Tax Tips for Those Serving in the Military
Are you or a loved one serving in the military? If so, you may not be aware there are many tax laws generally designed to make it easier to meet your tax obligations while serving your country. The Oklahoma Society of Certified Public Accountants (OSCPA) provides an introduction to some key tax regulations affecting those in the armed forces.
Who is affected?
First, it's important to understand how being "in the military" is defined. Under federal tax law, the U.S. Armed Forces includes officers and enlisted personnel in all regular and reserve units under the auspices of the Secretaries of Defense, the Army, Navy and Air Force, including the Coast Guard. The U.S. Merchant Marine and the American Red Cross are not included, but people serving in these organizations and other support functions may qualify for some tax deadline extensions if they serve in a combat zone.
The homebuyer credit extension applies for 2011 returns.
The popular homebuyer credit tax benefit provides a credit against your tax bill worth up to $8,000 for first-time homebuyers and for some long-time homeowners who are purchasing a new principal residence. Although the deadline for most taxpayers expired in 2010, members of the military and some other federal employees received an extension. For them, the credit is still available if they bought or committed to buy a principal residence on or before April 30, 2011, and closed on that purchase by June 30, 2011. It applies to those who served on qualified overseas duty for at least 90 days beginning after Dec. 31, 2008, and ending before May 1, 2010. Married taxpayers qualify even if only one spouse served overseas during the period. In addition, the credit repayment requirement that applies in some cases is waived in many cases if the taxpayer sold or stopped living in the principal residence after Dec. 31, 2008, because he or she received orders to serve overseas.
Homeowners in the military get another benefit.
As a general rule for most taxpayers, if you lived in your principal residence for two of the five years before you sell it, then up to $250,000 of any gain on the sale is not taxable (or up to $500,000 if you are married and filing jointly). Members of the military, however, are allowed to suspend the five-year period for up to 10 years of qualified duty time as a special exclusion. This benefit applies when the taxpayer is stationed 50 or more miles from home or is required to live in government housing. The point of the law is to prevent members of the military from losing out on this benefit because their service involves living away from home for long or recurrent periods.
Women and men in uniform get additional tax deductions and extensions.
There are many other large and small breaks for members of the military. Were you aware, for example, that they are eligible to deduct moving expenses when they are restationed? Members of the military may also be eligible for extended deadlines on filing returns, paying their taxes and claiming their refunds. It may also be possible to deduct some of the costs of job hunting when leaving the armed forces.
For example, when seeking work, veterans can remind potential employers of two new tax benefits available to businesses that hire them. Companies that offer jobs to unemployed veterans can receive a credit of up to $5,600 per veteran under the Returning Heroes Tax Credit. The Wounded Warriors Tax Credit gives employers a maximum credit of $9,600 per veteran if they offer jobs to veterans with disabilities connected to their military service.
If you have questions about tax benefits for those in the military—or about any aspect of your financial life—be sure to consult your local CPA. He or she has the expertise to advise you on all your financial concerns. If you do not have one, you can find a CPA with the OSCPA's free CPA referral program at KnowWhatCounts.org.