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Tax Guide
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taxes
Tax guidelines for the military

You'll also automatically have later deadlines for filing tax returns, paying taxes, submitting refund claims or taking other actions with the IRS. The basic extension period is 180 days, but it might be lengthened depending upon when in the tax season you were shipped to a combat zone.

You don't have to be in combat for this IRS rule to apply. If you are deployed to a region in support of but not directly involved in combat, you also receive the 180-day (or longer) extension. In addition, the deadline for the IRS to take certain actions, such as tax collection and examination of your returns, is extended and no penalties or interest will be imposed for not filing or paying taxes during this time.

Options
  • When filing returns, mark "Combat Zone" at the top of the form along with the date of deployment.
  • Contact the IRS at its special e-mail address combatzone@irs.gov. Correspondence should include the name, stateside address, date of birth and date of deployment of the service member. Do not, however, include your Social Security number in the e-mail. The IRS emphasizes only military-related e-mails should go to this address.
  • Call the main IRS help line at (800) 829-1040.

The IRS works with the military to obtain information about reservists and regular military personnel serving in combat areas.

If, however, the IRS does not get up-to-date military status for filing purposes, service personnel, their spouses or their authorized representatives have several options to claim the filing extensions or filing exclusions:

Service personnel serving in a combat zone (or their representatives) can also call or e-mail the IRS in cases where the military member (or his or her spouse) receives a tax notice. The notice can be deferred by following the e-mail steps or by sending the notice back to the IRS marked with the words "Combat Zone" in red ink and the date of deployment.

Combat pay income and the EITC, IRAs

The Earned Income Tax Credit, or EITC, can be a great tax break for individuals, including military personnel, who don't make much money.

To claim the credit however, you must have, as the name indicates, earned income during the tax year. Previously, tax law did not allow service personnel to count nontaxable combat pay as earned income for tax credit purposes.

Now, however, you can add your combat pay (which remains nontaxable) to your earnings in computing how much of the EITC you can claim. This is helpful for military personnel whose earnings for the year might be primarily or completely from combat pay.

The choice to count your combat pay for EITC purposes is yours. In making the decision, you must do a bit of a balancing act. Essentially, you want to earn enough income to qualify for the credit, but not so much that your benefit suffers because the higher your income, the lower the credit.

For military personnel wishing to contribute to retirement accounts, the Heroes Earned Retirement Opportunities, or HERO, Act of 2006, provides them the chance to add to tax-favored retirement accounts.

To contribute to an individual retirement account, an individual must have earned income. Troops whose income consisted primarily of combat pay weren't able to put any money into an IRA because that pay is nontaxable.

But under the HERO Act, combat pay can now be considered for IRA contribution purposes. As with the EITC, the military taxpayer's combat pay remains nontaxable.

Tax breaks for military homeowners

Soldiers who have to sell a home because they are redeployed get a break on any capital gains they might otherwise face because they didn't own the property very long.

Generally, when a homeowner lives in a personal residence two of the past five years, up to $250,000 (or $500,000 for married filers) of capital gains on the sale is tax-free. Some military homeowners have found the residency rule hard to meet and ended up owing taxes.

Thanks to the Military Family Tax Relief Act of 2003, such homeowners are exempt from the two-year requirement (for up to 10 years). This means they qualify for the full exclusion whenever they must move to fulfill service commitments.

The military relief bill also eases the tax bite on some other items. Housing assistance provided by the military to compensate for a drop in home values because of base closures or restructuring is no longer considered taxable income. Neither is child care or other eligible dependent care expenses provided under a military assistance program.

New homeowners in the military also have an extra year to qualify for the first-time homebuyer credit. Eligible taxpayers must enter into a binding contract to buy a principal residence on or before April 30, 2011. Only one spouse must be overseas on official extended duty for the requisite amount of time for either spouse to be eligible for the 2011 extension of time to purchase a principal residence and claim the credit.

Getting tax help

Because of the complexities of taxes and military service, not to mention the newly passed laws, you may need clarification about your specific tax circumstances. Don't hesitate to talk with representatives of your base's finance office.

Servicemen and women stationed abroad also can get tax information from January through mid-June at some U.S. embassies and consulates.

Additional tax information and updates for members of the armed forces are available year-round at a special IRS Web page.

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