Military Tax Deductions
It’s that time again…time to figure out your taxes for 2013 and send in payment, or hopefully, get a refund. If you haven’t filed yet, you may feel like it’s looming over your head. No one likes to pay.
But if you don’t spend the time and energy that is required to itemize your return, you could be throwing money away. Itemized deductions, using Schedule A of IRS Form 1040, can save you a great deal of money if you are in the military.
To get the most out of your deductions, seek some help from your local Armed Forces Tax Council (AFTC) offices or Volunteer Income Tax Assistance Office. VITA us available if your income is below $49,000. Using AFTC is very useful because these tax specialists are versed in the sections of the tax code that apply to military members. You can also take advantage of Free File, a free online tax filing service available through the IRS website.
There are many military-specific itemized deductions that you might be able to take. A good way of understanding these deductions is to look at your job in the military as your own business for tax purposes. In other words, what do you need for your business (the military) that you wouldn’t otherwise have to pay for out of your own pocket? If these items are used exclusively for your military service and the government does not pay for them for, they are probably deductible. A good example of the deductible rule is restricted and special uniforms. These are deductible while regular uniforms are not.
Local, state and foreign taxes are also deductible. Some types of property and sales taxes are deductible. Interest paid on mortgages, home equity lines and student loans is usually deductible.
If you are a student, you or your parents can take advantage of the American Opportunity Credit (up to $2,500 per student), the Lifetime Learning Credit ($2,000-$4,000) and the Tuition and Fees Deduction (up to $4,000 per student). The Tuition and Fees Deduction cannot be used in conjunction with the American Opportunity or Lifetime Learner’s Credit. Educational and training courses required for work (such as continuing education) are deductible.
The “Making Work Pay” Credit — also known as Earned Income Credit — allows military members to claim the credit for combat pay even if they haven’t paid taxes on the money. To take this credit, you will need to fill out schedule M.
There are also child care credits, credits for charitable donations, medical expenses, small business expenses if your spouse has a business and many other types of deductions. Every service member’s situation is different which is why it is a good idea to take advantage of VITA or AFTC.
If you received the income as reimbursement or as an allowance, you do not include that pay as part of your gross income. Some examples are:
- Basic Housing Allowance (BAH) — You can deduct mortgage interest and real estate taxes on your home even if you pay those expenses with your BAH
- Basic Allowance for Subsistence (BAS)
- Housing and cost-of-living allowances abroad, whether paid by the US government or by a foreign government
- Overseas Housing Allowance
- Evacuation to a place of safety
- Some educational expenses for dependents
- Burial services
- Death gratuity payments to eligible survivors
- Travel of dependents to burial site
- Move-in housing
- Moving household and personal items
- Moving trailers or mobile homes
- Temporary lodging and temporary lodging expenses
- Military base realignment and closure benefit — This benefit is calculated as 95% of the fair market value of the property before any public announcement of the intent to close all of part of the military installation minus the property’s fair market value at the time of sale)
- Annual round trip for dependent students
- Leave between consecutive overseas tours
- Reassignment in a dependent-restricted status
- Transportation for you or your dependents during ship overhaul or inactivation
- Per diem
- Defense counseling
- Disability, including payments received for injuries incurred as a direct result of a terrorist or military action
- Group term life insurance
- Professional education
- ROTC educational and subsistence allowances
- Survivor and retirement-protection plan premiums
- Uniform allowances
- Uniforms furnished to enlisted personnel
In-kind Military Benefits
- Dependent care assistance
- Legal assistance
- Space-available travel on government aircraft
- Medical and dental care
- Commissary and exchange discounts
Military members, as W-2 employees, don’t have all that many options when it comes to sidestepping a tax bite. Uncle Sam knows everything you make from the military, and except for certain pay earned in a combat zone and some special allowances like BAH, it’s nearly all taxable.
But itemizing these deductions and exemptions available to you can save you a lot of money.