreign income exclusions or establishing residency abroad.

One thing nobody's mentioned yet - if you choose the South Dakota route, make sure you research the mail forwarding service carefully. I use America's Mailbox in Box Elder, SD and it's worked great for establishing domicile, but some services have had issues. The key is finding one registered with the USPS as a Commercial Mail Receiving Agency. Some banks and financial institutions have gotten stricter about accepting these addresses, but if you establish your accounts before you start traveling, it's usually not a problem. For vehicles, SD is super easy for registration compared to FL - you don't need a safety inspection and the fees are lower. Just something else to consider in your decision.

Don't overlook the FEIE requirements while focusing on state residency! As someone who's been using the FEIE for 4 years while keeping SD residency, remember that establishing a new state domicile is separate from qualifying for FEIE. For the FEIE physical presence test, you need 330 days outside the US in a 12-month period (not calendar year). The bona fide residence test requires you to establish residence in a specific foreign country for an entire tax year. The biggest mistake I see people make is thinking they can just travel to random countries and automatically qualify for FEIE. The IRS wants to see that you have a "tax home" in a foreign country, meaning your main place of business is abroad.

Something else to consider is banking. I'm a FL resident now but travel internationally often, and some banks have gotten much stricter about addresses and residency verification. Before changing states, notify all your financial institutions, set up online statements, and consider setting up a virtual mailbox service separate from your legal domicile address that can actually receive and scan mail for you. Also, make sure your employer is actually OK with international work - many say they're "remote friendly" but their policies don't actually permit working outside the US due to tax complexity, data security, and labor laws. Get this in writing!

Great discussion here! As someone who made the SD to international nomad transition last year, I wanted to add a few practical tips that might help. First, regarding the employer piece - definitely get that international work approval in writing before you establish residency anywhere. My company initially said remote work was fine, but when I mentioned working from Portugal, suddenly there were concerns about "creating a permanent establishment" for tax purposes. We worked it out, but it took months of back-and-forth with their legal team. Second, for the FEIE, start tracking your location meticulously from day one. I use a simple spreadsheet with entry/exit dates for every country. The IRS can ask for detailed records, and airline tickets alone aren't always sufficient proof of physical presence. Third, consider opening a high-yield savings account or investment account while you still have a traditional US address. Some financial institutions won't let you open new accounts with mail forwarding addresses, even legitimate ones. Finally, if you're leaning toward SD, I'd recommend visiting in person to establish everything rather than trying to do it remotely. The personal relationships you build (DMV staff, your mail service, maybe a local bank branch) can be valuable if questions ever come up about your domicile intent. The combination of SD residency + FEIE has saved me about $15K annually compared to my old CA situation. Worth the effort!

I've been following this discussion with great interest as someone who's currently in the research phase of making a similar transition. The insights about South Dakota vs Florida have been really valuable. One aspect I haven't seen mentioned yet is healthcare considerations. When you establish residency in SD or FL and then spend most of your time abroad, how do you handle health insurance? Most US health insurance plans have limited or no coverage internationally, and if you're trying to qualify for FEIE, you're spending 330+ days outside the US. I've been looking into international health insurance plans, but I'm wondering if maintaining a US-based plan is necessary for when you do return to your state of domicile for those periodic visits to maintain residency ties. Also, for those who've successfully made this transition - did you face any challenges with maintaining professional licenses or certifications that require a US address? I have a few professional certifications that need to be renewed periodically, and I'm not sure how they handle mail forwarding addresses. The tax savings are obviously attractive, but I want to make sure I'm thinking through all the practical implications before making the jump. Any insights on these aspects would be greatly appreciated!

This is such a timely discussion! I'm a tax preparer who works with a lot of remote workers, and I wanted to add some practical considerations that might help with your decision. One thing to keep in mind is that both Florida and South Dakota have different banking relationships and business ecosystems. South Dakota has historically been more welcoming to the financial services industry, which can sometimes make banking relationships smoother for nomads. However, Florida has more extensive consular services if you need passport renewals or other services while abroad - they have consulates and honorary consuls in many countries that SD doesn't. Regarding the FEIE, I've seen people get tripped up by the "tax home" concept. The IRS defines your tax home as your main place of business, not your domicile or where you file state taxes. If you're a W2 employee working remotely, your tax home might still be considered the US unless you can demonstrate that your main place of business has shifted abroad. This is different from the physical presence test, which is more straightforward. Also, don't forget about the impact on your Social Security benefits calculation if you're planning to spend significant time abroad. Working abroad while using FEIE can affect your future Social Security benefits since excluded income doesn't count toward your earnings record. Have you considered consulting with a tax professional who specializes in expat taxation before making your final decision? The upfront cost could save you significant headaches and money down the road.