The idea of income  can be complicated given the different types of pay a service member receives. First, you have your pay, then living allowances and moving allowances, travel allowances and then combat pay. Some are subject to tax and others are excluded, all must be reported. It’s a good thing you can use TurboTax Military Edition for your last minute tax filing so you can easily be guided through these special tax benefits and can keep more of your hard-earned money.

Here are 5 last minute tax tips for military that will help you save when you go online and file your taxes.

1.  Combat Zone Exclusion

If you are deployed in a designated combat zone, which are designated by an Executive Order from the President and listed here on the IRS website, then part of your pay is excluded from taxation. Afghanistan has been a combat zone since September 19, 2001. In practice, the income that is excluded as a part of this will not appear as wages on your W-2. If you look at your W-2 and it doesn’t match what you’re paid, it’s because of the exclusion. If you do have excluded pay on your W-2 and it shouldn’t be, then you need to get a corrected form from your finance office.

2.  Selling Your Home

This is not a military-only tip but given how often service members move, it’s one that you may be able to take advantage of. If you’ve lived in a home for two out of the last five years, you are allowed to exclude up to $250,000 of gain ($500,000 if you are married) on the sale of that home from your taxes. These are the same rules as for civilians but you can have the 5 year test suspended if you serve on qualified official extended duty.

3.  Travel Expenses

If you are a reservist and travel more than 100 miles away from home to perform your duties, you can deduct unreimbursed travel expenses as a miscellaneous itemized deduction. This can include all unreimbursed expenses from the time you leave home until you return, it’s limited to the amount the federal government generally reimburses employees for travel expenses.

4.  Forgiveness of Decedent’s Tax Liability

This is a bit of a sad tip, but if a member of the U.S. Armed Forces dies in active service in a combat zone or from wounds, disease or other injury received while in a combat zone or from a terrorist or military action, the tax for the year of death and potentially for prior years can be forgiven.

5.  Deferral of Payment

This last tip may be useful come tax payment time but if you are performing military service and you notify the IRS that your ability to pay the income tax has been “materially affected by your military service” then you can defer payment to 180 days after your termination or release from service. If you pay the tax in full before the 180 days, you will not be charged interest or penalty.

It’s great that the IRS made allowances for those who serve, especially in combat zones far away from home. I know that being away from your family and loved ones is hard enough, you don’t need it to be harder.

With these last minute tax tips, the ease of use of TurboTax Military Edition, and the ability to ask TurboTax tax experts your tax question while you file your taxes, free, there’s no reason to delay filing your taxes any longer.  The faster you file, the sooner you will get more money back in your pocket.

Military members who are ranked E-5 and below can file free.

1.  First, combat pay is not subject to Federal income tax. Combat Zones are defined by the federal government under executive order, and currently include Arabian Peninsula Areas, Kosovo area, and Afghanistan.

The lack of any family income could disqualify civilians from receiving any Earned Income Tax Credit (EITC). Even though the combat pay received isn’t taxable, it may be included as income for purposes of qualifying for the EITC. The EITC is based on income and the number of children you have, and may be as much as $5,891 for a family with three or more children. This credit is refundable meaning even if you have no tax at all for the year, you can still receive this credit.

2.  The Roth Thrift Savings Plan was introduced this year providing an excellent alternative to the standard pretax plan that had rules similar to the private sector’s 401(k). As combat pay isn’t taxed, the ability to put some of this money into a Roth designated retirement plan will provide you and your family with a tax free benefit when you retire.

3.  You may have taken a withdrawal from an IRA, 401(k), 403(b), or other qualified plan. If so, the 10% penalty for early distribution will not apply, only the tax that would normally be due for the non-taxed portion of the withdrawal.

If this is your situation, I’m happy to share with you a unique opportunity, the ability to make up this withdrawal. You have up to two years after your active duty ends and are permitted to deposit these returned funds to an IRA even if it was taken from a 401(k) or other qualified plan. This transaction is reported on form 8606. A very nice, yet little-known benefit you might use.

4.  For moving expenses to be a deduction for civilians, there are a number of requirements to meet. Not so for those on active duty. You are able to deduct the cost of moves from your home to your first post, moves from one permanent post of duty to another, and finally, for the move home within a year of your active duty coming to an end. Eligible expenses include the cost of moving household goods and travel costs for you and the members of your household. This includes your spouse and dependents.

