If you receive combat pay, do not include it as taxable income on your tax return. Likewise, you should not pay income tax on allowances received for living and family expenses, uniforms, death expenditures, moving and travel costs, group-term life insurance and professional education. However, you do need to pay income tax on basic compensation, such as payment for training and active duty service, bonus and incentive money and student loan repayment from specific programs.

If you travel more than 100 miles and stay overnight as a National Guard member or Armed Forces reservist, you can take a tax deduction – even if you do not itemize. The IRS allows you to deduct the amount you spend for work-related travel and lodging plus 50 percent of the cost of your meals. But, be sure to not deduct more for food and lodging expenses than the federal per diem rate for lodging and meals allows. The rates vary by state.

The cost of any uniforms you purchase that are not suitable to wear off duty can be deducted with your miscellaneous itemized deductions. All uniform cleaning and maintenance is also tax deductible. However, unless the amount deducted is significant or you have included additional itemized deductions, you may not receive a tax benefit for this expense. You can only deduct the amount of expense that, if included with other miscellaneous itemized deductions, exceeds 2 percent of your adjusted gross income.

Even though the military pays for basic moving costs, it’s not unusual to incur a few moving expenses that aren’t covered. In that instance, you can deduct any non-reimbursed moving expenses on your tax return without having to meet the distance or time requirements that are standard limitations for moving expense deductions. Any extra moving expenses are deducted as adjustments to income. You don’t need to itemize to take advantage of this tax break.

Changing state residencies if you move frequently can be a huge pain. Not only is it a hassle to file tax returns for multiple states, but you may pay more state tax in one state versus another. Fortunately, if you move for military reasons, you can keep residency in your home state. This guideline applies to your spouse as well. If at any time you live in a state that collects income tax, but hold state residency in a state that does not, generally the new state can’t enforce the income tax. Additionally, if income tax is withheld from your paycheck, you have the ability to file a nonresident return with that state to receive a refund.

Extra time to file your tax return may be allowed if you are stationed abroad or are in a combat zone during the tax filing season. When serving overseas, you automatically have longer to file your tax return without needing to file an extension. But, this extension is only until June 15. If you need more time, you should file for an extension which gives you until October 15 to submit your return. If you serve in a combat zone, the IRS grants you even more time to file your taxes. You have 180 days from either the date you return from the combat zone or from your last date of continuous hospitalization for injuries received while serving in a combat zone to file your return. The 180 days are in addition to the number of days you had left to file when you entered the combat zone. During this extension, no interest or penalties are charged to you. Keep in mind while extensions give you more time to file, any tax you owe must be paid by the regular due date of the return.

If the survivors of a service member who died during active duty receive a $100,000 death gratuity, that amount is tax-free. In addition, if a service member dies while on duty in a combat zone or in support of a combat operation, the service member’s tax liabilities to the IRS are forgiven. This includes tax for the year of death and, potentially, any prior years.

If you meet certain requirements, you may qualify for the foreign earned income and foreign housing exclusions and the foreign housing deduction. The tax professionals at Sikora CPA are trained and experienced at identifying these exclusions and deductions.

If you are a U.S. citizen or a resident alien of the United States and you live abroad, you are taxed on your worldwide income. However, you may qualify to exclude income up to an amount of your foreign earnings that is adjusted annually for inflation. In addition, you can exclude or deduct certain foreign housing amounts. You may also be entitled to exclude from income the value of meals and lodging provided to you by your employer.

Foreign earned income does not include the following amounts:

A qualifying individual may claim the foreign earned income exclusion on foreign earned self-employment income. The excluded amount will reduce the individual’s regular income tax, but will not reduce the individual’s self-employment tax. Also, the foreign housing deduction – instead of a foreign housing exclusion – may be claimed.

A qualifying individual claiming the foreign earned income exclusion, the housing exclusion, or both, must figure the tax on the remaining non-excluded income using the tax rates that would have applied had the individual not claimed the exclusions. To claim the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction, you must have foreign earned income, your tax home must be in a foreign country, and you must be one of the following:

Once you choose to exclude either foreign earned income or foreign housing costs, you cannot take a foreign tax credit for taxes on income you exclude. If you do take the foreign tax credit, one or both of the choices may be considered revoked. However, you can choose to take the foreign tax credit on any amount of foreign income which has not been excluded under the foreign earned income exclusion or the foreign housing exclusion.