Chief Petty Officer Davis can deduct his
transportation expenses for driving to the off-base
business meeting, including gas, tolls, and parking.
2013 IRS
Itemized Deductions [6 of 13]
• Tax Preparation Fees
– Fees paid for preparing tax returns
– Cannot deduct fees for tax advice or tax planning
• Investment Expenses
– Fees for investment counsel and advice
– Safe deposit box rental
– Legal and accounting fees for producing or
collecting taxable income
2013 IRS
Itemized Deductions [7 of 13]
• Casualty and Theft Losses
– Unreimbursed losses from fire, storm,
1. Welcome to the
Military Families Learning Network Webinar:
Tax Planning for Military Families
A few days after the presentation, we will send an evaluation and links to an
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This material is based upon work supported by the National Institute of Food and Agriculture, U.S. Department of Agriculture,
and the Office of Family Policy, Children and Youth, U.S. Department of Defense under Award No. 2010-48869-20685.
2. Welcome to the
Military Families Learning Network Webinar:
Tax Planning for Military Families
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This material is based upon work supported by the National Institute of Food and Agriculture, U.S. Department of Agriculture,
and the Office of Family Policy, Children and Youth, U.S. Department of Defense under Award No. 2010-48869-20685.
4. Today’s Speaker
Michael Gutter, Ph.D. is an Associate Professor, Interim Family and
Consumer Sciences State Program Leader, and Financial
Management State Specialist for the Department of Family, Youth, and
Community Sciences, in the Institute for Food and Agricultural at the
University of Florida. His BS is in Family Financial Management and
his PhD is in Family Resource Management from The Ohio State
University with a specialization in Finance. Gutter currently explores
how financial education and financial socialization are related to
financial capability. His Extension Programming includes the Florida
Master Money Mentor Volunteer Program, Florida Saves, and
Fresh$tart Florida. He recently won Outstanding Conference Paper
Award for the 2010 Association for Financial Counseling and Planning
Education. The common theme that connects Dr. Gutter’s Research,
Teaching and Outreach is helping households achieve financial
security. His projects focus on enabling access to resources and
services as well as improving people’s knowledge and understanding
about family resource management. These projects have had funding
from the Consumer Federation of America and Bank of America
5. Tax Planning for Military
Families
Dr. Michael S. Gutter
University of Florida IFAS Extension
@mikegutter
msgutter@ufl.edu
6. How Taxes Affect Your Finances
1. Understand basic taxes
2. Implications for you
3. Tax management/reduction strategies
7. Filing Status
• Taxpayers must specify a filing status
for their tax return because different
rates are associated with each status.
– Single
– Married filing joint return
– Married filing separate return
– Head of household
– Qualifying widow(er) with dependent child
8. Alien Status
• Three are three categories of citizenship
for a non-U.S. citizen, or Alien. Each
category has a different income reporting
and tax form requirement
1. Resident: meet green card test or
substantial presence test for the calendar
year
• Pay tax on all income, worldwide
• Same tax forms as U.S. citizens
2013 IRS Publication 3,
Armed Forces’ Tax
9. Alien Status
2. Nonresident: you do not meet the above tests
• File 1040NR or 1040NR-EZ if you have to file
• Pay tax on income from U.S. sources
3. Dual-status: you are both a resident and
nonresident. Often occurs in years of arrival and
departure from U.S. For the part of the year you
are a resident alien, you are taxed on all income
and for nonresident time you are taxed on
income from the U.S.
2013 IRS Publication 3,
Armed Forces’ Tax Guide
10. What information do you need in order
to do your taxes?
• W-2
– Wages, salaries, taxes withheld including FICA
– Contributions to employer-provided qualified plans
• 1099 - Other income
•
•
•
•
•
1099 INT – interest paid
1099 DIV - dividends
1099G – certain government payments
1099 R – distributions from retirement plans
1099 MISC – self-employment, rental income
• 1098
– Payments for mortgage interest paid
11. Which form to use
• Although many of you can use 1040EZ
we will work with the full form 1040 with
accompanying schedules
• Generally
– 1040EZ TI<50K, no deductions
– 1040A TI<50K, no itemized deductions, IRA
ok
– 1040 when you need everything
12. Schedules
• Think of as worksheets for specific
situations
• Itemized deductions
• Interest and dividend income
• Small business income
• Others
• Forms
– For credits, etc.
