Tax

Military personnel and their families face unique life challenges with their duties, expenses and transitions. As such, active members of the U.S. Armed Forces should be aware of all the special tax benefits that are available to them. Here are 10 of them:

1. Moving Expenses. If you are a member of the Armed Forces on active duty and you move because of a permanent change of station, you may be able to deduct some of your unreimbursed moving expenses.

2. Combat Pay. If you serve in a combat zone as an enlisted person or as a warrant officer for any part of a month, military pay you received for military service during that month is not taxable. For officers, the monthly exclusion is capped at the highest enlisted pay, plus any hostile fire or imminent danger pay received.

3. EITC. You can also elect to include your nontaxable combat pay in your “earned income” for purposes of claiming the Earned Income Tax Credit (EITC). For the 2016 tax season, the Earned Income Tax Credit may be worth up to $6,269 ($6,318 in 2017) for low-and moderate-income service members. A special computation method is available for those who receive nontaxable combat pay. Choosing to include it in taxable income may boost the EITC, meaning owing less tax or getting a larger refund.

4. Retirement Contributions.

An IRA or 401(k)-type plan might mean saving for retirement and cutting taxes too. Service members who contribute to a plan, such as the Thrift Savings Plan, may also be able to claim the Retirement Savings Contributions Credit.

5. Extension of Deadlines. An automatic extension to file a federal income tax return is available to U.S. service members stationed abroad. Also, those serving in a combat zone typically have until 180 days after they leave the combat zone to file and to pay any tax due. For more information please call the office.

6. Uniform Cost and Upkeep. If military regulations prohibit you from wearing certain uniforms when off duty, you can deduct the cost and upkeep of those uniforms, but you must reduce your expenses by any allowance or reimbursement you receive.

7. Joint Returns. Both spouses normally must sign a joint income tax return, but if one spouse is absent due to certain military duty or conditions, the other spouse may be able to sign for him or her. A power of attorney is required in other instances. A military installation’s legal office may be able to help.

8. Travel to Reserve Duty. If you are a member of the US Armed Forces Reserves, you can deduct unreimbursed travel expenses for traveling more than 100 miles away from home to perform your reserve duties.

9. ROTC Students. Subsistence allowances paid to ROTC students participating in advanced training are not taxable. However, active duty pay, such as pay received during summer advanced camp, is taxable.

10. Transitioning Back to Civilian Life. You may be able to deduct some of the costs you incur while looking for a new job. Expenses may include travel, resume preparation fees, and outplacement agency fees. Moving expenses may be deductible if your move is closely related to the start of work at a new job location, and you meet certain tests.

Questions?

Help is just a phone call away.

• By Leon Clinton
• January 8, 2017

More than 50 tax provisions, including the tax rate schedules and other tax changes are adjusted for inflation in 2017. Let’s take a look at the ones most likely to affect taxpayers like you.

The tax rate of 39.6 percent affects singles whose income exceeds $418,400 ($470,700 for married taxpayers filing a joint return), up from $415,050 and $466,950, respectively. The other marginal rates–10, 15, 25, 28, 33 and 35 percent–and related income tax thresholds–are found at IRS.gov.

The standard deduction remains at $6,350 for singles and married persons filing separate returns and $12,700 for married couples filing jointly. The standard deduction for heads of household rises to $9,350, up from $9,300 in 2016.

The limitation for itemized deductions to be claimed on tax year 2017 returns of individuals begins with incomes of $287,650 or more ($313,800 for married couples filing jointly).

The personal exemption for tax year 2017 remains at $4,050. However, the exemption is subject to a phase-out that begins with adjusted gross incomes of $261,500 ($313,800 for married couples filing jointly). It phases out completely at $384,000 ($436,300 for married couples filing jointly.)

