14 Apr, 2015
There are many situations where the U.S. government recognizes the great sacrifices that the people who have served in the military make. Due to this, there are plenty of special privileges that are given out to military women and men in order to compensate for their time served. For instance, when it comes to tax season, members of the military can claim plenty of tax advantages that are not available to other civilians. Here are five tax advantages that military men and women can enjoy.
1. Retirement Savings
The IRS allows military men and women to place tax-free combat pay into a Thrift Savings Plan or an IRA. If you place money into a Roth TSP or Roth TSP you can save a great deal of money. The government essentially allows you to have a sum of money that you never need to pay taxes on due to the fact that distributions that are qualified on these accounts will not be taxed. Keep in mind that any money that you put into a traditional TSP will not be taxed, even when you take money out, however you will owe taxes on any earnings that you gain on the account.
2. Spouses Gain Tax Help As Well
The Military Spouses Residency Relief Act allows spouses of military men and women to not have to pay any income tax in the state that they are stationed in as long as it isn’t their regular residence. This can allow you to have great savings, as your spouse will enjoy having no income tax whatsoever. On top of this, if your spouse has any income tax that is being withheld by the state they are living in then all they need to do is file a return in order to get a refund for it.
3. Tax Break When Selling Your House
Any taxpayer no matter if they’re in the military or are a civilian can avoid paying capital gains taxes through selling their house if they owned it as their main residence for at least two out of the five years before putting it up for sale. However, those people in the military can have extra aid by being exempt from the two out of five year rule. Military members can suspend the rule for up to ten years during the time that they’re on extended duty, which means being assigned to a station that is more than 50 miles away from their house for longer than 90 days.
4. Moving Tax Deductions
As a military family you often have to move every couple of years, which can get extremely expensive. However, if moving requires you to make a permanent change to a station then the IRS will allow you to deduct a reasonable expense of the cost of relocating your family. Additionally, if your new career after the military requires that you relocate then the moving expenses will also be tax deductible and some of the additional costs that are incurred when you transition back to a civilian life can be deducted as well such as travel costs.
5. Get Penalties Waived For Withdrawing From IRA
Being called to active duty can create a financial hardship. If you decide to handle this hardship by withdrawing money from your retirement account then the IRS will help you by providing you with an accommodation. You may be allowed to withdraw money from your 401(k), IRA or other types of retirement account without having the 10% penalty tax applied. Keep in mind that you’ll still have to pay an income tax on the distribution, but you won’t experience the sting of paying the penalty.