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How Military Taxes Work

        Money | Taxes

Deductions and Exclusions for Active-duty Military

Like civilians, employees of the armed forces can deduct expenses for work-related travel – the costs associated with being away from home on business. For members of the military, though, this may play out a little differently, because "home" is not necessarily their permanent residence (a family home, for example); it's their permanent duty stations. This means soldiers stationed overseas can't deduct the costs of living and working there, even though in practical terms they are travelling for work (and may have to pay state income taxes in their home state, not that of their permanent-duty station) [sources: Ewing, TurboTax].

Reservists can deduct the expenses of traveling for their military job, but only if they have to travel more than 100 miles (161 kilometers) from home and/or they're traveling for reserve duty on a day when they would normally be working their civilian jobs [source: Ewing].

Uniform-upkeep expenses are only deductible if the uniform can't be worn outside of work or if the expense is related to an item that is not a piece of clothing, like epaulets and swords [source: IRS]. Otherwise, it's considered part of the soldier's wardrobe, like a pair of jeans.

There are also cases in which the unique circumstances of military life can hinder the ability to meet tax-relief requirements, as with the capital gains home-sale exclusion. Homeowners who sell their primary places of residence are allowed to exclude up to $250,000, and up to $500,000 for married couples filing jointly, of the sale price from capital-gains taxes. To qualify, they need to have been living in the home for at least two of the previous five years. For soldiers, this requirement can be problematic, as they tend to move around so much. For those stationed more than 50 miles (80 kilometers) from their homes or those required to live in government housing, the IRS waives the two-year requirement for up to 10 years [source:IRS].

They also get some extra room with the child tax credit, which typically only applies if the child lived with the taxpayer for at least half of the tax year. Separation due to military service is set aside in determining the time of residency for purposes of claiming the credit [source: IRS].

After removing excluded income from total (gross) income, we arrive at adjusted gross income. Reducing adjusted gross income by deductions gets us to taxable income [source: Bankrate]. Taxable income determines how much tax has to be paid to the government by April 15 – or at least that's the deadline for civilians. For members of the military, it can vary.


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