5.  If you are selling your home, the current test to take advantage of the $250K (Single)/$500K (Married Filing Joint) exclusion of gains is that you must have lived in the house for two of the prior five years. Members of the armed forces are permitted to suspend the 5-year look-back for as many as ten years. In effect, if you qualify for the two/five rule, the time you are serving will not let the five years get behind you.

6.  Last I’d like to share that TurboTax has introduced TurboTax Military Edition. It’s free for those at a pay grade of E-1 to E-5. It will help you capture the tax credits and deductions that are offered to the men and women who have served.

Senior enlisted personnel ranks E-6 to officer can file their federal tax return with TurboTax Military Edition at the discounted price of $24.99.

TurboTax Military Edition was created by active, reserve, and retired military personnel and military spouses to address the specific challenges that come with being a military tax filer. Filers have free, year-round access to certified CPAs, IRS-enrolled agents, and tax attorneys who can provide expert, one-on-one personalized answers to your tax questions.

With step-by-step guidance to help you claim every tax deduction and credit you’re entitled to, TurboTax Military Edition is easy to use and walks you through military specific provisions, including:

• State of residency
• Filing in multiple states
• Combat pay
• BAS and BAH
• Deductions for uniforms, relocation, PCS, and special provisions for the earned income tax credit

Military members are already seeing the benefits of filing their taxes through a product designed by the military, for the military. Here’s what they’re saying:

• Polluelo, Fort Bragg, NC: “I would like to thank TurboTax for supporting the troops by giving this service for free. I will recommend TurboTax to everybody. Thank you again. Companies like TurboTax make serving our country easier.”
• MonicaCharly, Van Nuys, CA: “It was totally easy to do my own taxes, I was scared to try it for fear that I would screw up and end up having to pay an exorbitantly huge amount of money to fix! You guys made it so simple, explained everything.”
• Ypbenji, Holloman AFB, NM: “Way better than H&R Block! Love love love! Can’t believe I’ve done my taxes with H&R Block for the last 3 years. Even after the military, TurboTax will be our way to go to file!”

But those tax breaks don’t do much good if they aren’t taken. Here are 6 of some of the commonly missed tax benefits:

1.  Travel expense for reservists. If you are in the National Guard or military reserve, you may be able to deduct your travel expenses. If you travel more than 100 miles from home and are away overnight, you can deduct your lodging, half of the cost of meals, plus 55.5 cents per mile (56.5 cents per mile in 2013), plus toll fees and parking.

2.  ROTC payments. If you are a student in the ROTC, you don’t have to pay tax on the allowance that you receive for your participation in advanced training.  This rule doesn’t apply to any active duty pay that you receive.

3.  Combat pay. The pay you receive for any month that you serve in a combat zone is not taxable to you. If you a military officer your tax-free pay may be subject to a cap. But even though your combat pay isn’t taxable, don’t overlook it. You can take that pay into account to qualify for the Earned Income Tax Credit.

4.  Military uniforms. The cost of military uniforms, including their cleaning and upkeep, are deductible. They must be uniforms that you are prohibited from wearing when off duty, and your deduction is reduced by any uniform allowance that you receive.

5.  Moving expenses. If you are on active duty and have moving expenses in connection with a permanent change of station, those moving expenses are deductible, if they are not reimbursed to you. You may also qualify for a moving expense deduction once you are out of the military, if your move is related to the start of a new job in a new location. The requirements are confusing, but TurboTax Military Edition will walk you through the process to determine if you qualify.  If you have additional questions, you can ask TurboTax tax experts who are CPAs, IRS Enrolled Agents, and tax attorneys.

6.  Filing your tax return. If you are serving in a combat zone during tax filing season, you have at least 180 days beyond the traditional April 15 deadline to file your tax return. If you are hospitalized because of injuries you sustained in a combat zone, similar extensions of time to file apply.