The Alternative Minimum Tax exemption amount for tax year 2017 is $54,300 and begins to phase out at $120,700 ($84,500, for married couples filing jointly for whom the exemption begins to phase out at $160,900). The 2016 exemption amount was $53,900 ($83,800 for married couples filing jointly). For tax year 2017, the 28 percent tax rate applies to taxpayers with taxable incomes above $187,800 ($93,900 for married individuals filing separately).

For 2017, the maximum Earned Income Credit amount is $6,318 for taxpayers filing jointly who have 3 or more qualifying children, up from a total of $6,269 for tax year 2016. The revenue procedure has a table providing maximum credit amounts for other categories, income thresholds and phase-outs.

Estates of decedents who die during 2017 have a basic exclusion amount of $5,490,000, up from a total of $5,450,000 for estates of decedents who died in 2016.

For 2017, the exclusion from tax on a gift to a spouse who is not a U.S. citizen is $149,000, up from $148,000 for 2016.

For tax year 2017, the foreign earned income exclusion is $102,100, up from $101,300 for tax year 2016.

The annual exclusion for gifts remains at $14,000 for 2017.

The annual dollar limit on employee contributions to employer-sponsored healthcare flexible spending arrangements (FSA) increases to $2,600 up from $2,550 in 2016.

Under the small business health care tax credit, the maximum credit is phased out based on the employer’s number of full-time equivalent employees in excess of 10 and the employer’s average annual wages in excess of $26,200 for tax year 2017, up from $25,900 for 2016.

Need help with tax planning in 2017? Help is just a phone call away!

• By Leon Clinton
• January 4, 2017

Starting in 2017 employers and small businesses face an earlier filing deadline of January 31 for Forms W-2. The new January 31 filing deadline also applies to certain Forms 1099-MISC reporting non-employee compensation such as payments to independent contractors. Also of note is that the IRS must also hold some refunds until February 15.

A new federal law, aimed at making it easier for the IRS to detect and prevent refund fraud, will accelerate the W-2 filing deadline for employers to January 31. For similar reasons, the new law also requires the IRS to hold refunds involving two key refundable tax credits until at least February 15 (also new). Here are details on each of these key dates.

New January 31 Deadline for Employers
The Protecting Americans from Tax Hikes (PATH) Act, enacted last December, includes a new requirement for employers. They are now required to file their copies of Form W-2 submitted to the Social Security Administration, by January 31, as well as Forms 1099-MISC.

In the past, employers typically had until the end of February (if filing on paper) or the end of March (if filing electronically) to submit their copies of these forms. In addition, there are changes in requesting an extension to file the Form W-2. Only one 30-day extension to file Form W-2 is available, and this extension is not automatic.

If an extension is necessary, a Form 8809 Application for Extension of Time to File Information Returns must be completed as soon as you know an extension is necessary, but by January 31. Please carefully review the instructions for Form 8809, and call the office if you need more information.

The new accelerated deadline will help the IRS improve its efforts to spot errors on returns filed by taxpayers. Having these W-2s and 1099s earlier will make it easier for the IRS to verify the legitimacy of tax returns and properly issue refunds to taxpayers eligible to receive them. In many instances, this will enable the IRS to release tax refunds more quickly than in the past.

The January 31 deadline has long applied to employers furnishing copies of these forms to their employees and that date remains unchanged.

Some Refunds Delayed Until at Least February 15
Due to the PATH Act change, some people will be getting their refunds later than they have in the past. The new law requires the IRS to hold the refund for any tax return claiming either the Earned Income Tax Credit (EITC) or Additional Child Tax Credit (ACTC) until February 15.

Furthermore, by law, the IRS must hold the entire refund, not just the portion related to the EITC or ACTC.

Even with this change, taxpayers should file their returns as they normally do. Whether they are claiming the EITC or ACTC or not, taxpayers should not count on getting a refund by a certain date, especially when making major purchases or paying other financial obligations. Typically, the IRS issues more than nine out ten refunds in less than 21 days; however, some returns may be held for further review.

Please call if you have any questions about the earlier filing deadlines for Forms W-2 or 1099.

• By Leon Clinton
• January 2, 2017