Military tax breaks can be very powerful, but difficult to find. Especially for tax professionals who don’t work with military clients every day, sometimes you can feel like you don’t know about all the military tax breaks that could be available.
Whether on active duty or retired, military veterans deserve our respect for a job well done. As tax professionals, the best way for us to show respect is to save our clients money in any legal and ethical ways that exist. Like other U.S. citizens, veterans file tax returns each year, and are always searching for new ways to maximize their tax savings.
If you are preparing tax returns for active duty or retired military personnel, here are some ways to ensure their tax savings are maximized to the maximum.
For many veterans, one of their biggest questions centers around whether VA benefits are deductible. While the answer to this question is yes, certain conditions and circumstances may apply. Since this topic usually pertains to disabled veterans, it’s important to know IRS regulations.
In some cases, veterans can claim a federal tax refund if they receive an increase in the amount of disability given to them by the Department of Veterans Affairs. To do so, an amended return, Form 1040X, must be filed, accompanied by related documents from the Department of Veterans Affairs, and also the Defense Finance and Accounting Services.
Moving Expenses Exception to the Rule
Like all taxpayers, certain expenses veterans incur during the year can be deducted. These include moving expenses, in which up to 95 percent are termed “reasonable unreimbursed expenses” and are eligible for deduction.
This advice applies not only to married veterans, but single ones as well.
For tax year 2018, the new Tax Reform Law disallows moving expenses deduction for non-military, but military moves still can be deducted under most circumstances.
For military veterans, a Roth IRA is one of the most beneficial investment tools they can have as part of their financial portfolio.
Due to the Heroes Earned Retirement Opportunities Act, known as the HERO Act, military veterans who have tax-free income (such as Combat Pay) can contribute to a Roth IRA. Normally, taxpayers can only contribute to an IRA up to the amount of earned income for the year. In the case of the military, however, the taxpayer can “double-dip,” avoiding taxes on their wages while also putting money into a tax-advantaged retirement account.
By being able to invest tax-free income in a Roth IRA, veterans can take advantage of compound interest, enabling them to build a substantial nest egg. This is an especially powerful technique for younger veterans, who have a longer time for the Roth IRA to build up tax-free gains.
By understanding the unique deductions allowed to veterans, it’s possible to ensure they will be able to receive the financial benefits they deserve for serving their country.