If you are serving overseas in a non-combat zone, the April 15 deadline is automatically extended to June 15 (June 17 for this filing year, since June 15 falls on a Saturday). If you are a civilian serving in a combat zone, the same rules apply, but you need to write the words “Combat Zone” and your deployment date in red across the top of your tax return. Military members do not have to make this notation on their tax return. And if you are serving in the military and so are not available to sign a joint return, your spouse can sign it under a power of attorney.

Step-by-Step Guidance Personalized to U.S. Military Needs

With step-by-step guidance to help claim every tax deduction and credit you’re entitled to, TurboTax Military Edition is easy to use and walks you through military specific provisions, including:

• State of residency
• Filing in multiple states
• Combat pay
• BAS and BAH
• Deductions for uniforms, relocation, PCS, and special provisions for the earned income tax credit

helping you keep more of what’s yours.

Free Limited Time Offer

If you are junior enlisted personnel, rank E-1 to E-5, you can prepare and file your federal and state tax returns with TurboTax Military Edition for free, through Feb. 14, 2013.

TurboTax CPAs are also available for you year round as a free service to provide expert, one-on-one personalized answers to your tax questions.

Intuit, a Freedom Award winner and G.I. Jobs Top 100 employer, has hired veterans and military spouses with expertise in military taxes so that customers using TurboTax Military Edition have tax experts in their corner who personally understand their situation.

Want to experience TurboTax Military Edition with help from TurboTax tax experts in person? We are holding a tax filing event for enlisted personnel and their families on Thursday, February 7th, 2013 from 10 am – 7 pm PST at the Intuit, San Diego headquarters.  To reserve your time and for more details email Kay_Romubio@intuit.com.

You can also tune in to our “Last Minute Tax Tips That Save You Money and Gets You a Bigger Refund” webinar on, Wednesday, December 19 at 1:30 pm PST.  We will cover some end of year tax tips for military families.  Log-in to to Adobe Connect at https://meet71696781.adobeconnect.com/_a1103789093/taxtips/

Military members and families, we salute you this Veterans Day. So does Uncle Sam, by providing some well-deserved tax breaks. Though as a general rule all income is taxable, if you serve in the military some of your income is excluded from taxation, due to special rules just for you.

Military benefits

Combat pay

If you serve in a combat zone for any part of a month, your income for that month is exempt from federal taxes.

Use that tax break to maximum benefit by taking the money you would have spent on taxes and using it for contributions to an Individual Retirement Account (IRA). Since your IRA can grow tax deferred until you withdraw the money, that will really give you a leg up on creating a secure future retirement.

Want to make it even better? Since you won’t need a tax deduction for the contribution, consider putting the money into a Roth IRA instead of a traditional IRA, and you’ll never have to pay tax on the earnings. You can make a 2012 IRA contribution and a spousal IRA contribution until the April 15, 2013 tax filing deadline, plus any applicable extensions.

Your can also increase your contributions to your federal Thrift Savings Plan. For any period you are serving in a combat zone, you may invest as much as $50,000 rather than the normal $17,000 limitation.

Other pay

If you receive uniforms or a uniform allowance, that isn’t taxable income to you. Neither are moving and storage expenses provided by the government, legal assistance, commissary discounts, professional education, survivor benefit and life insurance premiums, and basic allowances for housing and assistance.

Travel allowances are not taxable, either, including transportation for you and your family during ship inactivation, per diem travel allowances, leave between overseas tours, space-available travel on government aircraft, and round trip travel for dependent students.

Medical and dependent benefits provided by the military aren’t taxable, including medical and dental care and dependent-care assistance program coverage.

You can also exclude reenlistment bonuses, pay for accrued leave and student loan repayments.

Special benefits for reservists

If you are a military reservist, you can take early withdrawals from IRA and 401(k) accounts without penalty if you meet certain conditions. To qualify for this exemption, you must have been called to active duty after Sept. 11, 2001 for more than 179 days, and you must make the withdrawal while you are on active duty.

If you are a member of the reserves, you can deduct your unreimbursed travel expenses in connection with your service as an adjustment to income and you don’t have to itemize your deductions, as long as the travel was more than 100 miles from home.

Reservists  who are prohibited from wearing certain uniforms when off duty can deduct the cost to buy and maintain those uniforms, reduced by any uniform allowance or reimbursement received.

