We’d like to give thanks to our dedicated military members this Armed Forces Day. In celebration of you, here are some tips from Ginita Wall to help you save more money for you and your family.
Military life can be tough on your wallet, especially if you have a family back home that depends on your financial support. Here are some ways to take advantage of the tax benefits for the military through special rules just for you.
Combat pay. Though all income is generally taxable, if you serve in a combat zone for any part of a month, your income for that month is exempt from federal taxes.
Other pay. If you receive uniforms or a uniform allowance, that isn’t taxable income to you. It doesn’t stop there – you don’t have to pay tax on moving and storage expenses provided by the government, legal assistance, commissary discounts, professional education, survivor benefit and life insurance premiums, and basic allowances for housing and assistance.
But wait, there’s more! Travel allowances are not taxable, either, including transportation for you and your family during ship inactivation, per diem travel allowances, leave between overseas tours, space-available travel on government aircraft, and round trip travel for dependent students.
The list goes on. Medical and dependent benefits provided by the military aren’t taxable, including medical and dental care and dependent-care assistance program coverage. You can also exclude reenlistment bonuses, pay for accrued leave and student loan repayments.
Special benefits for reservists. If you are a military reservist, you can take early withdrawals from IRA and 401(k) accounts without penalty if you meet certain conditions. To qualify for this exemption, you must have been called to active duty after Sept. 11, 2001 for more than 179 days, and you must make the withdrawal while you are on active duty.
There are more benefits for reservists. If you are a member of the reserves, you can deduct your unreimbursed travel expenses in connection with your service as an adjustment to income rather than as an itemized deduction, as long as the travel was more than 100 miles from home.
Reservists who are prohibited from wearing certain uniforms when off duty can deduct the cost to buy and maintain those uniforms, reduced by any uniform allowance or reimbursement received.
Extension of Filing Deadlines for Those Serving in Combat Zones. Members of the military serving in combat zones get an automatic 180-day extension from the IRS for filing tax returns, paying taxes and filing refund claims.
The automatic extension also applies to making qualified contributions to an IRA. And if you are serving away from home, your spouse doesn’t have to wait until you return to file your tax return. Your spouse can use a power of attorney to file a joint return on your behalf.
It may be tempting to use these tax savings to improve your current lifestyle, but stash away as much as you can for future needs. That will ease your life when you return, and your eventual transition to civilian life.