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Adjustments to Income and Itemized Deductions: Members of the Armed Forces

As a taxpayer, you may be able to subtract certain amounts from your gross income to arrive at your adjusted gross income (AGI). Further, you may then subtract from your AGI the greater of either your standard deduction (which is based on your filing status) or the total of your itemized deductions. As a member of the U.S. Armed Forces, you may find the following considerations of particular interest to you.

A member of the U.S. Armed Forces is defined as a commissioned officer or an enlisted person in any regular or reserve unit under control of the Secretary of Defense, Army, Navy, or Air Force, or in the Coast Guard.

Individual Retirement Account (IRA) considerations

You’re covered by an employer-sponsored retirement plan

Taxpayers who make contributions to a traditional IRA may be eligible to deduct their contributions from gross income, up to a certain limit. However, the amount of the deduction may be reduced or eliminated if the taxpayer (or the taxpayer’s spouse) is covered by an employer-sponsored retirement plan (e.g., a 401(k) plan).

For purposes of the IRA deduction, if you are a member of the U.S. Armed Forces on active duty for more than 90 days in any one calendar year, you are considered covered by an employer-sponsored retirement plan. You therefore may only be entitled to deduct a portion of your IRA contributions, depending on the amount of your modified adjusted gross income (MAGI) and your filing status.

Check your Form W-2. If the “Retirement Plan” box is checked, you will need to complete the worksheet found in the 1040 and 1040A Instructions to calculate the amount you may deduct.

Extensions of time to contribute

Generally, if a taxpayer wants to make a deductible contribution to a traditional IRA for a given year, the taxpayer must do so before the taxpayer’s federal tax return for that year is due. As a result, the deadline is usually April 15 of the calendar year following the year for which the taxpayer wishes to make the contribution. However, as a member of the U.S. Armed Forces, you may qualify to extend the time to file your federal income tax return, particularly if you serve (or directly support service) in a designated combat zone. If so, your deadline for making a deductible contribution to a traditional IRA becomes the same as the new deadline for filing your tax return and paying your taxes.

Compensation for IRA contribution and deduction purposes

Generally, to contribute to an IRA, you must receive taxable compensation (e.g., basic pay, special pay, bonuses) for the year, and the amount of the contribution cannot exceed your taxable compensation for that year. If you qualify for the combat zone exclusion, however, your actual taxable compensation for the year may be substantially reduced.

For IRA purposes, though, your compensation is considered to include any nontaxable combat pay. This means that even though you do not have to include combat pay in your gross income, you do include it in your compensation when figuring the limits on contributions and deductions for IRAs.

Differential pay received by service members is considered taxable compensation. Differential pay is defined as any payment which: (1) is made by an employer to an individual with respect to any period during which the individual is performing service in the uniformed services while on active duty for a period of more than 30 days; and (2) represents all or a portion of the wages that the individual would have received from the employer if the individual were performing services for the employer.

Qualified reservist distributions

“Qualified reservist distributions” are not subject to the 10% additional tax on early distributions from certain retirement plans. A qualified reservist distribution is a distribution (1) to a reservist or national guardsman ordered or called to active duty after September 11, 2001 for a period in excess of 179 days or for an indefinite period, and (2) that’s made during the period beginning on the date of such order or call to duty and ending at the close of the active duty period. In addition, an active reservist or guardsman who receives a qualified reservist distribution can repay all or part of that distribution to an IRA at any time during the two year period beginning on the day after active duty ends. The regular IRA contribution limits don’t apply to these repayments (and the repayments aren’t deductible).

Savers credit

The retirement savings contribution credit, often referred to as the “savers credit,” allows low-income and middle-income taxpayers to claim a credit (the maximum credit is $1,000) for contributing to an employer-sponsored retirement plan or IRA. The amount of the credit you’re eligible for depends on the amount of your contribution, your filing status, and your adjusted gross income (AGI). Because combat pay is not included in AGI, but is included for purposes of IRA contributions and deductions, individuals who receive combat pay should check carefully to determine if they qualify for this tax credit. See IRS Form 8880, Credit for Qualified Retirement Savings Contribution, for details.

Moving expenses

Time and distance are of no consequence

Civilians who move to a new home for job-related reasons can only deduct unreimbursed moving expenses from gross income if the move meets certain time and distance tests. However, members of the Armed Forces on active duty who move because of a permanent change of station don’t have to meet these tests.

A permanent change of station includes:

  • A move from your home to your first post of active duty
  • A move from one permanent post of duty to another
  • A move from your last post of duty to your home (or to a nearer point in the United States)

Even if the military moves you and/or members of your household to or from separate locations, the moves are treated as a single move to your new permanent post.

A member of your household is anyone using both your old and your new home as his or her main home. The definition doesn’t include a tenant or an employee who lives with you unless you can claim that person as a dependent.

Government services and reimbursements

You’re allowed to exclude from gross income the value of moving or storage services provided by the government. You also need not include certain allowances you receive, such as a dislocation allowance or a temporary lodging allowance. However, if the total reimbursements you receive are greater than your actual moving expenses, the excess may be included in your wages on your Form W-2. Even if it is not, you must report the excess as part of your gross income on Form 1040.

