Are you or a family member in the armed forces? We’re grateful for the service you provide to our country. Strategy: Take advantage of special tax breaks for the military. Congress has carved out a number of tax-saving opportunities for qualified taxpayers. The IRS recently listed eight of the key benefits available to the military. (IRS News Release IR-2019-51, 3/20/19)
- Tax return preparation. Most military bases offer free tax preparation and filing assistance during tax-filing season. Some also offer free tax help after the April 15th Service members who prepare their own return for free by using IRS Free File.
- Combat pay. Combat pay is partially or fully tax free. Service members serving in support of a combat zone or in a qualified hazardous duty area may also qualify for this exclusion. In addition, U.S. citizens or resident aliens, such as spouses who worked as contractors or employees of contractors supporting the U.S. Armed Forces in designated combat zones, may now qualify for the foreign earned income exclusion.
- Reporting deadlines. Members of the military, like those who serve in a combat zone or are serving in contingency operations outside the United States, are able to postpone most tax deadlines. Those who qualify can get an automatic extension of time to file and pay their taxes. (Other taxpayers only are allowed an extension for filing.)
- Earned Income Tax Credit. The Earned Income Tax Credit (EITC) is currently worth up to $6,431. Low- and moderate-income service members who receive nontaxable combat pay can use a special computation method to boost their EITC. In other words, they may owe less tax or be in line for a bigger refund.
- Combat zone benefits. Those who served in the Sinai Peninsula of Egypt may qualify for combat zone tax benefits retroactive to June 2015. Under the Tax Cuts and Jobs Act (TCJA), members of the U.S. Army, Navy, Marines, Air Force and Coast Guard who performed services in the Sinai Peninsula can now claim combat zone tax benefits.
- Dependent care. Dependent care assistance programs for military personnel are excludable benefits. Thus, they are not included in the military member’s income.
- Moving expenses. The TCJA generally suspends the moving expense deduction for 2018-2025. However, beginning in 2018, active duty members of the U.S. Armed Forces who must move because of a military order to a permanent change of station can still claim this deduction under the TCJA. Also, allowances paid to move members of the U.S. Armed Forces for a permanent change of station are excluded from tax.
- Tax return signing. Normally, both spouses must sign a joint income tax return. But if one spouse is absent due to certain military duty or conditions, the other spouse may be able to sign for him or her. In other instances, a power of attorney is required. A military installation’s legal office may be able to help.
Tip: The IRS has created a special webpage for the military at www.irs.gov/newsroom/tax-information-for-members-of-the-us-armed-forces.
Small Business Tax Strategies June 2019