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 the U.S. Armed Forces, whether
they are National Guard, Reserves, or Active Duty:

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 temporary duty.

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 action.

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
return.

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.

Related Blog Posts