For military servicemembers and veterans, taxes shouldn't be another hardship to endure. If you are a military service member, you may qualify for several tax breaks and deductions.
Tax Benefits While Serving
As part of their commitment to helping or assisting those who serve, members of the uniformed armed services receive special tax benefits when deployed in IRS designated combat zones that can help decrease their adjustable gross income (AGI) - a filer’s AGI is the base for which all other calculations are determined. Pay types that may be exempt from income are:
- Pay earned while designated as Active Duty while serving in a designated combat zone. However, including this pay may help you qualify for the Earned Income Tax Credit (EIC). Combat pay must be claimed fully or not at all.
- Bonus for re-enlistment are exempt as taxable income if the re-enlistment takes place during a month when the service member was deployed to a combat zone.
- Extensions for filing are granted for U.S. armed forces serving in combat zones or qualifying contingency areas. The filing deadline is automatically extended for at least 180 days after the last day of qualifying service.
- Forgiveness of First Time Homebuyers Credit repayment depending upon the sellers’ circumstances.
There are plenty of other tax credits and deductions for military services members, and the IRS has an entire section dedicated to our service members and their benefits.
Tax Benefits as a Veteran
Once our warriors return home and transition to civilian life, they still may qualify for special tax breaks, credits, and deductions. If the Veteran is going back to school to seek or finish a degree, here are some education credits or deductions that the Veteran may qualify for:
- American Opportunity Credit – a credit of up to $2,500 for each student with qualifying higher education expenses.
- Lifetime Learning Credit – a credit of up to $2,000 for qualified education expenses for students.
- Tuition & Fees Deduction – a deduction up to $4,000 for qualified higher education costs paid during the tax year for you, your spouse, or dependent claimed on your return.
- Any Student Loan Interest paid
If the Veteran is transitioning to the civilian workforce, there are several credits, deductions, and programs he or she needs to know about that can lead to significant savings from Uncle Sam:
- Moving expenses for those leaving or receiving orders for reassignment may be able to deduct unreimbursed moving expenses without the standard limitations.
- The Lifetime Learning Credit or Tuition & Fees Deduction can be claimed if the Veteran pursues a qualifying trade or technical certification or class to assist with their transition.
- Apprenticeship programs and job skill training programs can be free based on GI Bill status, or federally-funded government grant programs for employers.
If the returning service member is leaving Active Duty, but transitioning into a Reservist or National Guard role, they should also be aware that many of the education credits mentioned above may apply. In addition, these service members should keep a log of their expenses related to required-training as expenses not reimbursed can be deductible.
Unfortunately there will be those who are will be recovering from combat-related injuries that may lead to partial or complete disability, and luckily there are credits, deductions, and grants for these warriors as well:
- Disability and pension payments for disabilities from the U.S. Department of Veteran Affairs are not considered in calculating gross income.
- Income from the Compensated Work Therapy program is not considered as taxable income.
- Grants for purchasing or modifying a home for wheelchair accessibility and are considered untaxable income.
- Grants for purchasing adaptive vehicles for veterans who have lost sight or use of their limbs and are considered untaxable income.
Military members sacrifice enough of their time. Our goal at eSmart Tax is to keep taxes from taking up any more of your valuable time so you can spend it with your friends and family. It's easy and free to start.
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Disclaimer: While as informative as our blog is, we are an informational source for industry news and related topics. We take every effort to provide honest and accurate tax information, but this information should not be a substitute for professional tax advice.