Tax Season Checklist for Active Military and Veterans
Now that tax season is around the corner, it’s the perfect time to get a better understanding of your tax situation as a member of the active military, transitioning military or as a veteran. While it’s important to pay what you owe the Internal Revenue Service (IRS) on time, you don’t want to pay them any more money than you are required. You’ll also want to maximize your deductions and benefits as these are part of your total compensation as a service member for your country. Here are some tips to help you minimize your tax obligation this year.
“You must pay taxes. But there’s no law that says you gotta leave a tip.” – Morgan Stanley
Check that your information is correct.
First, make sure all the information you are providing to the IRS when filing is correct. This will save you time, money and headaches. Check to make sure you are using the correct forms, all information is spelled and listed correctly, and that you checked the box for the correct filing status. For more information on filing your return, visit the IRS filing website.
Use free tax filing software.
There are numerous free tax preparation and filing services available to current and former members of the military and their families. The IRS has a Volunteer Income Tax Assistance (VITA) program and Tax Counseling for the Elderly (TCE) (http://www.irs.gov/Individuals/Free-Tax-Return-Preparation-for-You-by-Volunteers) that are available to those who earned less than $53,000 in 2014. MyFreeTaxes (http://www.myfreetaxes.com) allows active military and veterans who earned less than $60,000 to file both federal and state taxes for free. Free File, on the IRS website (http://www.irs.gov/uac/Free-File%3A-Do-Your-Federal-Taxes-for-Free), provides information on all the free tax filing software services available to taxpayers. You can review the services and choose the one that works best for you.
Know your deadline.
If you’re in a combat zone or have qualifying status outside of a combat zone, the deadline for filing your tax return automatically will be extended. See the Frequently Asked Questions section of the IRS website at Extension of Deadlines for Combat Service (http://www.irs.gov/uac/Extension-of-Deadlines-—-Combat-Zone-Service) for details on filing extensions for those in combat zones or support combat zones.
Understand how to calculate your earned income.
As a member of the military, you don’t have to report the nontaxable income you receive. Combat pay, Basic Allowance for Housing (BAH) and the Basic Allowance for Subsistence (BAS) are all considered nontaxable income. The IRS recommends calculating your tax bill two ways, with and without nontaxable pay, to determine which works best for you. Note: Military members on active duty outside of the United States are treated as if they are living in the United States for tax purposes.
Benefits provided to the United States armed forces
For tax purposes, all officers and enlisted personnel in all regular and reserve units controlled by the Secretaries of Defense, Army, Navy, Air Force and Coast Guard are considered U.S. Armed Forces. The following are some of the special benefits available to active members.
Reasonable out of pocket moving expenses:
If you are on active duty and move due to a permanent change in station, all unreimbursed reasonable moving expenses can be deducted. This includes all expenses related to travel as well as the cost of moving household goods and personal effects.
Travel and transportation expenses:
If you are a member of a reserve component of the Armed Forces and have to travel more than 100 miles away from home to perform your service, you can deduct your unreimbursed travel expenses.
The costs associated with traveling from one workplace to another, attending business meetings away from your workplace or traveling away overnight can be deducted from your income. The expenses associated with your commute to your typical place of work are not deductible. Note: Reservists traveling to a meeting of a reserve unit held on a day of regular work can deduct expenses related to travel.
Uniform costs are typically not deductible unless regulations prohibit you from wearing your uniform when off duty. If that’s the case, you can deduct unreimbursed expenses associated with your uniform and uniform upkeep.
Education related deductions:
You can deduct an education expense as long as it meets the following two criteria outlined by the IRS:
> It is required by your employer or the law to maintain your salary, status or job.
> It maintains or improves skills needed in your present work.
Benefits provided to veterans
There are numerous tax benefits offered to veterans. For tax purposes, a veteran is someone who has served at least 24 consecutive months of active duty and has not been released with dishonorable status. Spouses, children and parents of a deceased or disabled veteran also qualify for these benefits.
Disabled veterans now pay no or a reduced property tax in many states. California has a Disabled Veterans’ Exemption that allows veterans to claim a full tax exemption on their property as long as it’s the primary residence of the veteran, the full value of the residence does not exceed $150,000 and household income doesn’t exceed $40,000. Paying reduced or no property tax is a huge tax savings!
Education and Training Allowances:
Those who served for 36 months or more after September 10, 2001, are eligible for the benefits under the Post-9/11 GI Bill. Any financial aid from the Post-9/11 GI Bill is not taxable and does not have to be reported as taxable income. Other education expenses should also be reviewed on a case-by-case basis.
Benefits for Dependents and Survivors:
There are numerous benefits available to dependents and survivors of veterans. Benefits include the VA’s Dependency and Indemnity Compensation payment, pension payments and a one-time death gratuity. These benefits are not taxable and will not need to be reported as taxable income.
Insurance proceeds covered by Servicemembers’ Group Life Insurance Traumatic Injury Protection, Service-Disabled Veterans’ Insurance and Veterans’ Mortgage Life Insurance are not taxable, and those receiving the payments will not incur any income tax.
The Specially Adapted Housing Grant is a benefit that helps disabled veterans modify their house to any special needs including but not limited to making the house wheelchair accessible. The grant offers up to $67,555 in funding for house adaptation and does not have to be reported as taxable income.
Here’s wishing you good fortune in navigating your taxes this spring. If you have follow-up questions, look me up at the sites below.
Ashley Feinstein is a certified money coach and founder of Knowing Your Worth, where she empowers her clients to redefine success on their own terms by knowing their value and fearlessly going for it. Find out more, check out her blog at KnowingYourWorth.com and connect with her on Facebook and Twitter at The Fiscal Femme.
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