Extension of Filing Deadlines for Those Serving in Combat Zones

Members of the military serving in combat zones get an automatic 180-day extension from the IRS for filing tax returns, paying taxes and filing refund claims. The automatic extension also applies to making qualified contributions to an IRA.

If you are serving away from home, your spouse can use a power of attorney to file a joint return on your behalf.

Hopefully these tax tips will help you understand the additional tax benefits available to you and if you need help or have questions TurboTax has CPAs to help answer your questions year-round.

Military Family

Though freedom is always being tested, the faith of our fathers endures, thanks to our military personnel. Whatever George Washington said to his freezing, starving troops at Valley Forge convinced them to fight on. Today Washington’s statue looks down on Wall Street, and he is probably still saying, “Hang in there! We are still a country of economic strength, opportunity, and security.”

This Independence Day we are paying a whole lot more than our forefathers could ever have imagined, for everything from the hot dogs, to the watermelon, to the gas for the family car. Our troops perform an invaluable service, but their pay is modest. Fortunately there are many military discounts that they can claim. Here are just a few of the savings that are available if you have a military ID card:

Many movies, concerts, zoos, sporting events, theme parks and museums offer military discounts with a military ID card, so don’t pay full price before you visit the Information Office.

Hotels and car rentals offer discounts too, so when making reservations, always ask the hotel representative if they offer military discounts or government rates for federal employees. Some may also offer additional savings for those military personnel being deployed or returning from deployment.

Check out military tuition scholarships at your local colleges and universities. Many of them offer military tuition scholarships that discount the credit hour cost for its courses to the same amount that is reimbursed through the Military Tuition Assistance Program. That amounts to free education for undergrads with a military record.

Even the post office has gotten on the bandwagon. Priority mail sent to an FPO or APO address is eligible for a substantial discount.

Retail stores off  base also offer military discounts. National retail chains like Home Depot, Lowe’s, McDonald’s, Kmart, Walgreen’s, and Apple offer various discounts to military personnel and their families when a Military ID is shown.

And of course, military exchanges and commissaries offer a variety of goods at discounted prices.  According to MilitaryMoney.com, single service members save an average of $1,000 each year, while a family of four saves at least $3,000 just by shopping at the commissary.

The road ahead is truly what we make it. And that’s exactly what the Founding Fathers had in mind—a chance for all of us to create the future we dream of for ourselves and our families. Being grateful for what we have will help us move forward with confidence and hope.

Have a hopeful and faithful Fourth!

Interactive by Column Five

How do plan to spend the Fourth of July?  Whatever you do, stay safe and remember our military troops.

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Military life can be tough on your pocketbook, especially if you have a family back home that depends on your financial support. Here are some ways to save money before and during deployment, and take advantage of the benefits that the military provides you.

Memorial Day

Eliminate rental expense. Your basic food and shelter needs are taken care of while you are deployed. If you are single, pack up your household items and put them in storage while you are gone, so you won’t have to pay rent. If you are leaving a family behind, government housing or a Basic Housing Allowance may provide assistance for their needs.

Reduce home ownership expense. If you are single and own a home you’ll have ongoing costs, but there are still ways to reduce housing expense. Turn off utilities, or if that is impractical in your climate, adjust the thermostat and turn off your electronics rather than leaving them in standby mode. Empty your refrigerator and prop open the door to prevent odor.

Check your insurance. If your car will be sitting idle, to save money put your vehicle into storage or vacation status with your insurance company. Ask whether there are any other savings that might be available on other policies, such as homeowner or renter insurance.

Get relief. The 2003 Service Members Civil Relief Act provides for an interest rate reduction to 6% for any debt incurred before you enlisted and delays any civil legal actions against you. Until you return home it bars landlords from evicting your family from rental property costing less than $2400 a month, and allows you to break leases and some contracts without penalty.

Take advantage of benefits. As a military member, you get special postage and email rates, and you and your family can save money shopping at the exchange and commissary. There are many medical benefits available for your family, so explore those thoroughly before you go. Families of military members are also eligible for free or reduced childcare.

Save, save, save. While you are deployed, you will receive extra pay and tax free benefits. Use this opportunity to stash funds away for future needs.  That will ease your life when you return, and your eventual transition to civilian life.

