Military life is extraordinary in many respects; even the taxes are different. Here are five tips the pros said can help members of the military and their families at tax time — including a few for veterans, too.
Keep records of your moving expenses
The recent changes to the tax law suspended the tax break for moving expenses in 2018 but not for active-duty military members who have orders to relocate.
According to the IRS, if your reimbursements or allowances are less than your actual moving expenses, you probably can exclude them from income. Expenses that are more than your reimbursements are generally deductible.
Scrutinize your pay records
Regular military pay is usually subject to federal income tax, but combat pay generally isn’t. Other types of compensation and allowances may be excluded from income for federal tax purposes, too. IRS Publication 3 has the details.
Check your Leave and Earnings Statement, or LES, to make sure your earnings are accurately reported.
Be choosy about tax prep and look for discounts
Current and former members of the military often have unique tax circumstances. Also, there are many deals on tax software. Find an experienced tax professional with the resources to do tax returns for military families, and meet before year-end, while you still have time to make adjustments. Also, some software providers and even Uncle Sam offer breaks on tax software.
Embrace your home sale
The IRS typically allows people to exclude up to $250,000 of capital gains on the sale of a house ($500,000 for joint filers), though getting that tax break usually requires owning and living in the house for at least two of the five years before the sale. Military members usually don’t have to meet the five-year test.
Check your state residency status
Your state residency status can determine which state’s tax rules apply to your income. Some states don’t tax military retirement pay, for example; others may give breaks on property taxes.
Pay attention to your LES and make sure that it has the right state on it. Also, research your state’s military-related tax rules, and tell your tax preparer you were or are in the military.