Tax Season Tips for Military and Veteran Families

Tax season. Even if you are typically confident when it comes to your personal finances, those two words can evoke fear and dread. No matter your situation, it’s always a good idea to enlist the help of a Relationship Manager. As a servicemember or veteran, you might find it helpful to explore military-friendly advisors, who are more familiar with military lifestyle and the financial challenges that can come with it. Before you do so, it might help to gain some background by checking out the below tips to identify where you might need extra help.

Know Your Benefits

Military families are eligible for some unique tax benefits that can help save money and make the process easier. It’s always a good idea to familiarize yourself with these at the beginning of tax time to save time and avoid stress. A few examples include:

  • Combat Zone Exclusion – in many cases, certain types of pay that a servicemember earns while in a combat zone is excluded from gross income. This includes hostile fire or imminent danger pay, bonuses received for reenlisting, state combat zone bonuses and accrued leave. Be sure to check with your supervisor to see if you are eligible for any of these deductions.
  • Volunteer Income Tax Assistance Services – the tax filing process for military families can be made much easier if you take advantage of this free program. IRS-trained volunteers are available at or near many bases to help address any questions, offer guidance on exemptions and help with your tax return.
  • Pre-Tax Living Allowances – Many common housing allowances, such as basic allowance for subsistence (BAS), Basic Allowance for Housing (BAH) and Overseas Health Allowances (OHA) are paid pre-tax and therefore excluded from your gross income amount.
  • Deadline extensions – If your family is stationed abroad or the servicemember is serving in a combat zone, you may qualify for an extension to your deadline. However, even with some extensions, you might have to pay a portion in April. Ask a Relationship Manager or supervisor for the specifics to be safe!

Understand Current Tax Law

Going a step beyond your unique financial situation and the benefits you may quality for as a service member or veteran, you must consider external factors such as changes to tax law, which might impact your returns. The biggest recent example is the Tax Cuts and Jobs Act of 2017, which took effect last year and will likely impact your 2019 tax planning. The good news is, for most taxpayers, these changes will result in an overall reduction in your effective tax rate, meaning the rate at which your income is taxed. This new law also introduced changes to common deductions including:

  • Mortgage interest deductions – if you purchased a home after 12/15/17, you can only deduct interest up to $750,000. Additionally, interest on home equity loans is no longer deductible.
  • Child tax credit – This has been doubled under the law, you can claim a $2,000 credit, which includes a higher Adjusted Gross Income level to claim the credit.
  • Estate tax exemption – These exemptions were doubled to $11.4 million for individuals and $22.8 for couples. The annual gift exclusion is still set at $15,000, but couples are able to give and receive individually using this exclusion, which could result in a total gift exclusion of up to $60,000 that will reduce overall estate tax.

Plan ahead and seek advice, if needed

Depending on how far you are from retirement or if you’ve already retired, there are many investment options available to help you minimize your tax burden. During the planning process, you’ll need to identify how much money you need to put away in tax-efficient retirement accounts. This decision is based on many factors including your current budget, career trajectory, and the age at which you’re hoping to retire.

Tax laws, retirement accounts, and other financial topics are complicated, particularly if you joined the service at a young age and are used to a set path where many decisions are made with the assistance of supervisors. However, you can always tap into free, online resources or enlist the help of a professional. There are many military-friendly financial services organizations today which employ advisors who are familiar with the unique aspects of military lifestyle and prepared to advise with your family’s best interests in mind.  Websites like Military OneSource and AAFMAA’s Intel Center are also a great place to start if you need help with anything from creating a PCS budget to finding a Relationship Manager.

Tax season can be daunting, but military families are fortunate to have many helpful resources and a support system available to guide them through even the trickiest topics.

*Information provided by AAFMAA Wealth Management & Trust is not intended to be tax or legal advice. Nothing contained in this communication should be interpreted as such. We encourage you to seek guidance from your tax or legal advisor. Past performance does not guarantee future results.

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