Military Tax Tips

So it’s no mystery to me that members of the military sacrifice a great deal to defend us at home and abroad. Unfortunately, tax time may offer specific challenges to military personnel. As you get ready for tax season, here are a few tips to help make it as painless as possible:

1. Stay Organized Throughout the Year

One of the best things you can do is to stay organized throughout the year. If you will be away, coordinate with your partner to keep things organized for your taxes so that you are less stressed when it is time to file – and so that your partner can file if you are away.

2. Use Power of Attorney So Your Spouse Can File

One of the best things you can do is make sure your spouse has the proper power of attorney to ensure that your joint tax return can be filed. In most circumstances, both spouses have to sign a joint tax return. Power of attorney allows your spouse to sign on your behalf. If you will be unreachable during tax time, knowing that your spouse can take care of it provides peace of mind.

3. Extend Your Deadline

For certain qualifying members of the military, it is possible to extend deadlines related to filing tax returns and paying taxes for the period of service in a combat zone, plus 180 days after your last day in the combat zone. In addition to 180 days, extension periods may include additional days left before April tax filing deadlines when combat zones are entered.  For instance, if you entered a combat zone 46 days before the April tax filing deadline, you would receive a total 226-day extension.  No penalties or interest would be assessed during this time.  A little extra time might be all you need.

4. Moving and Travel Expenses

If you aren’t reimbursed for certain moving expenses related to a change of station, you might be able to deduct some expenses for yourself and your family members. You do need to be on Active Duty, though. For those on Reserve Duty, you can receive a deduction for your travel expenses if you have to go more than 100 miles to fulfill your duties.

5. Uniform Costs

Uniforms can be costly to buy and keep up. You want them to be in best condition. If your uniform can’t be used when off-duty due to military regulations, you can deduct some of the expenses associated with buying and maintaining the uniform. Realize that the amount of your deduction is offset by reimbursements and allowances you might receive.

6. Transition Expenses

Transitioning to civilian life can be tough. The IRS will allow you to deduct some of the costs associated with this change, though. Some of the expenses you may be able to deduct include resume preparation fees, agency fees, travel, and moving expenses related to the start of work at a new job location.

7. Don’t Pay Taxes on Combat Pay

Your time served as an enlisted person or warrant officer in a combat zone means that your pay isn’t taxed. In fact, if you serve in a combat zone for any part of a month, all of your military pay for the entire month is tax free. Depending on your tax bracket, those can be considerable savings. Make sure you keep records so that you aren’t paying taxes when you don’t need to.

8. Get Help with Your Taxes

Don’t go it alone when it comes to your taxes.  If you are active duty military, you may qualify to prepare your taxes using TurboTax Freedom Edition(Not to be confused with TurboTax Free Online).  TurboTax Freedom Edition is part of the Free File Alliance program in partnership with the IRS.   If you don’t meet the criteria to file your taxes using TurboTax Freedom Edition, you can use TurboTax Online.  TurboTax software guides you and easily helps you prepare your taxes.

Thank you for your service!

The Intuit Financial Freedom Foundation supports programs serving the public interest and is partnering with the following not for profit groups in local communities. This year, Intuit will sponsor and participate in more than a dozen additional tax assistance events in communities including Buffalo, NY, Fredericksburg, VA, Norfolk, VA, San Francisco, CA and Tucson, AZ. See an event in action here:

At these events, eligible taxpayers can prepare and electronically file their taxes using TurboTax Online Tax Freedom Edition. Qualifying taxpayers are those who:

• Qualify for the Earned Income Tax Credit (EIC)

• Are on active duty military with an adjusted gross income of $58,000 or less OR

• Have an AGI of $31,000 or less

The effort is part of Intuit’s continuing commitment to serving eligible taxpayers and making it easy for them to access and use TurboTax so they can claim every deduction and credit they deserve.

Volunteers are on hand at each event to help taxpayers use TurboTax and to answer questions, in both English and Spanish. The program assists people in learning more about how their finances work and empowers them to take charge of their own taxes.

Here is the full schedule of upcoming tax assistance programs:

As you know, if you’re serving in a combat zone, your military pay might not be taxable and therefore you might not have to file a tax return.  However, you could still be eligible for the Earned Income Tax Credit.