13. Let’s look at the math
• Basic Steps
– Sum up income sources to get Gross Income
– Subtract adjustments to get AGI
– Subtract standard deduction or itemized deduction
– Subtract personal exemption(s)
– Calculate the tax
– Subtract credits (if any)
– Determine whether you owe or are entitled to a
refund
14. Basic Tax Calculation
Gross income
(-) adjustments to gross income
= AGI
(-) itemized or standard deduction
(-) Personal exemptions
= Taxable income
15. Basic Tax Calculation
Taxable income is used to determine
Computed tax
(-) tax credits
+ other taxes
= total or net tax due
16. Gross Income:
What is included? [1 of 2]
• Salary, wages, commissions, investment
income
• Alimony
• Scholarships (above what you paid in fees),
some awards
• Pensions, rental income
• Gambling winnings, prizes, unemployment
• State and local income tax refunds (if you
itemized in the previous year)
17. •
•
•
•
•
•
Gross Income:
What is included? [2 of 2]
Basic Pay
Special Pay
Bonus Pay
Incentive Pay
Differential wage payments
Settlement payments and interest payments
related to foreclosures
– Rules vary based on situation
– may be able to exclude some of payment of
interest
2013 IRS Publication 3,
Armed Forces’ Tax Guide
18. Gross Income:
What is not included? [1 of 9]
•
•
•
•
•
•
•
•
•
Child support
Federal income tax refund
Garage sale proceeds
Proceeds from accident and insurance policies
Welfare, food stamps
Income from municipal bonds
Cash rebates
Gifts, inheritances
Disability or workers comp
19. Gross Income:
What is not included? [2 of 9]
• Combat zone pay
• Defense counseling
• Disability payments for injury resulting from
terrorism or military action
• Group-term life insurance
• State bonus pay for service in combat zone
• Survivor and retirement protection plan
premiums
• Uniform allowances
2013 IRS Publication 3,
Armed Forces’ Tax Guide
20. Gross Income:
What is not included? [3 of 9]
• Death allowances
– Burial services
– Death gratuity payments to eligible survivors
– Travel of dependents to burial site
• Family Allowances
– Emergencies
– Evacuation to place of safety
– Certain educational expenses of dependents
2013 IRS Publication 3, Armed
Forces’ Tax Guide
21. Gross Income:
What is not included? [4 of 9]
• Living Allowances
– Basic allowance for housing and subsistence
– Overseas housing allowance
– Housing and cost of living allowances paid by US
government or foreign government
• Moving Allowances
– Dislocation
– Military base closure or realignment benefit
– Cost of moving household and personal items
2013 IRS Publication 3, Armed
Forces’ Tax Guide
22. Gross Income:
What is not included? [5 of 9]
• Moving Allowances Continued
– Moving trailers or mobile home
– Storage
– Temporary lodging and related expenses
• Travel Allowances
– Annual round trip for dependent students
– Leave between consecutive overseas tours
2013 IRS Publication 3, Armed
Forces’ Tax Guide
23. Gross Income:
What is not included? [6 of 9]
• In-kind Benefits
– Medical/dental care
– Legal assistance
– Dependent-care assistance program
– Commissary/exchange discounts
• State Bonus Payments
2013 IRS Publication 3, Armed
Forces’ Tax Guide
24. Gross Income:
What is not included? [7 of 9]
Combat Zone Pay
• Active duty pay for any month in which a
servicemember serves in a combat zone is not taxable
– Can also exclude pay while hospitalized as a result of
combat zone related injury or disease
• Pay can be considered in calculation of tax credit
– Earned income tax credit (EITC)
Nevaeh was overseas serving in Afghanistan for almost
all of 2013, from February 28th to December 31st in 2013.
11 months of her pay would be excluded from her 2013
gross income.
2013 IRS Publication 3, Armed Forces’ Tax Guide
25. Gross Income:
What is not included? [8 of 9]
Sale of House
• Can exclude up to a certain amount of gain on the
sale of a main home from gross income
– In 2013, up to $250,000 single ($500,000 joint)
– Must own and live in home for 2 years during a
5 year period
• Can suspend 5 year period if on qualified official
extended duty:
– At duty station > 50 miles from home, or
– Living in Government quarters under
Government orders
– Cannot deduct loss
2013 IRS Publication 3, Armed Forces’ Tax Guide
26. Gross Income:
What is not included? [9 of 9]
Sale of House Continued
Lieutenant Mike Morris and his wife, Carol, moved into
their new home in 2006 that they purchased for $600,000.
