Military personnel are some of the people who make the largest sacrifice. Such a line of job comes with severe hardships, so Uncle Sam offers some compensation in a bid to cushion such an effect. For instance, in claiming taxes, military members have a series of tax advantages that civilians don't have access to.
This article explores a couple of things to keep in mind:
Combat Pay Bonus
For people who served in a combat zone as a service member or warranted officer for any time in a month, you will not pay federal tax on your income for that month. This monthly exemption is pegged at the highest rate for officers alongside any imminent danger pay they got. Uncle Sam has a list of regions classified as a tax-qualified combat zone.
Savings Potential
With tax-free pay, you get to reduce debt or save an incredible amount of money. Uncle Sam allows for such tax-free combat pay to be directed to IRA contributions. Since IRAs can grow without tax till withdrawal, you will get incredible tax savings if you contributed today.
People who consider a ROTH IRA can make it work in their favour because it is possible to convert your tax-free payment to tax-free withdrawals when retired since qualified earning distribution will not be taxed.
Rules Exceptions
Extra Time during tax Period
While on the field defending the country, you will hardly have time to think about your tax return. Even though this doesn't exempt you from filing taxes, you, with your spouse, can qualify for a tax deadline extension of 6 months on returning from a combat region.
You can get an extension for the following:
Tax payment
IRA contributions
Return filing
Filing your refund claims
State Tax Flexibility for Military Spouses
Military spouses were required to pay income taxes to the state where their partner was based before 2009. However, there is a choice now thanks to the Military Spouse Residency Relief Act, spouses of military officials can decide to be treated like they were living in former states. They could have incredible savings if the former state's tax rate was lower or had no income tax.
Remote Filing
As a rule, both spouses must sign a joint return. However, for people that were away from home due to military duties, the spouse can employ the power of an attorney to file a joint return in your absence.
Breaks During Home Sale
Provided you owned your house and it was your primary residence for two out of five years before the sale, it is possible to avoid paying capital gains taxes, whether civilian or military. With this rule, individuals can exclude up to $250,000 while married couples can exclude double the value.
In meeting the two of five years test, military members enjoy some exemption. They get to suspend the five-year test for ten years as long as they are on extended duty that qualifies. This allows them to ignore all periods they were on duty away from home.
Assistance with Expenses
Moving Deductions
Relocation, every couple of years, could be expensive for active military members. However, if such a move was a permanent change of base, Uncle Sam allows you to deduct all "reasonable unreimbursed expenses" associated with moving yourself with the family.
Assistance for Separation
For people switching to civilian life, it might be possible to deduct some costs associated with getting a job. Such expenses are
Outplacement agency fees
Travel
Resume preparation fees
Breaks for Reserves and National Guards
Travel Deductions
For personnel who had to travel over 100 miles away from their home for reserve duties, it is possible to deduct unreimbursed travel expenses.
Uniform Deductions
For people who are not allowed to wear some uniforms when not on duty, it is possible to deduct the cost of buying and maintaining such uniforms. However, if you got any uniform allowance, you need to reduce your expense by the amount you got.
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