Your taxes are the last thing you need to worry about while serving your country. Liberty Tax Service can answer all of your questions concerning your tax return.
Members of the Armed Forces receive many different types of pay and allowances. Some are included in gross income while others are excluded from gross income. Included items are subject to tax and must be reported on your tax return. Excluded items are not subject to tax but may have to be shown on your tax return.
INCOME EXCLUDED FROM INCOME TAX
Here are a few of the most common exclusions:
COMBAT ZONE EXCLUSION
If you are a member of the U.S. Armed Forces who serves in a combat zone, certain pay from your income is excluded for income tax purposes (Social Security and Medicare withholding still apply):
- Active duty pay earned in any month you served in a combat zone
- Imminent danger/hostile fire pay
- A reenlistment bonus if the voluntary extension or reenlistment occurs in a month you served in a combat zone
- Pay for accrued leave earned in any month you served in a combat zone
- Pay received for duties as a member of the Armed Forces in clubs, messes, post and station theaters, and any other nonappropriated fund activities while serving in a combat zone
- Awards for suggestions, inventions or scientific achievements you are entitled to because of a submission you made in a month you served in a combat zone
- Student loan repayments that are attributable to your period of service in a combat zone (provided a full year’s service is performed to earn the repayment)
For the earned income credit, you can elect to include nontaxable combat pay in earned income if it is to your advantage. Doing so may increase or decrease your credit. Your nontaxable combat pay is also included in earned income for the purposes of the additional child tax credit.
Members of the armed forces who have served in a combat zone can make contributions to an IRA even if the compensation on which the contribution is based is excluded from gross income.
- BAH (Basic Allowance for Housing)
- You can deduct the mortgage interest and real estate taxes paid on your home even if you pay these expenses with your BAH.
- BAS (Basic Allowance for Subsistence)
- Housing and cost of living allowances
- Overseas housing allowances
- Certain educational expenses for dependents
- Evacuation to a place of safety
- Burial services
- Death gratuity payments to eligible survivors
- Travel of dependents to burial site
- Military base realignment and closure benefit
- Moving household and personal items
- Moving trailers or mobile homes
- Temporary lodging and temporary lodging expenses
- Annual round trip for dependent students
- Leave between consecutive overseas tours
- Reassignment in a dependent restricted status
- Transportation for you and your dependents during ship overhaul or inactivation
- Per diem
SALE OF MAIN HOME
The 5-year period used in determining whether you can exclude gain from the sale of your main home may be suspended during the period you, or your spouse, served on qualified official extended duty as a member of the Armed Forces. The suspended time cannot exceed 10 years’ total.
Generally, you must sign your tax return before it can be submitted or mailed. However, if you are overseas or incapacitated, you can grant a power of attorney to an individual to file and sign your return. A specific power of attorney can be done through your legal office or granted by filing Form 2848, Power of Attorney and Declaration of Representative.
EXTENSIONS OF DEADLINES
Qualifying individuals serving in, or hospitalized from serving in, a combat zone on the filing deadline have an automatic 180-day extension for filing their return, paying any tax due and filing a claim for refund. This extension starts on the last day present in the combat zone or hospitalized because of injury from service in the combat zone.
Military members not serving in a combat zone but stationed outside the U.S. and Puerto Rico are allowed an automatic 2-month extension for filing, until June 15 or can, by April 15th, file for an automatic 6-month extension. You will, however, be charged interest on any taxes due and not paid by the normal due date.