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Military Tax Benefits
You have sacrificed your youth, precious time, and the warmth of family to keep not only Americans, but at
times citizens from across the world safe. You deserve more than admiration and gratitude. It’s that time of the
year, when we honor our veterans. Since its almost Veteran’s Day, so let’s discuss some of the tax benefits for
the U.S. military forces. Some types of pay are not taxable. And special rules may apply to some tax deductions,
credits and deadlines.
These rules apply to all branches of U.S. Armed Forces, whether they are National Guard, Reserves, or
● Filing tax returns late
Service members have up to the later of 180 days after returning from a combat zone deployment, or combat
related hospital stay, to file tax returns without late penalties or interest. Military members have until June
15th to file returns if they are overseas and not in a combat zone.
● Combat Pay Exclusion
If you serve in a combat zone, certain combat pay is not taxable. You won’t need to show the pay on your
tax return because combat pay isn’t included in the wages reported on your Form W-2, Wage and Tax
Statement. Service in support of a combat zone may qualify for this exclusion.
● Qualified Reservist Distributions and Repayments
Reservists who are called into active service, may be able to take distributions from retirement accounts
(IRA, 401K, TSP, etc.) without penalty and may also repay any distributions taken, even if the repayment
exceeds the annual IRA contribution limit. This is like borrowing from a 401K and paying it back. Certain
conditions apply, ask Azmoneyguy or your tax professional.
● Selling a Home for tax purposes and getting the Capital Gain Exclusion
Time deployed counts for the five-year living at the same address rule, to help sell the home and avoid
Capital Gains. You must live in your home 2 of 5 years to get Capital Gains Exclusion.
● Overnight Travel Expenses for National Guard and Reserve members living more than 100 miles
from duty station
This deduction is on the front of the tax return, and no itemizing is required. This allows you to write off
travel, lodging, and meal expenses.
● Deductions for Uniforms, Equipment and Laundry
You can write off uniforms you purchase, or any repairs made to them, as well as the cost of laundering the
uniforms, plus any military equipment you purchase for your use. There are special rules that allow military
personnel to even deduct the cost for laundry and haircuts, if away from home for less than one year on
● Some states offer little or no state tax on military members and spouse’s earnings
Arizona and many other states have no tax on military pay, and no tax on the spouse’s earnings either. You
can claim residence in any state if you are on active duty in the military. For instance, you can be stationed
in Ft. Huachuca, Arizona and still claim a Nevada residency. This means you would not have to prepare an
Arizona tax return, if you are active military. This would allow you to not pay state taxes to the State of
Arizona even while you are stationed and living in Arizona. This also counts for vehicle registration tax.
Be sure to check on the laws of the state you are living in for your situation with Azmoneyguy or your tax professional.
● Military allowances are tax-free
Some examples of allowances would be Clothing Allowance, Family Separation Allowance, Base Housing
Allowance, Per Diem Allowance, and Temporary Duty Allowance. These are all monies that are given to
you in addition to your regular payroll that is not subject to tax.
● Forgiveness of tax upon Death
Current year, previous year and unpaid taxes are forgiven and/or refunded when military members die, if
they are active duty during either a terrorist event, in a combat zone, or in support of a military combat
● Earned Income Tax Credit (EITC)
If you get nontaxable combat pay, you may choose to include it to figure your EITC. You will make this
choice only if it increases your credit. Even if you do, the combat pay stays nontaxable.
● Signing Joint Returns
Both spouses normally must sign a joint income tax return. If your spouse is absent due to certain military
duty or conditions, you may be able to sign for your spouse, by attaching a copy of the military combat
orders. In other cases when your spouse is absent, you may need an IRS power of attorney to file a joint
● Moving Expenses
Members of the military still get to take a deduction for the out-of-pocket costs of moving household goods
and family members, to include pets, for any costs not already paid for or reimbursed by the military.
Call today, don’t delay! See how this affects you. We can be reached at 602-264-9331 and on all social media under azmoneyguy.
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Mr. Hockensmith has been a guest newscaster for national and local TV stations in Phoenix since 1995, broadcasting financial and tax topics to the general pubic. He has written tax and accounting articles for both national and local newspapers and professional journals. He has been a public speaker nationally and locally on tax, accounting, financial planning and economics since 1992. He was a Disaster Reservist at the Federal Emergency Management Agency, for many years after his military service. He served as a Colonel with the US Army, retiring from military service after 36 years in 2008. Early in his accounting career, he was a Accountant and Consultant with Arthur Andersen CPA’s and Ernst & Young CPA’s.
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