For those who are serving in the military, there are a variety of potential tax deductions and benefits that may be available. However, there are some very specific benefits that apply to those who are currently serving in a combat zone. Working with your tax professional or accountant, such as JOE GORMLEY CPA in PRINCETON, NJ, you can determine if any of these benefits apply to you and your family.
What Qualifies as Gross Income?
When serving in the military, you are eligible for various types of pay, depending on your tour of duty. Therefore, you need to be sure to properly identify the types of pay you have received and the allowances that will allow certain pay to be excluded from your gross income. So what are some of these potential exclusions?
Some exclusions include living allowances, moving allowances, travel allowances, combat zone pay and death allowances. When an item falls under the exclusions list, then it is not subject to tax, but you may have to note or list it on your tax return. A few of these exclusions are expanded on below.
Combat Zone Pay
If you are serving in a designated combat zone, then a certain amount of your pay may be excluded from your income. The month that you receive the excluded pay must be the month that you served in a combat zone or were hospitalized due to a wound, disease or other injury that you received while serving in the combat zone.
You are only obligated to serve one or more days in a month in order to be eligible for the entire month to be excluded. Some examples of the type of pay that might fall under this category include imminent danger or hostile fire pay; reenlistment bonus if the extension of your service occurs while you are serving in a combat zone; active duty pay earned in the month that you served in a combat zone; pay for any accrued leave earned in the month that you served in a combat zone; and a portion of any student loan repayment made during the year that you served in a combat zone.
Sale of a Home
As a member of the military, you may not have to pay tax on all the profit realized when you sell your main home. A deduction of up to $250,000 of gain or $500,000 if you are married and filing jointly is available. Your main home is defined by the IRS as a primary residence that you lived in for more than two years. Additionally, you may also be able to exclude profits from the sale of a rental or business property as long as you meet specific ownership test criteria, according to the IRS. However, you cannot deduct a loss from the sale of your main home.
Moving Expenses
Military members are often required to move as part of their service. This can mean relocating their whole family and all of their belongings. If you move due to a change in station, then you are eligible to deduct any reasonable expenses related to the move, as long as they have not been reimbursed from another source. Some of the expenses that could qualify under this deduction would be the costs of moving your household goods and personal effects, as well as any travel expenses relating to the move itself. In addition to moving expenses, other travel related to work can be deducted, as long as it is not reimbursed from another source and you are traveling away from your current duty station. You are considered away from your duty station when you are away for more than an ordinary’s day of work and you need to pay for sleeping quarters or food as part of the trip.
So what would be considered eligible expenses under this category? These eligible expenses would include business related meals, lodging, business phone calls and even laundry, if necessary. This category can apply to reservists who travel more than 100 miles from home for training or other necessary military requirements. As you can see, there are a variety of potential opportunities for deductions to reduce your tax liability.
Click on the link below to connect with a tax professional or accountant in the office of JOE GORMLEY CPA in PRINCETON, NJ, to discuss what deductibles may be available to you and your family based on your current military level service and if you have served a tour of duty in a combat zone.
Joseph J. Gormley CPA