For many who choose to serve, being in the military is a calling. Luckily, in the United States, the government does what it can to support our troops and veterans alike. You may be familiar with the VA Loan and the Montgomery GI Bill, which make common expenses easier for former military personnel. However, there are a number of tax-related considerations for those who have served or currently serve. The tips below are a great first step towards understanding your taxes as a member of the military. However, it is only the beginning. There is detailed information available online at www.irs.gov in Publication 3 - IRS Armed Forces Tax Guide, or you may choose to work with a simple software solution such as OnePriceTaxes that can help make the entire tax process much easier.
Discover your MAGI
Your MAGI is one of the most important numbers for military personnel when filling out your taxes. While many who are in civilian positions use the AGI (adjusted gross income) to determine the total taxes owed, those who are in the military will likely want to use the MAGI (modified adjusted gross income.) In many cases, the MAGI includes only your basic and incentive pay—plus some bonuses. The modification would exclude items such as housing and moving allowances, travel costs and certain other items too. For some in the military there can be a huge difference between AGI and MAGI—and using the right number could save you big money! Certain tax programs, like One Price Taxes can help automatically calculate this.
Save with Savings
Did you realize that much of the money that you put away in savings may not be taxable? Money put into a 401K or the military’s Thrift Savings Plan (TSP) may not be taxable, making it a good way to increase your savings and reduce your tax burden. Every situation is different, and what is true for you may not be true for someone else—especially when it comes to savings-related tax breaks. Talk to your tax advisor or read more about these programs on the IRS website.
If you or one of your dependents is enrolled in post-secondary education, you may have even more tax credits available to you. As a member of the military, you may find it quite affordable and easy to enroll in an educational program. If you are doing so anyway, why not take advantage of the financial benefits. The HOPE and Lifetime Learning Credits are two of the most common ways to claim your education expenses to reduce your taxes, but there may be other options too.
Tax Savings at Home
Buying and selling a home is one of the most stressful things you will do in your life. However, the government has made it easier for those in the military—at least in terms of finances. President Bush signed into law The Military Family Tax Relief Act of 2003. This helps relieve a number of tax burdens on those who live the military life. One of the most beneficial aspects of this plan provides tax savings when a military family has to sell their home and relocate (due to work-related requirements). A new law was added that makes it even easier to qualify for these benefits. If you have sold a home in the past year, you may want to look through the details and see if you qualify. Additionally, this may be retroactive for certain people—so it never hurts to look at sales that may have occurred in past years. This could give you a big tax relief THIS year.
Further Benefits From The Tax Relief Act of 2003
The 2003 act by President Bush did more than just make it less costly to sell a home; there are other benefits, too. Some of the more common benefits include:
- Loosening rules regarding capital gains from home sales when service members are put into active duty in a new location.
- Excluding homeowners’ assistance payments from taxable income
- Doubling the death benefit for military members and making that amount tax-exempt
- Exempting dependent care benefits from gross income
- Making it easier for those serving in combat zones to get a deadline extension
- Creating deductions for some non-reimbursed travel for those in the National Guard and Reserves
- Eliminating the penalty for withdrawals from 529 and Coverdell Education Savings Account when used to pay for tuition at a military academy
As you can see, there are a large number of things that a member of the military must keep in mind when filing taxes. It is also important to remember that in addition to these mentioned items, there are standard tax deductions, credits and breaks that a member of the military may qualify for as well. The easiest thing to do is to use a software program that can help find and calculate all of these deductions, credits and exemptions. While there are a number of these services out there, OnePriceTaxes is a great solution. While certain tax services will charge you more for a complicated tax situation (like many military members have), OnePriceTaxes is $29.95 for all users. This easy-to-use software can take the difficulties out of filing and let you get on with your busy life.