Published September 06, 2012
If you are in the military, on active duty, in a combat zone or transitioning back to civilian life, there are special tax considerations that you should take advantage of on your returns.
Combat Pay. Any combat pay you receive while in a combat zone is not taxable income to you and should not be reflected on your W2. You are entitled to include this compensation as earned income when calculating the Earned Income Tax Credit. State bonus pay is considered combat pay and may not be subject to taxation. Note that if you are stationed in a foreign country and not in a combat zone, your military wages are subject to income tax and do not enjoy the Foreign Earned Income Exclusion.
Moving Expenses. If you are on active duty and move because of a permanent change of station, you may be able to deduct some of your unreimbursed moving expenses. These might include lodging, storage of personal goods, transportation, etc.
Tax Deadlines and other Important filing information. If you are in a combat zone or participating in a contingency operation while deployed away from your permanent duty station, you have an automatic 180 day extension beginning with the last day of combat zone or contingency operation duty in which to file your income taxes. If you are hospitalized you also are given this automatic extension. Most military installations provide free tax filing and preparation assistance. If you are not available to sign the joint income tax return, a power of attorney may be used to file the joint return.
Travel to Reserve Duty. Keep a log of the miles you must drive if you are a member of the US Armed Forces and must travel more than 100 miles away from home to perform your reserve duties. Use Form 2106 to figure your miles. You may also deduct airfare, lodging and meals expenses as well, subject to rules.
ROTC Students. If you are an ROTC student and receive subsistence allowances while participating in advanced training, this compensation is not taxable. But if you are in a summer advanced camp and receiving active duty pay, then the income is taxable.
Employee Business Expenses. If military regulations prohibit you from wearing certain uniforms when off duty, you can deduct the cost and upkeep of those uniforms. You may also deduct any job-related education and professional membership dues incurred . These items are deducted on Schedule A of your income tax return. Subtract any reimbursements you receive from the total expense.
Transitioning Back to Civilian Life. Job search expenses such as resume preparation, travel and lodging to interviews, outplacement agency fees, and moving expenses may be deductible. And when you interview with an employer, don’t forget to mention the tax credit available to employers who hire a veteran.
For more information, refer to Publication 3 Armed Forces Tax Guide A listing of all combat zones are provided in this publication.
Thank you from the bottom of my heart for serving our country and protecting us here at home.
Bonnie Lee is an Enrolled Agent admitted to practice and representing taxpayers in all fifty states at all levels within the Internal Revenue Service. She is the owner of Taxpertise in Sonoma, CA and the author of Entrepreneur Press book, “Taxpertise, The Complete Book of Dirty Little Secrets and Hidden Deductions for Small Business that the IRS Doesn't Want You to Know.” Follow Bonnie Lee on Twitter at BLTaxpertise and at Facebook.