In many cases, Uncle Sam recognizes the sacrifices members of our nation’s armed forces make and offers special privileges to compensate. When it comes to paying taxes, for example, military members can claim a host of tax advantages that aren’t available to civilians. Here are some tax breaks for the military that are available.
Separation Assistance
If you’re transitioning back to civilian life, you may be able to deduct some of the costs you incur while looking for a new job. Qualified expenses may include:
- Travel
- Resume preparation fees
- Outplacement agency fees
Potential for Retirement Savings
The IRS will let you put tax-free combat pay in the Thrift Savings Plan or an Individual Retirement Account
If you put that money in a Roth IRA or Roth TSP you could get a great deal. You’ll essentially have a pot of money that you’ve never paid taxes on because qualified distributions from these accounts are not taxed at all. Tax-free in and tax-free out is hard to beat.
Exceptions to the Rules
Filing extensions and more. When you’re fighting for freedom, your tax return is probably the last thing on your mind. You can’t put off filing taxes forever, but you may qualify for a deadline extension for several tax-related actions, including:
- Filing returns
- Paying taxes
- Making claims for refunds
- Contributing to IRAs
Help for Spouses
Before 2009, military spouses generally had to pay income taxes to the states where their spouses were stationed. But the Military Spouses Residency Relief Act changed all that. Now military spouses don’t have to pay income taxes to a state that’s not their legal residence just because their family is stationed there.
Remote Filing
Joint returns usually must be signed by both spouses. But if military duties keep you away from home, your spouse can use the power of attorney to file a joint return on your behalf.
Selling Your Home
Taxpayers, whether civilian or military, can generally sidestep paying capital gains taxes on the sale of a home if they owned and used it as their principal residence for two of the five years before the sale. This rule can be used to exclude up to $250,000 in gains for individuals or $500,000 for married couples.
Help with Expenses
Moving deductions. Moving every few years can be expensive. But if your move is a required permanent change of station, the IRS lets you deduct the “reasonable unreimbursed expenses” of relocating yourself and your family. If your new job requires relocation, your moving expenses may be deductible. Check out IRS Publication 521 for more details about moving-expense deductions.
Travel Deductions for Guard/Reserve
If you’re called more than 100 miles away from home to perform Reserve duties, you can generally deduct any unreimbursed travel expenses.
Save on Uniforms
If the military prohibits you from wearing certain uniforms when off duty (a rule that usually applies to Reservists), you can generally deduct the costs to buy and maintain those uniforms. But you must reduce your expenses by the amount of any uniform allowance or reimbursement you receive.
Waived Penalties
A call to active duty sometimes creates a financial hardship for Reservists. If the Reservist addresses the hardship by withdrawing funds from their retirement savings, the IRS may provide accommodation. Check out the IRS website for more information on financial hardships.
Free Tax Assistance on Base
Most military installations offer tax help to service members and their families through the Volunteer Income Tax Assistance Program. VITA’s volunteers are trained and certified by the Internal Revenue Service, and those working at our on-base sites understand military-specific tax issues.
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