There are numerous differences between so-called civilian tax and military tax deductions. For one thing, combat pay is not taxable for enlisted personnel and, within certain limits, for officers.
Here are some of the key provisions of military tax policies:
Anyone assigned to a combat zone or in direct support services to those who are in combat zones do not have to pay federal or state taxes on the income they earn during that time period. However, the state of New Jersey does tax combat pay, even though none of the other 49 states do. The limit for exempt combat pay is set at the maximum income of enlisted personnel, which is about $5,500 per month.
If you're a reservist and have to give up your day job to go on active duty for 180 days or more, you will not be penalized for taking money out of an IRA or 401k to get by. Keep in mind that the IRS will still tax the withdrawals as regular income.
In most cases, if you're in a combat zone, you do not have to pay or file your taxes until six months after the combat duty ends.
Reservists called to a duty station more than 100 miles away from their homes can deduct all non-reimbursed travel expenses, and they don't even have to itemize to do so!
For active duty personnel, it's permissible to deduct all non-reimbursed moving expenses no matter how far away your new duty station is.
You should check with your state taxing authority about state income tax on military pay because there is literally a patchwork of rules about how that income is handled at the state level.
For most Americans, only "earned, taxable" income counts toward the Earned Income Tax Credit limits. But for military members who have non-taxed combat pay, that pay can be included in the total for the EITC.
The IRS generally forgives tax debt due on the estate of service members who die on duty while in a combat zone. Note that the debt forgiveness is only on the estate of the deceased service member, and the death must occur in a combat zone or as the direct result of a hostile military action or terrorist attack. The IRS often softens the rules in these cases on an individual basis.
Military tax advantages include all sorts of little-known deductions and allowances that simply are not available to non-military personnel. If you are in the military, it is a good idea to use a paid professional to prepare your taxes. Unless you are keenly up on the new tax legislation, as it pertains to military tax matters especially, you'll not be able to take advantage of all the deductions without an expert tax preparer. Make sure you get the biggest refund you deserve, or if you owe money, that you pay the lowest tax bill possible.
Continental Tax and Accounting service works with clients all over the U.S. who need help with their taxes and financial situations. Visit their website at https://www.continentaltaxandaccounting.com/ or call them directly and speak live with a tax professional at (910) 483-7893.
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