5 tax tips for service members and their families

As tax time approaches, military members and their families should take time to understand the special advantages the IRS extends to them.

Here are some benefits that could apply to you.

For deployed service members

Many service members know about tax-free combat pay. This benefit can save thousands of dollars, and it's already reflected on tax forms. Below is a summary and types of income you can exclude, but you can find the full list at this IRS website Opens in a New Window.‍ ‍ ^{See note 1}

• Basic pay
• Reenlistment or continuation bonuses
• Imminent danger or hostile fire pay
• Income from selling accrued leave

Deployed members also may request extensions for filing tax returns, paying taxes and contributing to IRAs.

But be aware of the potential downside. A delay in filing can also delay a refund if the IRS owes you money. To qualify for the extension, the military member must have been hospitalized as a result of serving in a designated combat zone or meet one of three requirements that the IRS defines Opens in a New Window.‍ ‍ ^{See note 1}

If you qualify for tax free combat pay, what do you do with it? Step one would be not to spend it without a purpose. While you decide on the purpose, safely park it in a savings account. Then, decide on how to best use the extra money to improve your financial security.

For members of the Reserve and National Guard

When your Reserve or Guard duties take place more than 100 miles away from home, you may be able to deduct unreimbursed travel expenses. What's more, the cost to purchase and maintain uniforms can be tax-deductible if off-duty wear is prohibited — as is usually the case. Just make sure to factor in any uniform allowance or reimbursement.

For military spouses

Since 2009, military spouses can keep an established state of residency when accompanying a service member who relocates on orders through the Military Spouses Residency Relief Act Opens in a New Window.‍ ‍ ^{See note 1} That means those married to service members don't necessarily pay state income taxes in the state where they've relocated.

For home sellers

Taxpayers selling homes may avoid paying capital gains taxes if they've lived in the home for two of the five years before the sale. Uniformed members may get relief from this rule if orders require them to move — though the details can be complex. 

Military members may qualify for an additional 60 months or 10 years making it a two out of 15-year rule. However, always seek reputable tax counsel for your individual situation.

Free assistance

Don't forget that free tax assistance is available for military members and some civilians.

You can get tax preparation support and e-filing software that's personalized to military life from Military OneSource and the Department of Defense's MilTax Opens in a New Window.‍ ‍ ^{See note 1}

However, military members aren't the only ones who might receive free tax preparation services like IRS Free File Opens in a New Window.‍ ‍ ^{See note 1} It's available during tax season for tax filers up to certain income limits.

Another program available to both members of the military and civilians is VITA, or the Volunteer Income Tax Assistance Program Opens in a New Window.‍ ‍ ^{See note 1} VITA for military members, which is offered through the Armed Force Tax Council, offers free tax consultation and preparation. Civilians can find more information about
VITA on the IRS website Opens in a New Window .‍ ‍ ^{See note 1}

All USAA members, including non-military, can save on TurboTax federal products through USAA Perks.

• All active-duty enlisted members and reservists can file both federal and state taxes free online with TurboTax Opens in a New Window.‍ ‍ ^{See note 1}‍ ‍^,‍ ‍ ^{See note 2} This excludes TurboTax Live products. 
• All USAA members, including non-military, can save on TurboTax federal products Opens in a New Window.‍ ‍ ^{See note 1}‍ ‍^,‍ ‍ ^{See note 3}