Tax tips for members of the military

At this time of year, people are organizing their records in preparation for filing their tax returns. This is often a challenging task, and that may be particularly true for those who are serving in the armed forces.

That’s why the Maryland Association of CPAs advises that anyone who is in the military or has family members that serve our country be aware of some of the special tax breaks and programs available to them.

Breaks for those in combat zones

If you or a family member are on active duty in the military, there are important tax breaks available to you.

For example, all qualifying military pay earned by enlisted personnel and warrant officers and by commissioned officers up to specific limits serving in combat zones -— or hospitalized as a result of a wound or injury while serving in a combat zone -— are excluded from gross income. The
exclusion for hospitalization does not apply to any month that begins more than two years after the termination of combat activities in the zone.

In addition, military personnel serving in designated combat zones and civilians who are serving in support of these military members in designate combat zones, or those who are hospitalized outside the United States as a result of an injury received in a combat zone, can receive extensions on filing and paying their taxes. That means that they do not have to file or pay taxes until 180 days after their last day in the combat zone or hospitalization.

The extension also generally applies to the spouses of military personnel who are serving in combat zones who wish to file a joint return. 

File electronically for free

If you are in the armed forces, or a federal reservist or National Guard member, and your adjusted gross income is $54,000 or less, you are eligible for an Internal Revenue Service program called Free File.

To take advantage of this program, you or your spouse must have received a 2007 Form W2 from one of the military services. Free File makes it possible for you to gain free access to commercial online tax preparation and electronic filing services.

If you qualify, you can use these services to compile and file your tax returns online at no charge using software provided by participating tax software companies.

To learn more, go to the IRS Web site at www.irs.gov and click on the Free File icon on the home page.

Access to IRAs

Thanks to the Heroes Earned Retirement Opportunities (HERO) Act, members of the military serving in combat zones are allowed to make contributions to a traditional individual retirement account or Roth IRA based on their tax-free combat pay. Before this law took effect in 2006, soldiers who received tax-free combat pay generally did not qualify to set aside any of their earnings in tax-advantaged IRAs.

How to find help

To find out more information about how the tax laws apply to those in the armed forces, turn to IRS Publication 3, “Armed Forces’ Tax Guide,” which is available online. You can access it by going to www.irs.gov, then clicking on  “Individuals” and finding the section entitled “Tax Information for Members of the U.S. Armed Forces.” You can also call the IRS toll free at (800) 829-1040.

Your local CPA can also help you understand and take advantage of the breaks and accommodations created for armed forces personnel. Contact him or her if you need help in filing your taxes or if you have other questions about your financial situation.

Only CPAs are equipped to address your full range of financial needs with integrity and insight. In Maryland, CPAs must pass a rigorous two-day examination, adhere to strict ethical and professional standards, and, beyond college, complete 80 hours of continuing education every two years to be certified by the state — accountants do not.

Your doctor is certified; your lawyer is certified. Make sure your accountant is a certified public accountant.

For CPA referrals in your area, contact the MACPA at (410) 296-6250 or click here.

The Maryland Association of Certified Public Accountants (MACPA) is a statewide professional association that provides leadership, information and services for its nearly 10,000 CPA members, who are employed in private practice, industry, government and education. CPAs are business and financial professionals who have passed a rigorous two-day examination in order to be licensed by the state. CPAs are committed to protecting the public interest, and must adhere to stringent ethical and professional standards and continuing professional education requirements.