Slideshow Tax Tips for the Armed Forces

  • May 24 2016, 3:52pm EDT
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A month of recognition

Memorial Day honors those who’ve lost their lives in the armed services, but many don’t realize that May 21 was Armed Forces Day, which honors those currently serving, and the entire month of May is National Military Appreciation Month – and with that in mind, the Internal Revenue Service has released its annual Armed Forces Tax Guide to help members of the military learn about the many tax benefits available to them.

You can see the guide, Publication 3, here; what follows are some highlights worth bearing in mind for your clients in the military and their families.

1. Combat pay

Pay received during service in a designated combat zone, qualified hazardous duty area, or certain other qualified areas, is partly or fully tax-free – though it does count as compensation when it comes to figuring out limits on contributions (and deductions of contributions) to IRAs.

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2. Duty-related travel

Reservists whose reserve-related duties take them more than 100 miles from home can deduct their unreimbursed travel expenses on Form 2106 or Form 2106-EZ, even if they don’t itemize their deductions.

3. Moving expenses

For those on active duty who have to move because of a permanent change of station, unreimbursed moving expenses are deductible on Form 3903. In other cases, they need to meet certain time and distance tests.

4. Foreign postings

Service members stationed abroad have extra time, until June 15, to file a federal income tax return. Those serving in a combat zone have even longer, typically until 180 days after they leave the combat zone.

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5. Delayed tax payments

Service members may qualify to delay payment of income tax due before or during their period of service by up to 180 days.

6. The EITC and more

Like similarly situated civilians, low- and moderate-income service members often qualify for such family-friendly tax benefits as the Earned Income Tax Credit, and a special computation method is available depending on whether they elected to include their nontaxable combat pay.

7. Free filing

Service members who prepare their own return qualify to electronically file their federal return for free using IRS Free File. In addition, the IRS partners with the military through the Volunteer Income Tax Assistance program to provide free tax preparation to service members and their families at bases in the United States and around the world.