To all members of the armed forces, we are very thankful for your dedicated service to our country. We recognize the hard work and sacrifices you have made and thankfully, so does the IRS! There are many tax breaks that you have access to, so take advantage of them! In honor of your service, we’ve provided the following five tax tips that can be very beneficial to you.
Many tax related business decisions come throughout the year, even when a member of the family is deployed. The power of attorney is essential for a military spouse. This document gives the holder the ability to file legal document on behalf of the other party. A Military Power of Attorney is acceptable in all states regardless of the state law. These documents typically only cover times of deployment.
Military Spouses Residency Relief Act
The Military Spouses Residency Relief Act was passed in 2009 and it allows spouses of those deployed the ability to maintain one’s state of domicile. This comes into play with residency, voting and taxes. Each state has different tax rates. You could pay less than your current state’s tax rate or no taxes at all based on your domicile status.
Combat Zone Exclusion
The Combat Zone Exclusion has become a critical item for military families. Those who spend part of a month in an area designated by the President as a Combat Zone are paid combat pay, which is excluded from taxes. Salary isn’t the only thing covered in combat pay. It also includes the following items:
- 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 the exclusion. For example, if you served in a combat zone for six months, then half of your repayment qualifies for exclusion.
Military Moving Expenses
Ask anyone raised in the military, one of their reoccurring memories is moving from one duty assignment to the next. In the civilian world, if you move for work, you can deduct portions of those moving expenses. That holds true in the military, with a few additional items. The expenses you can deduct include the cost of moving household goods and personal items, 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 apply except storage. Storage fees are valuable deductions when your duty assignment is outside of the U.S. Plus, they are deductible the entire time you are abroad.
Capital gains tax can be a hefty amount when you sell your home. The IRS code exempts service members from capital gains tax if they lived in the house for less than the required two years, given certain items are met. You can deduct any time over 90 days that you were assigned to a duty station at least 50 miles from your home. This can save up to $500,000 in gains for couples.
Be sure to check out this helpful Tax Guide for Military to learn more.
DIY Tax is more than just financial advice. You can find great DIY projects on our blog including projects to honor your special service member. Keep up with our tips on social media by following us on Facebook and Twitter.