Deductible expenses

Use Form 3903, Moving Expenses, to deduct qualified expenses that exceed your reimbursements and allowances. The following unreimbursed expenses may be deducted:

  • Moving household goods and personal effects, including expenses for hauling a trailer, packing, crating, in-transit storage, and insurance
  • Travel and lodging expenses, including automobile expenses or air fare from your old home to your new home
  • Moving your household goods and personal effects to and from storage, or storing these items for part or all of the time you’re at your new post if you move to a foreign country

You cannot deduct any expenses for meals, moving furniture or other goods you acquired in transit, unnecessary side trips, or lavish and extravagant lodging.

Overnight travel expenses–National Guard and reserve

If you are a member of the National Guard or a reserve component of the Armed Forces and you travel overnight more than 100 miles away from home in connection with the performance of services, you can deduct your travel expenses as an adjustment to income rather than as a miscellaneous itemized deduction. Qualifying expenses can include meals, transportation, and lodging expenses. The deduction is limited to the amount the federal government pays its employees for their travel expenses.

Itemized deduction considerations

If you choose to itemize your deductions, here are some considerations to keep in mind as a member of the Armed Forces.

Home mortgage interest and real estate taxes

You may receive a tax-free Basic Allowance for Housing (BAH), and you may use these funds to make your mortgage payments and/or pay your property taxes. Nonetheless, you can still include the full amounts of your real estate taxes and interest you paid on your mortgage in your itemized deductions.

Work-related expenses

You can deduct unreimbursed work-related expenses as miscellaneous itemized deductions (subject to the 2 percent limit). If you are claiming only expenses for uniforms and/or professional society dues, you may do so directly on Schedule A. If you deduct travel expenses (other than those allowed as adjustments to income) or transportation expenses, you must also file Form 2106, Employee Business Expenses or Form 2106-EZ, Unreimbursed Employee Business Expenses.

Uniforms

Generally, you can’t deduct the cost of your uniforms if you’re on full-time active duty. There are two exceptions. If military regulations prohibit you from wearing them off duty, you can deduct the costs (purchase price and upkeep) of:

  1. Battle dress uniforms and utility uniforms (fatigues)
  2. Articles that don’t replace regular clothing (e.g., insignia of rank, corps devices, epaulets, swords)

If you are a reservist, you can deduct the cost of uniforms only if military regulations restrict you to wearing them only while on duty as a reservist.

If you receive a tax-free allowance for your uniforms, you must reduce your deduction by the amount of the allowance.

Professional dues

You can deduct dues you pay to professional societies directly related to your military position. However, you can’t deduct amounts you paid to belong to an officers’ or noncommissioned officers’ club.

Travel expenses

You can deduct unreimbursed work-related travel expenses only if they are incurred while you’re away from “home” on temporary duty, temporary additional duty, or while you’re carrying out official business while on “No Cost” orders. “Home” is defined as your permanent duty station (ship or base). You’re away from “home” if you’re away from your permanent duty station substantially longer than an ordinary day’s work and you need to get sleep or rest to meet your work demands. While you’re away from “home,” you may deduct such expenses as:

  • Lodging
  • Taxicabs
  • Tips
  • Business-related meals (generally limited to 50 percent of your unreimbursed cost)
  • Business telephone calls
  • Laundry and dry cleaning

You can’t deduct any expenses for travel away from “home” if the temporary assignment is in a single location and lasts for more than one year.

If you are a member of the National Guard or a reserve component of the Armed Forces and you travel overnight more than 100 miles away from home in connection with the performance of services, you can deduct your travel expenses as an adjustment to income rather than as a miscellaneous itemized deduction. Qualifying expenses can include meals, transportation, and lodging expenses. The deduction is limited to the amount the federal government pays its employees for their travel expenses.

Transportation expenses

If you must go from one workplace to another while on duty (e.g., as a courier or to attend meetings) but you’re not considered to be away from “home” (see above) while doing so, you may deduct your unreimbursed transportation expenses. (If you’re away from “home,” these transportation expenses are considered part of your travel expenses.) These expenses include the costs of transportation by air, bus, rail, taxi, and driving and maintaining your car.

The expenses of getting to and from your regular place of business (commuting expenses) are not deductible. However, if you commute to a temporary work location as part of conducting your regular business, you can deduct the cost of the daily round-trip transportation between your “home” and that temporary location.

If you’re a reservist or member of the National Guard who must travel from your regular (civilian) job location to a guard or reserve meeting at another location, and doing so doesn’t involve overnight travel of more than 100 miles, you may include the expense of traveling between the two locations in your itemized deductions. Generally, you may only do this for days when you must both work your civilian job and attend a meeting.

If you are a member of the National Guard or a reserve component of the Armed Forces and you travel overnight more than 100 miles away from home in connection with the performance of services, you can deduct your travel expenses as an adjustment to income rather than as a miscellaneous itemized deduction. Qualifying expenses can include meals, transportation, and lodging expenses. The deduction is limited to the amount the federal government pays its employees for their travel expenses.

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