Deductions, tax help for service members
Hello military community,
Knowing where to look for both new and existing tax benefits for active duty and guard/reservists will help you obtain bigger refunds, help minimize your debt and keep you out of trouble with the IRS. Here are a few tax considerations that may be applicable to you.
When you filed your taxes last year, did you owe any additional tax to your state of record or locality? If so, those taxes are deductible on this year’s tax return, if you itemize your deductions instead of taking the standard deduction. If you itemize, you have a choice between deducting the state and local income taxes that you paid, or the state and local sales taxes you paid. If you splurged on a car, boat or another large-ticket item, you may want to consider deducting the sales tax. Also, check into deducting the personal property taxes you paid after you own the property.
If you are a service member and a student, make sure you make the most of education-related deductions. For example, not many people are aware that the interest paid on student loans may be deductible. Document Form 1098-E is mailed to students from loan providers noting the total annual student loan interest paid. Your tax preparer will need to see this form.
Any moving expenses not covered by the government may be deductible as an adjustment to income. Also, if you donated personal items that were in “good” or better condition to a qualified charity, you can deduct the fair market value of the items donated as non-cash charitable contributions.
If you moved overseas, there are additional considerations. If you paid taxes to a foreign government, such as on your investments, they may be deductible. And, if your spouse lived with you overseas and earned income from a job, taxes paid on that income to a foreign government may also be deductible.
Even though medical expenses are generally covered by the military, any out-of-pocket expenses or miles driven for medical care are deductible expenses if you itemize. The deduction begins when your expenses exceed 7.5 percent of your adjusted gross income (AGI). Additional medical deductions you may not be aware of include mileage driven to doctors’ appointments or hospitals, parking fees, tolls, or costs of alternate forms of transportation, such as taxicabs or buses used to reach a medical facility.
Remember that Reservists and Guardsmen who were called to active duty any time after Sept. 11, 2001 and served at least 180 days since then are allowed to withdraw funds from an individual retirement account (IRA), 401(k) or other personal retirement plans without paying the 10% early withdrawal penalty. This money is not subject to taxes if it’s repaid back into the retirement plan in a proper time frame; currently within two years after the completion of active duty.
The Heroes Earned Retirement Opportunities (HERO) Act contains the provision that non-taxable combat pay may now be recognized as earned income for IRA purposes. This means that military men and women serving in combat zones can continue making contributions to their IRA’s, up to $4,000 ($5,000 if age 50 or older) or the individual’s total earned income for the year – whichever is less. (themilitarywallet.com).
Death benefits to survivors are not taxable. Survivors of armed forces members who die while on active duty receive a $100,000 tax-free death “gratuity” from the government. The gratuity is also paid to survivors of retirees within 120 days of retirement if the death is determined to be service-related.
Forgiveness of tax liability in the event of death: Members of the armed forces who die while on duty in a combat zone or in support of a combat operation are forgiven any tax liability they may owe the IRS. If you already paid the tax, that amount will be refunded to your survivor.
“The National Taxpayer Advocate and her employees appreciate the commitment, dedication and sacrifice of the U.S. Armed Forces. To make sure you are aware of special tax provisions available to you and how to get help with your tax issues, the taxpayer Advocate Service compiled a list of resources to assist you,” according to the IRS’ Tax Payer Advocate Service. Go to: www.taxpayeradvocate.irs.gov/individuals/military-members to review
Military OneSource Tax Service provides a variety of tax services including tax consultants who will find the answers to your tax questions. Services include:
- Military specific information related to tax requirements and deductions in order to maximize a refund
- Tips and options on how to use a refund in order to manage finances and debts
- Information on how to find the applicable IRS and state tax forms, definitions and regulations
- Detailed information on additional tax services available to military families
- Call 800-342-9647 or go online to speak to Military OneSource Tax Services
Some installations have a Volunteer Income Tax Assistance (VITA) Program: This provides FREE tax preparation, return filing, tax advice and many more services related to tax assistance. VITA offices can be found by using the Armed Forces Legal Assistance Services Locator.
If you have any questions regarding filing your taxes or your deductions, it is always best to ask ahead of your appointment so you can have the proper documentation. For more information on tax credits and deductions that may help your tax situation, talk to a tax preparer that is up-to-date with the military laws, regulations, life style and federal/state laws.
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.