Tax Deduction Benefits for Military
Maximum interest rate capped at 6 percent. As a member of the military, you cannot be charged more than 6 percent a year on any money you may have owed the IRS before you entered military service. The reduced rate applies only if your service materially affects your ability to pay and applies to the interest the IRS charges you while you are a member of the military.
Travel expenses for reservists can be written off. If you are a member of the reserves and you travel more than 100 miles away from home in connection with your service, you can deduct your unreimbursed travel expenses on your return as a more generous adjustment to income rather than as an itemized deduction.
Moving expenses are easier to deduct. To deduct these expenses, you normally must meet certain time and distance requirements. However, if you are a member of the armed forces on active duty and you move because of a permanent change of station, you do not have to meet the tests and can deduct your unreimbursed moving expenses.
Death benefits to survivors are not taxable. Survivors of armed forces members who die while on active duty receive a $100,000 tax-free death “gratuity” from the government. The gratuity is also paid to survivors of retirees within 120 days of retirement if the death is determined to be service-related.
Forgiveness of tax liability in the event of death. Members of the armed forces who die while on duty in a combat zone or in support of a combat operation are forgiven any tax liability they may owe the IRS. If you already paid the tax, that amount will be refunded to your survivor.
Penalty-Free Retirement Plan Withdrawals
If you’re serving in the military reserves, you might be able to take early withdrawals from IRA and 401(k) accounts without penalty. To qualify for this exemption, you must have been called to active duty after Sept. 11, 2001 for more than 179 days, and you must make the withdrawal while you are on active duty.
Extension of Filing Deadlines for Those Serving in Combat Zones
Members of the military serving in combat zones get an automatic 180-day extension from the IRS for filing tax returns, paying taxes and filing refund claims. The automatic extension also applies to making qualified contributions to an IRA. However, this exception does not apply to Social Security and Medicare taxes
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(Sourced from Turbotax)