Active service members face unique tax scenarios that require specialized knowledge to ensure compliance and maximize benefits. Below is a breakdown of the most relevant and creative types of taxes impacting military personnel and how we support you in navigating them:

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1. Military Income Taxes

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Active-duty pay comes with specific rules for tax filing. Key aspects include:

• Combat Pay Exclusions: Earnings received in designated combat zones are often excluded from federal taxes. We’ll help you identify qualifying income and ensure accurate reporting.

• State Residency Rules: Active-duty members can maintain a legal state of residence while stationed elsewhere. We clarify the implications of state taxes and ensure you’re filing in the correct jurisdiction.

• Tax Extensions for Deployment: Deployed service members are eligible for automatic tax filing extensions. We help you apply these benefits and avoid penalties.

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2. PCS (Permanent Change of Station) Tax Deductions

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Relocations are a regular part of military life, and PCS moves bring unique tax considerations. These include:

• Deductible Moving Expenses: For moves related to active-duty service, certain expenses like shipping household goods, travel costs, and lodging can be deductible.

• State-to-State Tax Adjustments: Moving can affect your state tax liabilities. We’ll help you calculate and adjust filings based on changes in state residency.

• Storage Expenses: Costs for storing household items during a PCS move may also qualify for deductions.

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3. Combat Zone Tax Benefits

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Serving in designated combat zones provides special tax relief, including:

• Exclusion of Combat Pay: Combat pay is tax-free up to the highest enlisted pay grade. We ensure these exclusions are applied correctly.

• Automatic Filing Extensions: Military personnel in combat zones receive automatic extensions for tax filing deadlines.

• Earned Income Tax Credit (EITC): Combat pay is excluded from taxable income but can still be included in EITC calculations, potentially increasing your refund.

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4. Spousal and Dependent Tax Considerations

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Military families face unique filing challenges, including:

• Joint Filing Benefits: Explore whether filing jointly or separately is most beneficial, especially if your spouse has non-military income.

• Dependent Tax Credits: Maximize deductions and credits for dependents, including the Child Tax Credit and Dependent Care Expenses Credit.

• Military Spouse Residency Relief Act (MSRRA): Spouses can retain their original state of residence for tax purposes when relocating with active-duty members.

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5. Tax-Free Benefits and Allowances

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Many allowances provided to active-duty service members are non-taxable, such as:

• Basic Allowance for Housing (BAH): Excluded from gross income.

• Basic Allowance for Subsistence (BAS): Non-taxable income for military personnel.

• Family Separation Allowances: Additional pay received during deployments away from family is often tax-free.

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6. Retirement and Transition Tax Considerations

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For those nearing retirement or transitioning out of the military, tax planning is essential:

• Military Retirement Pay: Understand the tax implications of pension income and potential deductions.

• Veteran Benefits: VA disability benefits are tax-exempt, but other forms of retirement income may be taxable.

• Transition Assistance: Filing taxes in the year of transition involves accounting for separation pay and potential relocation deductions.

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7. Additional Deductions and Credits

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Military members may qualify for lesser-known deductions, including:

• Uniform Maintenance: Costs for upkeep and replacement of required uniforms not covered by allowances.

• Education Credits: Use the GI Bill to fund education and explore credits like the American Opportunity Credit or Lifetime Learning Credit.

• Professional Fees and Licenses: Deduct costs for maintaining licenses or certifications required for your role.