Let’s start by saying Tango Mike for your service. As a veteran myself, I look back so fondly on my years low crawling in mud and running through the desert. We are all used to the unofficial military motto of “hurry up and wait,” but when it comes to taxes, there is no waiting. I’m going to help you get a jump on your taxes. Here are five tips to get you started.
Combat Zone Exclusion
If you spent a portion of a month in an area designated by the President of the United States as a Combat Zone, that pay is considered combat pay and excluded from taxes. Combat pay doesn’t just cover your salary, but a few other items too:
A reenlistment bonus if the voluntary extension or reenlistment occurs in a month you served in a combat zone.
Pay for accrued leave earned in any month you served in a combat zone - The Department of Defense must determine that the unused leave was earned during that period.
Awards for suggestions, inventions, or scientific achievements you are entitled to because of a submission you made in a month you served in a combat zone.
Student loan repayments - If the entire year of service required to earn the repayment was spent in a combat zone, the entire repayment made in that service year is excluded. If only part of that year of service was performed in a combat zone, then only part of the repayment qualifies for exclusion. For example, if you served in a combat zone for 6 months, then half of your repayment qualifies for exclusion.
Military Moving Expenses
When you PCS, you can often deduct your moving expenses. There are time and distance requirements to allow this deduction. The expenses you can deduct include the cost of moving household goods and personal effects, as well as the cost of travel. If you are unable to move everything at once and need to store items, you can deduct 30 days of storage. If you are moving outside of the United States, all of the rules stay the same except storage. While your duty assignment is outside of the U.S., the storage fees are deductible the entire time.
The power of attorney is a military spouse’s best friend. A joint tax return requires the signature of both spouses, but when you have the power of attorney, you can file on behalf of your deployed family member.
Military Spouses Residency Relief Act
The military spouse is truly the backbone of a military family and should be saluted as such. In 2009, Congress passed the Military Spouses Residency Relief Act, which allows spouses of deployed armed forces members the ability to maintain one state of domicile. This comes into play with residency, voting and taxes. It is possible that because of your domicile status, you could pay less than your current state’s tax rate or no taxes at all.
Capital gains tax can be a hefty amount when you sell your home. The law will allow you exemption from this tax if you lived in the house for two of the five years you owned it. This can exclude up to $500,000 in gains for couples. For the military, you can deduct any time over 90 days that you were assigned to a duty station at least 50 miles from your home.
Hopefully these tips will get you started on preparing your return this year. Stay informed by visiting the eSmart Tax blog and by following us on Facebook and Twitter. Remember to leave us a comment and let us know your thoughts on these deductions!