Mission Your Money: Tax Strategies for Your Military Transition
June offers tips on how to stay on top of your changing tax situation as you leave the military.
June Walbert: When leaving the military get organized and stay on top of your changing tax situation. Perks like tax-free combat pay don’t exist in the civilian work world. So while you transition, make sure you don’t pay more than necessary whent he next tax season rolls around.
Start by creating a filing system. A folder for military service expenses, and if you’ll move, create one for that, too.
Here’s what goes into the military service expenses folder. For some, being called to active duty created a financial hardship because military income was lower than civilian pay. If a cash crunch caused you to take money from your IRA, 401(k) or certain other retirement plans, the IRS may waive the 10% penalty for hte withdrawal before age 59½. You’re likely still on the hook for income taxes, though. If you go from active duty into the reserves or guard, know the tax deductions available. You may be able to deduct unreimburses travel and lodging expenses if reservice duties are more than 100 miles away from home. Also, you can often deduct the cost to buy and maintain uniforms. Be sure to reduce your expenses by any uniform allowance. Professional association or journal dues related to military service may be deductible, too.
On to the job search file. You may deduct some costs of a job search, such as expenses for travel, resume prep, and outplacement agency fees. Moving expenses may be deducted, too, if your move is closely related to working at a new job locationa nd you meet IRS tests, instead of a garage sale, give excess to a charitiy to save taxes and time. Save your receipt with the non-profit’s name, date and location. Plus, a description of donated items.
Download IRS Publication Three, Armed Forces’ Tax Guide, for more military tax topics.