Tax Breaks for Heroes
Make all your tax credits and deductions count; you deserve them all and more.
Uncle Sam wants to make taxes for members of the military as painless as possible. For example, pay for active service is exempt from income tax for any month in which you serve in a combat zone -- up to the highest rate of enlisted pay ($7,100 per month in 2008).
Even though combat pay is tax-free, you can still count it as earned income for purposes of maximizing the Earned Income Tax Credit and the Child Credit, worth up to $1,000 for each dependent child under age 17.
And, you can count combat pay as the earned income that's required for the purpose of making contributions to traditional and Roth IRAs. Plus, if you were unable to make an IRA contribution in 2004 and 2005 (because combat pay was not considered earned income in those years), you have until May 29, 2009, to make up those contributions. You have one year from the date on which you make the catch-up contribution to amend your tax returns in order to receive a refund or credit against current taxes.
![https://cdn.mos.cms.futurecdn.net/hwgJ7osrMtUWhk5koeVme7-200-80.png](https://cdn.mos.cms.futurecdn.net/hwgJ7osrMtUWhk5koeVme7-320-80.png)
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Some military families with foreign-born spouses or children missed out on receiving tax rebate checks last spring because some family members didn’t have a valid Social Security number. Now they can claim their tax rebates of up to $1,200 for joint filers and $300 for each eligible child when they file their 2008 tax return as long as at least one spouse has a valid Social Security number.
Breaks for reservists. Members of the Reserve and the National Guard can deduct travel expenses for overnight service trips that take them more than 100 miles away from home. The deduction, which is available whether or not you itemize, is limited to the general federal per diem rate, which varies by locality.
Reservists may also take penalty-free withdrawals from their IRASs, 401(k)s and other retirement plans, although they still have to pay income taxes on the distributions.
Death exclusion. If a service member dies as a result of wounds, disease or injuries incurred in a combat zone, all of his or her income -- not just military pay -- in the year of death is exempt from income taxes. The exclusion also applies to prior years, back to the first year of service in a combat zone. This means family members can file amended returns to have prior years’ taxes refunded. The statute of limitations -- usually three years from the normal due date of a return -- still applies.
Individuals receiving military death benefits may disregard the Roth IRA contribution limits and use the full amount of the death benefits to fund a Roth IRA. The same treatment applies to contributions of military death benefits to Coverdell Educational Savings Accounts.
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.
-
Want to Earn $1 Million More Over Your Lifetime? Do This
It's simple: Go to college or a trade school. It's an investment that will pay huge dividends for the rest of your life. And the benefits go far beyond money.
By Brian Evans, CPA, PFS Published
-
What Impact Does Politics Have on Insurance?
Some governors choose their state's insurance commissioner, while other states elect theirs, and that person has power over insurance issues, including rates.
By Karl Susman, CPCU, LUTCF, CIC, CSFP, CFS, CPIA, AAI-M, PLCS Published
-
IRS Ends Inherited IRA Confusion: Annual RMDs Required for Many
IRAs The agency has resolved a major point of uncertainty for inherited IRA beneficiaries.
By Kelley R. Taylor Last updated
-
$145 Million in ‘Senior Freeze’ Checks Mailed
Property Tax What you need to know about New Jersey's property tax relief program for older adults.
By Kate Schubel Published
-
TaxAct Class Action Settlement: Details to Know
Tax Filing A multimillion-dollar settlement over alleged data privacy violations affects some TaxAct users.
By Kelley R. Taylor Last updated
-
An IRA Contribution Option You Might Not Know
IRAs Retirement savings might not have to take a back seat just because your partner doesn't earn income.
By Kelley R. Taylor Last updated
-
Project 2025 Tax Overhaul Blueprint: What You Need to Know
Tax Proposals Some people wonder what Project 2025 is and what it suggests for taxes.
By Kelley R. Taylor Last updated
-
The Taxes That Come out of Your Paycheck
Payroll Tax Your take-home pay is often less than expected due to several payroll tax withholdings you need to know.
By Kelley R. Taylor Last updated
-
Seven States Where Gas Tax Increased July 1
Gas Taxes Since July has arrived, drivers in several states are facing a gas tax hike.
By Kelley R. Taylor Last updated
-
401(k) Withdrawal Penalty Rule Changes for 2024
Tax Rules More people are taking early emergency withdrawals from retirement savings accounts. New rules might offer some relief.
By Kelley R. Taylor Last updated