Tax tips for those serving in the military
Are you or a loved one serving in the military? If so, you may be aware that there are many tax laws generally designed to make it easier to meet your tax obligations while serving your country. The Minnesota Society of CPAs (MNCPA) provides an introduction to some key tax regulations affecting those in the armed forces.
Who is affected?
First, it's important to understand how being "in the military" is defined. Under federal tax law, the U.S. Armed Forces includes officers and enlisted personnel in all regular and reserve units under the auspices of the Secretaries of Defense, the Army, Navy and Air Force, including the Coast Guard. The U.S. Merchant Marine and the American Red Cross are not included, but people serving in these organizations and other support functions may qualify for some tax deadline extensions if they serve in a combat zone. Some of the rules discussed here also apply to those in the foreign service or various intelligence functions, so consult your CPA if you have questions about your eligibility.
Homebuyer credit extension applies for 2011 return
The popular homebuyer credit tax benefit provides a credit against your tax bill worth up to $8,000 for first-time homebuyers and for certain long-time home owners who are purchasing a new principal residence. Although the deadline for most taxpayers expired in 2010, members of the military and some other federal employees received an extension. For them, the credit is still available if they bought or committed to buy a principal residence on or before April 30, 2011, and closed on that purchase by June 30, 2011. It applies to those who served on qualified overseas duty for at least 90 days beginning after December 31, 2008, and ending before May 1, 2010. Married taxpayers qualify even if only one spouse served overseas during the period. In addition, the credit repayment requirement that applies in some cases is waived in many cases if the taxpayer sold or stopped living in the principal residence after December 31, 2008, because he or she received orders to serve overseas. If you are in the military or have a loved one who is and you believe this credit may apply, be sure to consult your CPA for more details.
Another benefit for homeowners in the military
As a general rule for most taxpayers, if you lived in your principal residence for two of the five years before selling it, then up to $250,000 of any gain on the sale is not taxable (or up to $500,000 if you are married and filing jointly). Members of the military, however, are allowed to suspend the five-year period for up to 10 years of qualified duty time as a special exclusion. This benefit applies when the taxpayer is stationed 50 or more miles from home or is required to live in government housing. The point of the law is to prevent members of the military from losing out on this benefit because their service involves living away from home for long or recurrent periods. Be sure to ask your CPA for more details if you believe you are eligible.
Special tax deductions and extensions
There are many other large and small breaks for members of the military. Were you aware, for example, that they are eligible to deduct moving expenses when they are restationed? Members of the military may also be eligible for extended deadlines on filing returns, paying their taxes and claiming their refunds. It may also be possible to deduct some of the costs of job hunting when leaving the armed forces.
A boost for military job seekers
When seeking work, veterans can also remind potential employers of two new tax benefits available to businesses that hire them. Companies that offer jobs to unemployed veterans can receive a credit of up to $5,600 per veteran under the Returning Heroes Tax Credit. The Wounded Warriors Tax Credit gives employers a maximum credit of $9,600 per veteran if they offer jobs to veterans with disabilities connected to their military service.