Deductions, exclusions 101 for military tax filers
Hello military community,
For many of us, tax season comes with a sinking feeling. The difficult circumstances faced by many military families can make the days leading up to the filing deadline – April 15, unless you are serving in combat zones or stationed outside the U.S. – much more stressful.
For those who are new to military life, tax write-offs and deductions can be confusing. If you are not paying close attention or you are not familiar with current tax regulations, you could be paying unnecessary taxes. While the IRS does offer special tax benefits for military personnel, many families don’t take full advantage of them.
Understanding your deductions and new tax laws, along with being organized, will help keep you on track. A good place to start (besides a great tax accountant) is the IRS Armed Forces Tax Guide (Publication 3), which is available online at www.irs.gov.
There are a number of unique credits and deductions available to service members. Here are some of the main deductions available to military families.
Gross Income: Military service members receive many different types of pay. For tax purposes, it is important to identify the types of pay and allowances that can be excluded from your gross income. They generally include: living allowances, moving allowances, travel allowances, combat zone pay, and death allowances. Such exclusions are not subjected to tax, but may have to be shown in your tax return.
Combat Zone Exclusion: If you are a member of the armed forces serving in a designated combat zone, you can exclude certain pay from your income. Make sure to get updated on current combat zones as they have changed. You’ll need to know the months you entered and served in a combat zone, or were hospitalized as a result of wounds, disease, or injury obtained while serving in a combat zone.
You need have only served for one or more days in a month to qualify for combat zone exclusions for an entire month. Examples of eligible combat zone exclusions include: Active duty pay, imminent danger or hostile fire pay, re-enlistment bonus for extensions that occur in a combat zone and accrued leave pay.
It is important to note that retirement pay and pensions do not qualify for combat zone exclusion.
Moving and Travel Expenses: If you are a member of the armed forces on active duty and you move because of a permanent change of station, than you are entitled to a deduction for reasonable un-reimbursed moving expenses related to travel and the cost of moving household goods and personal effects.
You CANNOT deduct expenses related to travel overseas when you are stationed there, or when you are traveling for personal reasons. You are considered away from home when you are away from your permanent duty station for longer than an ordinary day’s work and you need sleep or food.
Eligible expenses include business-related meals, lodging, laundry and business phone calls. If you are a member of a reserve component of the armed forces that must travel more than 100 miles away from home in connection with your service, then you can deduct your travel expenses as an adjustment to income.
Transportation Expenses: The cost of traveling from one workplace to another, attending a business meeting away from your regular workplace, or traveling away from home overnight can be deducted from your income. However, the expenses of commuting to your regular place of work are not deductible. For reservists or guardsmen, if a meeting of their unit is held on a day of regular work, then related travel expenses are deductible.
Educational Expenses: You can deduct the cost of work-related education as long as it meets one of two qualifying criteria as defined by the IRS: 1) It is required by your employer or the law to maintain your salary, status or job; and it serves a bona fide business purpose of your employer. 2) It maintains or improves skills needed for your current job.
In both instances, this education cannot be used simply to meet job requirements or cannot be used to find a new trade or business. With some exceptions, travel and expenses for obtaining this education can also be deducted.
Remember this is a small listing of deductions; check with your tax preparer for sale of home, retirement contributions and other miscellaneous deductions. It is best to go to someone who is familiar and up-to-date with the laws and regulations affecting the military community. Stay tune to next weeks article for some tax resources and further tax deductions.
Blessings from my family to yours,
If you have any questions or concerns or would like to share a story or situation, contact me at Kim@MilitaryResourceBooks.com and visit my website at MilitaryResourceBooks.com for updated information and other resources not listed in my book.
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