Tax Prep Tips For Troops And Families
By Sylvia Cannon
Spring 2007
You made it through the holidays! But now that you have stored the holiday decorations, rung in the new year and rode the ups and downs of the football playoffs, what’s next?
For most of us, it’s time to begin turning our attention to the annual chore of preparing our taxes. In this case, however, we would rather receive than give – or at the very least, pay as little as possible and stay within the law.
Tax laws are complex, and they change frequently. How do you ensure that you get all the deductions and credits for which you qualify?
A valuable benefit of military service is access to free tax assistance and guidance from a variety of trained professionals. Many installations maintain a resident Tax Office that can prepare and file basic returns for military members and their
Whether you choose to manually prepare paper forms, utilize an online service, purchase commercial tax prep software or visit your local paid preparer, you will need certain documents to complete your return. At minimum, you will need:
- Social Security numbers for primary taxpayer, spouse and dependents
- W-2 forms for all employment for primary taxpayer and spouse
- 1099-INT forms for any interest income
If you have dependents or college students, you also will want to have:
- Total child and dependent care expenses for the year, including to whom payments were made
- Total education expenses for the year for each college student
As military members, you must cope with some special tax circumstances, and you should become familiar with these issues to make sure your tax return is properly prepared.
The question of taxable income often arises with regard to military compensation. The simple answer is that the W-2 will correctly reflect all taxable wage income for the year. Taxable income is reflected in box one of the W-2, and that amount should be entered as taxable income on the return.
Once you have calculated your gross income and tax liability, you will want to consider any tax credits for which you might qualify. For lower-income families, check to see if you qualify for the Earned Income Tax Credit, which may reduce the amount of tax you owe or even allow you to receive a refund.
The Earned Income Credit (EIC) is a frequent source of confusion. This refundable credit is available to taxpayers whose earned income and wages total less than $12,120 with no qualifying children, $32,001 with one qualifying child, or $36,348 with two or more qualifying children. If your filing status is married filing jointly, each income threshold is increased by $2,000. You may obtain EIC information from Internal Revenue Service (IRS) Publication 3, “Armed Forces’ Tax Guide,” which can be downloaded at www.irs.gov.
Military taxpayers may elect to include non-taxable combat pay for EIC calculations. The credit is structured to increase up to a certain point and then decrease until it is phased out at the earned income threshold. Because of this, a servicemember may be eligible for a larger EIC by including non-taxable wages earned in a combat zone. Military members should calculate the EIC both with and without the non-taxable pay to determine which is most beneficial in their specific situation.
The Hope Credit, Lifelong Learning Credit and Tuition and Fees Deduction are available to help ease college-related expenses. All commercial tax preparation software packages and online preparation products include a series of questions to help the user to determine eligibility for these credits and calculate the appropriate credit. For those electing to plug numbers into paper-based worksheets, instructions are available on the IRS website.
Whether you prefer to hire a professional to prepare your taxes or to do them yourself, your goal should be to ensure that you are benefiting from every possible deduction or credit to which you are entitled. Whatever your choice, be an informed taxpayer!
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Sylvia Cannon, a retired Air Force logistics officer and spouse of an active duty Army officer, has been an H&R Block office manager for six years. H&R Block’s 12,500 retail tax offices nationwide can assist servicemembers with any tax or financial concern. Call 1-800-HRBLOCK or visit www.hrblock.com to find the location nearest you.
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Tax Help For Military Families
The Department of Defense is providing free access to H&R Block’s popular TaxCut Basic Online filing program to military members and their families, including active duty Guard and Reserve members, via MilitaryOneSource. Tax consultants are available 24/7 by phone at 1-800-730-3802 and by e-mail at TaxCut@militaryonesource.com to help you with personal tax-related questions and financial planning.