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7 Tax Tips for Military Members

Joining the military means life is about to change. Frequent moves, new jobs and overseas deployments all come with the territory. Even taxes change for members of the Armed Forces.

“If you’re new to the military, your tax return will be substantially different,” says Mark Steber, chief tax officer for Jackson Hewitt. Over the years, the government has instituted a number of provisions and perks intended to make life for military members less taxing. Here are seven tips to help you make the most of them.

Pick the right tax preparer. Military members who want to file their own taxes should head to the government’s Military OneSource website. Eligible service members can file their taxes electronically on the site for free.

However, if you’d rather not prepare tax forms yourself, Steber advises military members to look for someone who can demonstrate expertise in the area. Look for tax preparers who have experience filing returns for members of the military and know how to deal with situations such as combat pay exclusion. Steber says Jackson Hewitt preparers go through a specialized training to handle military returns.

Extra time to file if you’re based in a combat zone. Those deployed to a combat zone get an automatic extension of 180 days to file their taxes after they are reassigned from the area. “I don’t recommend they take the whole 180 days, and whenever they get back they should get their financial house in order right away,” says Michael Meese, chief operating officer with the American Armed Forces Mutual Aid Association and a retired U.S. Army brigadier general.

In addition, military income earned while in a combat zone is not taxed. “If they served just one day in a combat zone, the entire month is tax free,” says Jeremy Shipp, managing partner with O’Dell, Winkfield, Roseman and Shipp in Richmond, Virginia.

Select your home state carefully. Meese estimates he moved 20 times during his 32-year military career. While he could have chosen a number of states for his residence, he elected to keep Texas — where he bought his first house — as his domicile. The decision wasn’t only sentimental, but also strategic. Texas is one of a handful of states with no income tax.

Members of the military should choose wisely when it comes to selecting a domicile. States with no or low income taxes have the potential to save families thousands of dollars. “They just have to live there at some time in their military career,” Shipp says.

Deduct your unreimbursed expenses. Like other workers, military members can deduct unreimbursed expenses related to their job that are in excess of 2 percent of their adjusted gross income. “You may be purchasing a lot of uniforms and insignias,” Meese says. “Keep track of professional dues.” Reservists can also take advantage of a special provision that allows them to deduct travel expenses without itemizing their return.

Know the rules on selling a house. Many military families relocate frequently. “On average, we see military members moving every three years or so,” says Joseph Montanaro, a certified financial planner for USAA and former lieutenant colonel in the U.S. Army. As a result, military families who bought a home may discover they end up selling before they’ve owned it for five years. Normally, that would mean any gains earned from the property sale would be taxable. However, the government has exempted military members from that five year requirement.

Understand your EITC eligibility. The earned income tax credit can refund eligible families thousands of dollars each year. To claim it, people must have earned taxable income, a requirement that could be difficult to meet for military personnel with only non-taxable income such as basic allowances and combat pay. However, the IRS has implemented special EITC rules for military members to allow them to designate their combat pay as taxable. Doing so may result in an EITC refund. The IRS recommends military members calculate their taxes with combat pay being taxable and non-taxable to determine which option results in the greater savings.

Keep updated on changes each year. The tax code has the potential to change every year. Current provisions may expire, while new ones are frequently added. For the latest updates, military members should look to IRS Publication 3, the Armed Forces’ Tax Guide. Military OneSource can also connect military members with consultants who may be able to answer questions on the latest changes.

“This stuff seems complex, but for our service members, there are a lot of resources available,” Montanaro says. “They shouldn’t be afraid to raise their hand and ask for help.”

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7 Tax Tips for Military Members originally appeared on usnews.com

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