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.

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Mary Beth Franklin
Former Senior Editor, Kiplinger's Personal Finance