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10 Special Tax Breaks for U. S. Armed Forces

By Sean M. Hugo, CPA

Military personnel and their families face unique life challenges with their duties, expenses and transitions. As such, active members of the U.S. Armed Forces should be aware of all the special tax benefits that are available to them. Here are 10 of them:

1) Moving Expenses

If you are a member of the Armed Forces on active duty and you move because of a permanent change of station, you may be able to deduct some of your unreimbursed moving expenses.

2) Combat Pay

If you serve in a combat zone as an enlisted person or as a warrant officer for any part of a month, military pay you received for military service during that month is not taxable. For officers, the monthly exclusion is capped at the highest enlisted pay, plus any hostile fire or imminent danger pay received.

3) Earned Income Tax Credit (EITC)

You can also elect to include your nontaxable combat pay in your "earned income" for purposes of claiming the Earned Income Tax Credit (EITC). For the 2016 tax season, the Earned Income Tax Credit may be worth up to $6,269 ($6,318 in 2017) for low-and moderate-income service members.

A special computation method is available for those who receive nontaxable combat pay. Choosing to include it in taxable income may boost the EITC, meaning owing less tax or getting a larger refund.

4) Retirement Contributions

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

5) Extension of Deadlines

An automatic extension to file a federal income tax return is available to U.S. service members stationed abroad. Also, those serving in a combat zone typically have until 180 days after they leave the combat zone to file and to pay any tax due. For more information please call our office.

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6) Uniform Cost and Upkeep

If military regulations prohibit you from wearing certain uniforms when off duty, you can deduct the cost and upkeep of those uniforms, but you must reduce your expenses by any allowance or reimbursement you receive.

7) Joint Returns

Both spouses normally must sign a joint income tax return, but if one spouse is absent due to certain military duty or conditions, the other spouse may be able to sign for him or her. A power of attorney is required in other instances. A military installation's legal office may be able to help.

8) Travel to Reserve Duty

If you are a member of the US Armed Forces Reserves, you can deduct unreimbursed travel expenses for traveling more than 100 miles away from home to perform your reserve duties.

9) ROTC Students

Subsistence allowances paid to ROTC students participating in advanced training are not taxable. However, active duty pay, such as pay received during summer advanced camp, is taxable.

10) Transitioning Back to Civilian Life

You may be able to deduct some of the costs you incur while looking for a new job. Expenses may include travel, resume preparation fees, and outplacement agency fees. Moving expenses may be deductible if your move is closely related to the start of work at a new job location, and you meet certain tests.

Questions?

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