12 Tax tips made for military life

12 Tax tips made for military life

by Military OneSource
Military OneSource

As a servicemember, the tax implications of combat pay, deployment or multiple moves can be daunting. However, free access to Military OneSource MilTax services – designed specifically for military life (MilLife) – can make tax time easier for you.

With MilTax, servicemembers have quick access to consultants who are experts in the tax code and how it applies to military life, as well as easy, secure and free tax preparation and e-filing software. Take advantage of MilTax services to save money and time this tax season.

Tax Tip 1: Gather tax documents first.

Before filing, organize paperwork and establish a specific place for all incoming tax documents, like W-2 forms, as they arrive in the new year. You may need to track down others. You’ll also need Social Security numbers, birth dates and other information for everyone included in the return.

Not sure of all the documentation you’ll need? Contact a MilTax consultant – they can help you figure out which documents you’ll need to file for your specific situation.

Tax Tip 2: Contact MilTax for tax relief.

Stuck? Questions? Unsure of the next step? Let MilTax take the stress out of tax season. Military OneSource’s tax consultants can answer your questions, and our free tax preparation and e-filing software makes filing your returns fast and simple.

Tax Tip 3: Get tax credits for your classes.

The IRS allows you to apply a Lifetime Learning Credit toward your taxes for approved post-high school education courses that lead to new or improved job skills.

For more information about the Lifetime Learning Credit and other qualifying education expenses, see the IRS article “Qualified Education Expenses” – or, contact a MilTax consultant about your specific situation.

Tax Tip 4: Take advantage of the Military Spouse Residency Relief Act.

Active-duty servicemembers have always been able to keep one state as their state of legal residency for tax purposes – usually their home of record – even when they move frequently on military orders. A state of legal residence is also considered their “domicile” or “resident” state.

Since 2009, when the Military Spouse Residency Relief act was signed, a nonmilitary spouse of a servicemember may also be able to keep their state of residency the same as that of the servicemember, regardless of which state they currently live in.

Tax Tip 5: Get automatic tax extensions when you’re deployed.

When you’re deployed, your service wants you to focus on your mission, not your tax forms.

Consequently, the IRS automatically extends tax deadlines for U.S. Armed Forces personnel deployed to a combat zone or in support of operations in a qualified hazardous duty area.

The deadline for filing returns, making payments or taking any other action with the IRS is also extended for at least 180 days after the last day of qualifying combat zone service or the last day of any continuous qualified hospitalization for injury from service in the combat zone.

Tax Tip 6: Exclude home sale profits from your taxes.

Many military families buy a home knowing they may have to sell it when their next PCS comes around. It’s important to know about capital gains tax ahead of time.

If you make a profit from the sale of your main home, you may qualify to exclude up to $250,000 of that gain from your income, or up to $500,000 of that gain if you file a joint return with your spouse. This is called the Sale of Primary Home Capital Gain Exclusion.

To be eligible for this exclusion, most people must have owned the home for at least two years and lived in that home for at least two of the last five years. However, servicemembers who have moved due to PCS, before being able to meet these requirements, may still qualify for a partial exclusion. In those cases, they may not be taxed with the total capital gain for the sale of the home.

Tax Tip 7: Report and claim casualty losses from disasters.

If you have property in an area determined by the president to be eligible for federal assistance – such as a region devastated by a hurricane or forest fire eligible for assistance from FEMA – you can claim unreimbursed expenses from casualty losses on your tax return.

If you are eligible to claim a loss on your tax filings, use IRS Form 4684, “Casualties and Thefts.” Refer to IRS Publication 547 (“Casualties, Disasters, and Thefts”) and Publication 584 (“Casualty, Disaster, and Theft Loss Workbook”) for more detailed information.

Additional resources can be found on the IRS website, and MilTax consultants can help you sort out your specific tax situation for free.

Tax Tip 8: Itemize non-cash charitable contributions like clothes and volunteer travel expenses.

If itemizing makes sense for your tax situation, know that clothing and other items donated to approved charities – listed with the IRS – as well as ingredients for meals donated to soup kitchens, can be deducted if you keep records. Many organizations that accept donations provide a list of recommended values for donated items based on their condition.

You can also deduct the costs of gas and oil that are directly related to getting to and from the place where you volunteer. If you do not want to figure your actual costs, simply deduct 14 cents for each mile instead. For 2018 taxes and beyond, changes were made to itemized deductions you can claim on Schedule A (Form 1040).

Tax Tip 9: Get special tax considerations for combat pay.

Combat pay is partially or fully tax-free. Certain servicemembers serving in support of a combat zone may also qualify for this exclusion. These areas currently include:

  • Afghanistan
  • Iraq
  • Kuwait
  • Saudi Arabia
  • Oman
  • Bahrain
  • Qatar
  • The United Arab Emirates
  • The Kosovo area
  • The Persian Gulf
  • The Red Sea
  • The Gulf of Oman
  • The Gulf of Aden
  • The Arabian Sea north of 10 degrees north latitude and west of 68 degrees east longitude

Tax Tip 10: Know about tax deductions for reservists.

Reservists whose reserve-related duties take them more than 100 miles away from home, each way, can deduct their unreimbursed travel expenses on Form 2106, even if they do not itemize their deductions. They can also deduct the purchase and upkeep costs of uniforms that they can’t wear while off duty, minus any allowance they receive for these costs.

Taxpayers can request a free transcript of tax returns covering the past three years. The Get Transcript tool on IRS.gov is the fastest way to get a transcript.

If you have any questions about special tax situations for National Guard or reservists, contact a MilTax consultant for a free consultation.

Tax Tip 11: Remember your retirement plan contributions.

An IRA or 401(k)-type plan might mean saving for retirement and cutting taxes at the same time. Servicemembers who contribute to a plan, such as the Thrift Savings Plan, may also be able to claim the Retirement Savings Contributions Credit.

Tax Tip 12: Find answers to common questions with official IRS resources.

Take advantage of the IRS’s Interactive Tax Assistant to ask tax-related questions, and read the answers to others’ questions. Specifically for servicemembers, IRS Publication 3, “Armed Forces’ Tax Guide,” details special tax situations for those serving in the Army, Marines, Navy, Air Force or Coast Guard.

Taxes are complicated. Remember that our free MilTax services – both our expert military tax consultants and e-filing tax preparation software – stand ready to make tax season easy for you. Call 800-342-9647.

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