Top Tax Tips for Military Service Members and Military Families
There is a huge difference between military life and civilian life.
Job responsibilities are vastly different. When you are in the military you tend to move around a lot more than civilians do. You also incur unique expenses.
Amazingly, even the IRS recognizes this!
When it comes time to do your taxes, as a member of the military, it is important that you understand some key tax benefits available to military personnel. Review the following tax tips for military families and personnel, so you can owe as little as the tax laws allow.
Determining Your Gross Income
As a member of the military service, you are eligible to exclude certain types of income from your gross income. Types of income that you may be able to exclude generally include: living allowances, moving allowances, travel allowances, and death allowances. You must list on your tax return all the excluded items, even though they are not subject to taxation. Given the sacrifices made by a very large number of military service members who have served in active combat zones, the combat pay exclusion is important for you to understand.
Military service in a combat zone brings certain tax benefits. To meet the IRS definition for a combat zone, the area must be designated as a combat zone by the POTUS. The Executive Order issued by the POTUS specifies the dates that designate the area as a combat zone. Currently, service in Iraq, Afghanistan, the Persian Gulf, Kosovo, and certain areas that support the engagement in these areas qualify as combat zones.
If you are either an enlisted person or a warrant officer and you serve in a combat zone for any part of a month, then all you can exclude all your military pay from your gross income. If you are a commissioned officer, then you can only exclude the amount equal to the highest enlisted pay (as well as compensation you may receive for hostile fire or imminent danger.
If you and your spouse both served in a combat zone, you are both entitled to the combat zone exclusion. Also, a reenlistment bonus received for a reenlistment you made while in a combat zone is excluded from your income.
If you receive combat pay that is tax-free, you still may include it when calculating whether you qualify for the Earned Income Tax Credit, the child tax credit, or for making a contribution to an Individual Retirement Account (IRA).
Certain tax deductions or income exclusions are available only to military personnel.
- Travel Expenses- You can deduct non-reimbursed work-related travel expenses when you travel from your permanent duty station. You can't deduct your travel expenses incurred for travel overseas when you are stationed there, or when you are traveling for personal reasons. You may only deduct travel expenses if you meet the test of being away from your permanent duty station for longer than an ordinary day’s work and you need sleep or food. If you meet the test, then you are eligible to deduct expenses for your business-related meals, lodging, laundry, and business phone calls. Also, Travel expenses are a legitimate deduction if you serve as a member of the reserves and your duty requires you to travel in excess of 100 miles from home.
- Moving Expenses- If you are an active-duty service member and are required to move due to a permanent change in your duty station, then you are eligible to deduct what are defined as reasonable moving expenses for moving you and the members of your household.
- Transportation Expenses- Your costs for traveling from one workplace to another, attending a required business meeting away from your regular workplace, or traveling away from home overnight may be deducted from your income. However, you can't deduct the expenses of commuting to your regular place of work are not deductible. If you serve in the reserves, you can deduct travel expenses, if a meeting of your reserve unit is held on a day of regular work.
- Sale of Your Home- You may be able to avoid paying taxes on all or part of a capital gain you realize from the sale of your primary residence, whether it is a house, a houseboat, a mobile home, a condo, or a co-op. You are generally eligible to exclude up to $250,000 of a gain ($500,000 if you are married and file a joint return). You must have owned your home for two years out of the past five and the home and lived in your home as your primary residence for two years.
- Uniform Expenses- Generally, uniform expenses are not deductible, except when regulations prohibit you from wearing uniforms off duty. In this case, you can then deduct the un-reimbursed cost and expense of upkeep of the uniforms. According to the IRS, examples include:
- Military dress uniforms and utility uniforms that you cannot wear when off duty
- Articles not replacing regular clothing such as insignia of rank, epaulets, and swords
- Reservists' uniforms, if they can only be worn while performing your reservist duties
- Professional Dues- You can deduct dues paid to any professional society that is directly related to your military position (e.g., an engineering society), but you cannot deduct dues paid to an officers’ club or a noncommissioned officers’ club.
- Educational Expenses- You can deduct the cost of your work-related education, only if it meets the two IRS rules below:
- It is required by your employer or by law in order to maintain your salary, status, or job and serves a legitimate business purpose for your employer.
- It maintains or improves skills required for your present work.
Expanded Tax Privileges
Due to the extraordinary demands placed on military families, you are eligible for additional time to take care of certain tax matters. If you are a qualifying member of the military, then you receive extended deadlines or special flexibility for the following actions, among others :
- Filing your tax returns
- Making retirement contributions
- Reduced Payments on IRS Tax Debt
- Filing refund claims
- Paying delinquent taxes
Returning to Civilian Life
Certain expenses that you incur while transitioning back into civilian life may also be eligible tax deductions. Check with your tax preparer to see if you are able to deduct costs associated with looking for a new job, preparing your resume, hiring an employment agency, or traveling to find work. If you have to move to start working in a new location, check and see if you can deduct your moving expenses.
Taxes cause stress for the normal person. When you carry the extra weight (that comes along with the honor and pride) of serving in the military, it can be even more stressful. When you file taxes, you owe it to yourself to get every deduction and advantage that is legally available to you. That may apply even more to military families that often make large financial sacrifices in order to carry out their vitally important duties. So review the tax tips above and don't be shy about seeking tax assistance if you need it.
Make sure that you use all the resources available to you. Many military installations offer free tax filing and preparation assistance, during the filing season. It can pay to have a tax preparer who specializes in military returns, so none of your legitimate deductions are overlooked.
You can also do some research on your own, by reviewing the IRS publications about taxes and the military, such as IRS Publication 3, Armed Forces’ Tax Guide and the other Tax Information for Members of the US Armed Forces available at the IRS Web site.