As a military member, you may already have a basic plan laid out for your future. You may be planning to start a family, purchase a home, or shop for a new vehicle. Either way, the best financial plans start with a big picture. With 2017 already in full swing, take the time to reflect on your specific goals, outside of how much they may cost or how limited you may feel your resources are.
If you are self-employed, you may be able to deduct the ordinary and necessary expenses of traveling away from home for your business. If you are an employee and incur unreimbursed travel expenses while traveling from your “tax home,” these expenses are deductible as miscellaneous expenses subject to the 2 percent of adjusted gross income floor (if you itemize your deductions on a Schedule A). These expenses can include the cost of transportation, lodging, and/or meals.
If you have a child or other dependent and work outside the home, you may need to pay someone to care for your loved ones. Fortunately, the child and dependent care credit may provide some financial relief. The child and dependent care credit is an income tax credit for up to 35 percent of certain expenses you paid to provide care for your dependent child, your disabled spouse, or a disabled dependent while you worked or looked for work.
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.
If you’re a member of the U.S. Armed Forces on active duty, you’re generally not required to pay federal income tax on all the income you receive. What’s taxed and what’s not taxed depends on what form the income takes and, in some cases, where the income is earned. Generally, basic pay, special pay, and bonuses are taxable (unless they’ve been earned for service in a combat zone), while in-kind benefits, reimbursements, and allowances are not taxable.
A record-keeping system is a systematic approach to retaining and filing documents in a way that makes them easy to find when needed, even if it’s several years later. Record-keeping systems range from simple to elaborate and from basic to comprehensive. The ideal system is designed to fit your personal and family situation and lifestyle.
Military members are given numerous tax breaks. One such benefit is the Military Family Tax Relief Act of 2003. On November 11, 2003, President George W. Bush signed the act (H.R. 3365), providing specified tax relief to members of the Armed Forces. A summary of the legislation that directly impacts military tax returns is provided.
The federal government provides tax relief to qualifying individuals in the form of tax credits. Tax credits are valuable because they are dollar-for-dollar reductions of your tax liability. In some cases, they may result in tax refunds.
You can elect to include your nontaxable combat pay in earned income for the earned income credit. If you make the election, you must include in earned income all nontaxable combat pay you received. If you are filing a joint return and both you and your spouse received nontaxable combat pay, you can each make your own election.
The amount of your nontaxable combat pay should be shown on your Form W-2 in box 12 with code Q. Electing to include nontaxable combat pay in earned income may increase or decrease your EIC.
Figure the credit with and without your nontaxable combat pay before making the election. Whether the election increases or decreases your EIC depends on your total earned income, filing status, and number of qualifying children.
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Ready for next lesson? Learn more about Earned Income Credits
To be eligible for the EIC, you must fall within certain income guidelines. To qualify for the full amount of the EIC, your earned income and AGI must each be less than: