There are special tax benefits to members of the U.S. Armed Forces. If you or someone you know is in the military, prior to filing a tax return it makes sense to review your situation. Outlined here are some of the more common.
Combat Pay Income Exclusion. If you serve in a combat zone, certain pay received is not taxable. Usually this combat pay is noted on your W-2 and you will not need to take action to receive this benefit. However, if you are moved from one location to another or are in support of a combat zone, your pay can also be non-taxable.
Action step: Review your W-2 each year to ensure the proper pay has been excluded from your taxable income. Combat zones are published in IRS publication 3 each year.
Earned Income Tax Credit (EITC). Usually you need to have earned income (wages) to receive the Earned Income Tax Credit. However, as a member of the military, you may choose to use nontaxable combat pay to increase your credit. Even better, you can increase the credit but the combat pay still remains non-taxable income.
Action step: If you have combat pay, conduct the calculations to maximize your EITC tax benefit.
Uniform Deduction. The cost to purchase and maintain uniforms that you may not wear while off duty are also deductible.
Action steps: Identify the uniforms that fit this requirement and save all the related expenses to ensure you maximize this tax deduction.
Deadline Extensions. If you are in a combat zone, you may often receive an automatic extension for filing your tax return. Sometimes this extension may include abatement of fines and interest.
Action steps: While it is always recommended to file the proper extensions, do not automatically assume if you are late in filing or paying taxes that you are subject to fines and interest if you were in a combat zone. These extensions also apply to service in support of the Armed Forces (Merchant Marines, Red Cross and other civilian support staff). With a few exceptions, these extensions can even be used by those whose spouses are in combat zones.
There are many other tax benefits for military personnel. If in doubt, ask for a review of your situation.