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Tax Advantages for Military Members

With only 15 days left until taxes are due, I thought it would be germane for me to talk about some of the tax advantages that military members are entitled to. If you want to slog through the IRS article concerning military and taxes, feel free to, but I’ve tried to condense it a little.


First off, since there are only 2 weeks left to file and pay, you may qualify for a deadline extension up to 180 days on filing returns, paying taxes, or contributing to IRAs, if you’re in a combat zone, a contingency operation, or you’re supporting those operations. That applies to your spouse as well.


The two biggest advantages provided to servicemembers are combat-zone exclusions, where any earnings in a combat zone are tax-exempt, for any month in which you spent at least one day in that combat zone. Quick 3-day TAD (or TDY) to Bahrain? That month’s earnings are tax-exempt. Did that trip cover 2 separate months? Both months are tax exempt! This includes bonuses and special pays, including reenlistment bonuses! Even better, if you put your tax-free earnings in a Roth Thrift Savings Plan (TSP, up to $17,500), Roth IRA (up to $5,500), and/or traditional TSP (up to $52,000 in 2014), that is all tax-free on withdrawal too!


The other huge tax advantage military members get is that most of their paycheck allowances are tax-exempt. Basic allowance for subsistence (BAS) and basic allowance for housing (BAH) are both tax-exempt, which is huge! Unfortunately, the cost of living allowance in the States (CONUS COLA) is taxable, but OCONUS is not!


For spouses, the 2009 Military Spouses Residency Relief Act mandated that non-military spouses don’t need to pay state income tax in the state in which their stationed; they can pay it in the state in which they have legal residence, which can create a lot of tax savings depending on what state that is.


When selling your house, you must’ve used it as a primary residence for 2 of the previous 5 years to exclude you from capital gains, up to $250k for individuals and $500k for married couples, but if you’re in the military, you can temporarily suspend the 2 out of 5 rule if you’re ordered to a duty station at least 50 miles away for at least 90 days.


When moving, you can deduct “reasonable unreimbursed expenses” of relocating from your taxes; here is the relevant pub. Also, if you’re moving because of separation or retirement, or just travelling because of job interviews, you can deduct travel expenses, resume prep fees, or headhunting agency fees.


If you need help preparing your taxes, most military bases offer free tax-preparation assistance. There is a program called Volunteer Income Tax Assistance, or VITA, which provides completely free, military-specific help with your taxes. To find a VITA site, check out this site. Also, USAA offers a free edition of Turbotax for all active duty members, and $20 for all USAA members regardless of duty status.


If you have any additional questions regarding military tax advantages, feel free to email me directly.

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