From 2006 until 2010 they lived in the house. Mike was
deployed and Carol decided lived with her family from the
beginning of 2011 until the end of 2013. In 2013 Mike
returned from duty and they decided to sell the house
because they want to move closer to Carol’s family. They
sell the house for $850,000. Because they resided in the
home for two of the past five years, they are able to
exclude the gain from selling their house ($250,000) from
their gross income.
2013 IRS Publication 3, Armed Forces’ Tax Guide
27. Adjustments to Gross Income
[1 of 7]
• Adjustments to Gross Income (AGI) used to
determine limits on many deductions
• Subtract from gross income
– Contributions to qualified retirement plans (taxdeferred savings)
– Contributions to FSA
– Student loan interest
– Qualified moving expenses
28. Adjustments to Gross Income [2 of 7]
• Armed Forces Reservists
– Reserve member that travels >100 miles in
connection with reserves can deduct
unreimbursed travel expenses for the time
between leaving home and returning home
– Limited to the amount the federal
government generally reimburses its
employees for travel expenses
2013 IRS
29. Adjustments to Gross Income [3 of 7]
Armed Forces Reservist Continued
Captain Harris, a member of the Army Reserve, traveled to a
location 220 miles from his home to perform his work in the
reserves in April 2013. He incurred $1,549 of unreimbursed
expenses consisting of $249 for mileage (440 miles × 56.5
cents per mile), $300 for meals, and $1,000 for lodging. He
also had other deductible mileage expenses of $110 for
several trips to a location 20 miles from his home. Only 50% of
his meal expenses are deductible. He shows his total
deductible travel expenses of $1,509 ($249 + $150 (50% of
$300) + $1,000 + $110) on Form 2106, line 10. He enters the
$1,399 ($249 + $150 + $1,000) for travel over 100 miles from
home on Form 1040, line 24. He then subtracts that $1,399
from the amount on Form 2106, $1,509, and enters $110 on
Schedule A (Form 1040), line 21.
2013 IRS
30. Adjustments to Gross Income [4 of 7]
• Individual Retirement Arrangements
– Includes service member and spouse (if applicable)
– Can deduct the lesser of the:
1. set limit or
2. the contributions made to a traditional IRA that year
– Cannot have been covered by an employermaintained retirement plan at any point during the
year
– Can include combat pay in calculating the contribution
limit
2013 IRS Publication 3, Armed Forces’ Tax
Guide
31. Adjustments to Gross Income [5 of 7]
• Individual Retirement Arrangements
Continued
– Qualified Reservist Distribution
• Not subject to 10% penalty tax on early
distributions
• Repayment starts 2 years after active
duty period ends
– Cannot deduct repayments
2013 IRS Publication 3, Armed Forces’ Tax
Guide
32. Adjustments to Gross Income [6 of 7]
• Moving Expenses
– Time and distance test OR on active duty with a
permanent change of station
– Moving household goods and personal effects
and travel
– If a foreign move, can deduct storage costs for
time outside US
2013 IRS
33. Adjustments to Gross Income [7 of 7]
Moving Expenses Continued
Sargent Ramos is on active duty and is
reassigned to Hawaii. She currently is stationed
in Arizona. She receives an allowance of $1,000
for the cost of moving her household and
personal effects and $200 her temporary
lodging. The reassignment costs her $3,000 in
moving expenses and $500 in temporary
lodging. She can subtract $2,300 from her gross
income.
2013 IRS
34. Deductions and Exemptions
• These reduce the amount of income that is
subject to tax
• Deductions are subtracted from income
• Standard deduction:
– Not affected by income
– Affected by filing status and age
– Marriage penalty: term used to describe the fact that
many two-income married people pay more in taxes
than if they were single
35. 2014 Standard Deductions
Filing Status
2014 Rate
Single
$6,200
Head of Household
Married Filing Jointly
Married Filing
Separately
$9,100
$12,400
$6,200
36. Deductions and Exemptions
• However, if your itemized deductions
exceed the standard deduction than you
would use these
– These are found on Schedule A
•
•
•
•
State and local income taxes
Interest on a mortgage
Medical expenses
Other
37. Itemized Deductions [1 of 13]
• Add total of itemized deductions and compare
against the standard deduction
• Itemized Deductions:
• Medical and dental (amount over 7.5% AGI)
• phased out, based on AGI
• State, local, property
• Mortgage interest, home equity interest
• Charitable contributions (cannot exceed 50% AGI)
• Casualty and theft (amount over 10% AGI)
38. Itemized Deductions [2 of 13]
• Employee Business Expenses (2% limit)
– Unreimbursed expenses or expenses in excess
of reimbursed expenses
– File Form 2106 or Form 2106-EZ
– See Publication 463
2013 IRS
39. Itemized Deductions [3 of 13]
• Travel Expenses
– Unreimbursed, work related expenses while traveling away from
home (at permanent duty station)
• Not permanent duty assignment overseas
• Not temporary assignment in a single location (expected to last < 1 yr)
– Cannot deduct meals or lodging at permanent duty station
Captain Rodgers travels from the base which he is permanently assigned
to in Georgia to a base in California for temporary assignment. He is
reimbursed 50% of the cost for his travel. He can deduct the remaining
50% of his travel costs as an itemized deduction. Travel costs he can
include are the lodging in California, 50% of meals while in California,
laundry, dry cleaning, and taxicabs.