What’s an earned income credit?

It’s a credit on your federal tax return that’s available to taxpayers who don’t earn a high income. It’s available for single folks with income under $13,440.  For families, it depends on the number of children.  A family with 3 children with income under $48,729 could be eligible for at least a partial credit.  For many military members, their wages fall into the earned income eligibility.

What’s a tax credit?

A credit reduces your taxes dollar for dollar, and part of this credit is available as a refund even if you have no tax.

How does nontaxable combat pay work?

For any month that you’re stationed in a combat zone as an enlisted member, warrant officer or commissioned warrant officer of the military, your earnings for that month are not taxable. For officers, the amount of their income not taxed is capped at the highest enlisted pay. If you have questions about the definition of a combat zone, check out IRS – Military Pay Exclusion – Combat Zone.

Can I still get that tax credit without my pay being taxed?

Yes. There’s a special law just for the military, that allows you to elect (choose) to have your combat pay (that’s not taxable) be considered “earned income” for earned income tax credit calculation only.

Should I elect that?

Probably. However you need to check if your refund increases with that election.  If your spouse has wages or self-employment income, adding your combat pay may reduce or cancel the credit. Once your family income is greater than $16,000 to $21,000, the credit starts to decrease. So be sure to check which choice gets you more money.

If you use TurboTax to prepare your return, we ask about that election when your W-2 shows that you have nontaxable combat pay (box 12, code Q).   If you say yes, be sure to verify that the refund in the refund monitor increased. If your refund is reduced, just go back and change the election to no.

For more information on the military and taxes:

IRS Questions & Answers on Combat Zone Tax Provisions

IRS Tax Information for Members of the Armed Forces

IRS Armed Forces Tax  Guide

I’m in the military. Do I need to file a state return?

Military Spouse Residency Relief Act and State Taxes

This year, Intuit will sponsor and participate in more than a dozen additional tax assistance events in communities including Harlem, NY, Tucson, AZ, Louisville, KY, Atlanta, GA and Fresno and Los Angeles, CA.

At these events, eligible taxpayers can prepare and electronically file their taxes using TurboTax Tax Freedom Edition. Qualifying taxpayers are those who:

• Qualify for the Earned Income Tax Credit (EITC)

• Are on active duty military with an adjusted gross income of $57,000 or less

• Have an AGI of $31,000 or less

The effort is part of Intuit’s continuing commitment to serving eligible taxpayers and making it easy for them to access and use TurboTax so they can claim every deduction and credit they deserve.

Volunteers are on hand at each event to help taxpayers use TurboTax and to answer questions, in both English and Spanish. The program assists people in learning more about how their finances work and empowers them to take charge of their own taxes.

Here is the full schedule of upcoming tax assistance programs:

Everybody else must buy a home by the April 30, 2010 deadline to qualify for the credit, worth as much as $8,000.

The latest update of the homebuyer credit actually has two versions. There’s the First-Time Homebuyer credit of up to $8,000 on your tax return if you purchase a home and hadn’t previously owned one in three years.  There’s also a credit up to $6,500 for “long time” homebuyers – who owned and lived in a home for five consecutive years out of the past eight, prior to purchasing the replacement home. You do have to pay back the credit if you sell or leave that new home within 36 months after purchase. For more information, check out How to Qualify for the Homebuyer Credit Extended into 2010.

What are the details on the extended date for the military?

Members of the military and certain other federal employees serving outside the United State get an extra year to purchase a residence in the U.S. and receive the credit.  The date has been extended to April 30, 2011.   This extended date applies to members who serve on official extended duty outside of the United State for at least 90 days during the period beginning after December 31, 2008 and ending before May 1, 2010.

Here are a couple of examples:

• Joe, an Army officer, is stationed in Germany from June 1, 2009 until February 1, 2010.  Since he was stationed outside the US for more than 90 days, after 12/31/08 and before 5/1/10, he has until April 30, 2011 to purchase a new home in the US and if eligible, receive the credit.
• Susan is in the Navy and stationed in Japan from March 1, 2008 until March 1, 2009.  She won’t get the extra year to purchase a home because she didn’t meet the 90 days rule.

