Tax

Special tax benefits apply to members of the U. S. Armed Forces. For example, some types of pay are not taxable, and special rules may apply to some tax deductions, credits, and deadlines. Here are ten of those benefits:

1. Deadline Extensions. Some members of the military, such as those who serve in a combat zone, can postpone some tax deadlines. If this applies to you, you can get automatic extensions of time to file your tax return and to pay your taxes. For example, service members stationed abroad have extra time (until June 15) to file a federal income tax return. Those serving in a combat zone have even longer, typically until 180 days after they leave the combat zone. They may also qualify to delay payment of income tax due before or during their period of service. Please call the office for details, including how to request relief.

2. Combat Pay Exclusion. If you serve in a combat zone, certain combat pay you receive is not taxable. You won’t need to show the pay on your tax return because combat pay isn’t included in the wages reported on your Form W-2, Wage and Tax Statement. Service in support of a combat zone may qualify for this exclusion.

3. Earned Income Tax Credit (EITC). If you get nontaxable combat pay, you may choose to include it to figure your EITC. You would make this choice if it increases your credit. Even if you do, the combat pay stays nontaxable.

4. Moving Expense Deduction. You may be able to deduct some of your unreimbursed moving costs. This applies if the move is due to a permanent change of station. Use Form 3903, Moving Expenses

5. Uniform Deduction. You can deduct the costs of certain uniforms that regulations prohibit you from wearing while off duty. This includes the costs of purchase and upkeep. You must reduce your deduction by any allowance you get for these costs.

6. Signing Joint Returns. Both spouses normally must sign a joint income tax return. If your spouse is absent due to certain military duty or conditions, you may be able to sign for your spouse. In other cases when your spouse is absent, you may need a power of attorney to file a joint return.

7. Reservists’ Travel Deduction. If you’re a member of the U.S. Armed Forces Reserves, you may deduct certain costs of travel on your tax return. This applies to the unreimbursed costs of travel to perform your reserve duties that are more than 100 miles away from home.

8. Nontaxable ROTC Allowances. Active duty ROTC pay, such as pay for summer advanced camp, is taxable. But some amounts paid to ROTC students in advanced training are not taxable. This applies to educational and subsistence allowances.

9. Civilian Life. If you leave the military and look for work, you may be able to deduct some job hunting expenses. You may be able to include the costs of travel, preparing a resume and job placement agency fees. Moving expenses may also qualify for a tax deduction.

10. Retirement Savings. Low-and moderate-income service members who contribute to an IRA or 401(k)-type retirement plan, such as the federal government’s Thrift Savings Plan, can often claim the saver’s credit, also known as the retirement savings contributions credit, on Form 8880, Credit for Qualified Retirement Savings Contributions.

Getting Tax Help

Although most military bases offer free tax preparation and filing assistance during the tax filing season, you may need to contact an accounting professional during other times of the year. Don’t hesitate to contact the office with any questions you have about your taxes–no matter what time of the year it is.

• By Leon Clinton
• July 27, 2016

Are you planning to pay for college in 2016? If so, money you paid for higher education can mean tax savings on your tax return when you file next year. If you, your spouse or your dependent took post-high school coursework last year, you may be able to take advantage of education credits that can help you with the cost of higher education. Taking advantage of these education tax credits can mean tax savings on your federal tax return by reducing the amount of tax you owe. Here are some important facts you should know about education tax credits.

American Opportunity Tax Credit:

• You may be able to claim up to $2,500 per eligible student.
• The credit applies to the first four years at an eligible college or vocational school.
• It reduces the amount of tax you owe. If the credit reduces your tax to less than zero, you may receive up to $1,000 as a refund.
• It is available for students earning a degree or other recognized credential.
• The credit applies to students going to school at least half-time for at least one academic period that started during the tax year.
• Costs that apply to the credit include the cost of tuition, books and required fees and supplies.

Lifetime Learning Credit:

• The credit is limited to $2,000 per tax return, per year.
• The credit applies to all years of higher education. This includes classes for learning or improving job skills.
• The credit is limited to the amount of your taxes.
• Costs that apply to the credit include the cost of tuition, required fees, books, supplies and equipment that you must buy from the school.

The Tuition and Fees Deduction is:

• Claimed as an adjustment to income.
• Claimed whether or not you itemize.
• Limited to tuition and certain related expenses required for enrollment or attendance at eligible schools.
• Worth up to $4,000.

The following applies to all three credits and deductions as well:

• The credits apply to an eligible student. Eligible students include you, your spouse or a dependent that you list on your tax return.
• You must file Form 1040A or Form 1040 and complete Form 8863, Education Credits, to claim these credits on your tax return.
• Your school should give you a Form 1098-T, Tuition Statement, by February 1, 2017, showing expenses for the year. This form contains helpful information needed to complete Form 8863. The amounts shown in Boxes 1 and 2 of the form may be different than what you actually paid. For example, the form may not include the cost of books that qualify for the credit.
• You can’t claim either credit if someone else claims you as a dependent.
• You can’t claim either AOTC or LLC and the Tuition and Fees Deduction for the same student or for the same expense, in the same year.
• The credits are subject to income limits that could reduce the amount you can claim on your return.
• Use the Interactive Tax Assistant tool at IRS.gov to see if you’re eligible to claim these education tax credits.

Even if you can’t take advantage of any of these tax credits, there could be other education-related tax benefits that you can claim. Call the office if you have any questions.

• By Leon Clinton
• July 24, 2016

Many people use a tax professional to prepare their taxes. Tax professionals with an IRS Preparer Tax Identification Number (PTIN) can prepare a return for a fee. If you choose a tax pro, you should know who can represent you before the IRS. There are new rules this year, so the IRS wants you to know who can represent you and when they can represent you.

Representation rights, also known as practice rights, fall into two categories:

• Unlimited Representation
• Limited Representation

Unlimited representation rights allow a credentialed tax practitioner to represent you before the IRS on any tax matter. This is true no matter who prepared your return. Credentialed tax professionals who have unlimited representation rights include:

• Enrolled agents
• Certified Public Accountants
• Attorneys

Limited representation rights authorize the tax professional to represent you if, and only if, they prepared and signed the return. They can do this only before IRS revenue agents, customer service representatives and similar IRS employees. They cannot represent clients whose returns they did not prepare. They cannot represent clients regarding appeals or collection issues even if they did prepare the return in question. For returns filed after Dec. 31, 2015, the only tax return preparers with limited representation rights are Annual Filing Season Program Participants.

The Annual Filing Season Program is a voluntary program. Non-credentialed tax return preparers who aim for a higher level of professionalism are encouraged to participate.

Other tax return preparers have limited representation rights, but only for returns filed before Jan. 1, 2016. Keep these changes in mind and choose wisely when you select a tax return preparer.

• By Leon Clinton
• July 21, 2016