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Military Tax Tips & Tricks: Deductions and Credits

This post is the second in a three-part series covering tax tips and tricks for military members.

For every hoop the IRS makes you jump through with rules and bureaucracy, there are an equal number of deductions, credits and types of filing to save money and time that just require a little digging to discover.

This article features information about military tax deductions, earned income tax credits and filing separately as a married couple.

Tax Deductions

Failing to claim all available tax deductions can shortchange you on your refund or even leave you owing money. The following rundown includes some military-specific as well as civilian tax credits for which you may be eligible.

  • Interest paid on student loans is tax deductible. Your loan provider will send out a 1098-E form around the end of January or February from which you can get claim amounts.
  • New homeowners may be surprised to know that they can deduct interest on their mortgage. You can check out some of the other tax benefits of homeownership on our Future Military Homeowners blog.
  • If you served in a combat zone (Afghanistan & Kosovo still count) for any part of a month, that month's income is exempt from federal taxes.
  • Moving expenses are tax deductible. The strict rules about distance and employment for civilians are relaxed for military individuals and families moving for a PCS.
  • A very military-specific tax deduction is uniform and maintenance fees. If your base restricts wearing them while off duty and the price and maintenance costs exceed your uniform allowance, you can deduct the excess costs.
  • Guard and Reserve travel expenses can be deducted from taxes. Traveling more than 100 miles garners a 50-cent deduction per mile and required overnight lodging expenses are deductible as well.

Earned Income Tax Credit

Another tax benefit military members may be interested is an Earned Income Tax Credit or EITC. An EITC is essentially a tax credit designed to lessen the tax burden for individuals and families with lower incomes.

Qualified individuals and families can receive anywhere from about $450 to $5,000. Among other requirements, the taxpayer must be between 25 and 65 years old, have an earned income and makes less than $3,150 in investment income.

Military members may be especially interested in the EITC because combat pay is not included in a servicemember’s income, making it easier to meet the income requirements. For more information about EITC and deployment, visit the MOAA website.

If you plan on filing for the EITC, be sure that you and your spouse aren't filing separately. Sometimes “Married, Filing Separately” or MFS can save a couple money when they have similar incomes, but in many cases the amount you will save won’t be more than filing for the earned income tax credit.

The third and final article in our Military Tax Tips & Tricks series will explore filing during deployment or while you’re overseas and ways to simplify what may appear to be a complicated process.