More good news

If you’ve received the credit, but due to an official move and you have to leave/sell the home, you won’t have to repay the money.

What are the situations that the credit doesn’t have to be repaid?

If the taxpayer sells or stops using the home as a principal residence within 36 months after purchase, the credit is repaid.  However for service members who sell or stop using their home as a principal residence in connection with government orders received for “qualified extended duty service,” the credit does not have to be repaid.  The “qualified extended duty service” is a defined as a period of duty (in excess of 90 days or an indefinite period of time) while serving at a place of duty at least 50 miles away from the principal residence.

Here’s an example.  Larry is in the Air Force and was stationed overseas from May 1, 2009 until February 5, 2010   Starting in March, 2010, he is stationed in Washington, D.C.  He decides to purchase his first home in February, 2011 and qualifies for the $8,000 credit on his tax return.

In November, 2011 he receives orders to California. He decides to rent out the house and move into government quarters in California.  Even though he’s been in the house less than a year, he doesn’t have to pay back the credit to the IRS.

For more information on the military and taxes:

IRS First-Time Homebuyer Credit: Members of the Military

IRS Tax Information for Members of the Armed Forces

IRS Armed Forces Tax Guide

I’m in the military. Do I need to file a state return?

Military Spouse Residency Relief Act and State Taxes

To figure out which state return an active duty military person files depends (in military terms) on their “home of record” or “state of legal residence.”

First let’s define those two terms.

Your “home of record” is the state recorded by the military that was your home when you were enlisted, appointed, commissioned, inducted or ordered in a tour of active duty.

Your “state of legal residence (SLR)” is your “home of record” unless you changed it to another state.  Military members often mistakenly think that by changing the state on their paycheck records changes their SLR.  Nope. In order to change the SLR, a DD Form 2058 must be submitted to the finance officer and accepted.

For more information on requirements for valid changes when filing Form 2058, check out a Fact Sheet on Legal Residence that I discovered on Hill Air Force Base’s website.

From a tax standpoint, your SLR is considered your “domicile” or “resident” state as long as you are on active duty.  Even if you are stationed in another state, you’re still considered a resident of your SLR.

Now that we’ve defined these terms, let’s look at an example.

In 2000 Joe lived in South Carolina and decided to join the military.  It’s now 2009 and he’s stationed in Maryland and he’s living in Virginia. Does Joe file a state tax return for 2009?  If so, does he file a South Carolina and a Virginia and/or Maryland return?

We know that Joe is considered a South Carolina resident (That’s “his home of record” and SLR.)  It depends on each state’s laws if they want their resident military to file a return when they are stationed outside the state.   Let’s see what South Carolina law says.

It says that if Joe is active duty military, home of record is South Carolina and whether he is stationed in South Carolina or another state, he files a South Carolina resident income tax return each year.

Remember that each state is different. If Joe’s “home of record” was in a certain state, he may be required to file a return and then deduct all of his income and pay little or no tax.  That way the state knows he still exists!  And some “home of record” states like South Carolina will tax Joe on his income even if he is stationed outside of the “home of record.”  When California is a “home of record” and the active military is stationed outside of California, he/she is considered a nonresident of California.  To check out your “state of legal residence” laws for filing when stationed outside the state, click on IRS’ State Links website to find your SLR’s state website.

Does Virginia or Maryland expect a tax return from him?

The Servicemember Civil Relief Act states that an active duty member is not considered a resident of a state unless it is his SLR. Joe would only file a Virginia or a Maryland return if he had a nonmilitary 2nd job in that state. If he’s working at Home Depot in Virginia on the weekends, he would file as a Virginia nonresident and only report that W-2.  He would not report any other type of income.

What state return does his wife file?

If Joe is married and his wife works in a civilian job in Virginia she might have to file a state tax return in Virginia. However, if she qualifies under the 2009 Military Spouses Residency Relief Act, she might be able to claim South Carolina as her state of legal residence, along with her husband.

For more information on the military and taxes, read:

Military Spouse Residency Relief Act and State Taxes

Tax Information for Members of the U.S. Armed Forces

IRS – Armed Forces Tax Guide

Can I Efile with a Foreign Address?