2013 IRS
40. •
Itemized Deductions [4 of 13]
Transportation Expenses
– Includes
• Getting from one workplace to another when
you are not away from home,
• Going to a business meeting away from your
regular workplace, and
• Getting from your home to a temporary
workplace when you have a regular place of
work
– By air, bus, rail, taxi, and personal car
2013 IRS
41. Itemized Deductions [5 of 13]
Transportation Expenses Continued
Chief Petty Officer Davis is attending a business
meeting that is not on his home base where he
usually works. The meeting is off base, 1 hour away,
and he drives his own car. He is not reimbursed for
his transportation expenses. Davis can deduct the
cost of driving to the business meeting from his home
base and back to home base after the meeting. But
he cannot deduct the cost of driving from home to his
home base and back.
2013 IRS
42. Itemized Deductions [6 of 13]
• Uniform Cost and Upkeep
– If required and can be worn off duty : cannot
deduct uniform cost or upkeep
– If required and cannot be worn off duty: can
deduct expenses minus any reimbursements or
allowances
• Military battle dress uniforms and utility uniforms
• Articles not replacing regular clothing (Insignia of
rank, corps devices, epaulets, aiguillettes, and
swords)
• Reservists’ uniforms if only worn while performing
reservist duties
2013 IRS
43. Itemized Deductions [7 of 13]
Uniform Cost and Upkeep Continued
Reggie purchases a military battle dress
uniform that he cannot wear while off
duty. He received no allowance to pay for
his uniform or reimbursement. Reggie can
deduct the cost of his military battle dress
uniform.
2013 IRS
44. Itemized Deductions [8 of 13]
• Professional Dues
– Unreimbursed dues for professional societies
directly related to military position
– Not officers’ club or noncommissioned officers’
club
Lieutenant Margaret Allen, an electrical
engineer at Maxwell Air Force Base, can
deduct professional dues paid to the
American Society of Electrical Engineers.
2013 IRS
45. Itemized Deductions [9 of 13]
• Educational Expenses (Pub. 970)
– Unreimbursed and qualifying work-related
education
• Required by employer or law to keep salary, status,
or job. Education must serve a purpose to employer
• Maintains or improves skills needed for present work
– But cannot be education that:
• Is needed to meet minimum requirement for present
trade or business or
• Part of study for a new trade or business
2013 IRS
46. Itemized Deductions [10 of 13]
• Educational Expenses Continued
– Qualified education can lead to a degree
– If qualified education, can deduct costs of
travel including meals up to 50% limit
– If qualified education, can deduct
transportation costs for that education (ie
actual cost of bus, subway, cab, other fares,
or personal car)
2013 IRS
47. Itemized Deductions [11 of 13]
Educational Expenses Continued
Lieutenant Colonel Mason has a degree in financial
management and is in charge of base finances at her
post of duty. She took an advanced finance course. She
already meets the minimum qualifications for her job. By
taking the course, she is improving skills in her current
position. The course does not qualify her for a new trade
or business. She can deduct educational expenses that
are more than the educational allowance she received.
2013 IRS
48. Itemized Deductions [12 of 13]
Educational Expenses Continued
Major Williams worked in the military base legal office
as a legal intern. He was placed in excess leave status
by his employer to attend law school. He paid all his
educational expenses and was not reimbursed. After
obtaining his law degree, he passed the state bar exam
and worked as a judge advocate. His educational
expenses are not deductible because the law degree
qualified him for a new trade or business, even though
the education maintained and improved his skills in his
work.
2013 IRS
49. Itemized Deductions [13 of 13]
• Repayments to employer for amount included
in income in an earlier year
– If ≤ $3,000 and was reported as wages,
deduct it the year in which the amount was
repaid as a misc. itemized deduction
– If > $3,000, see publication 525. Rules vary
depending on how was claimed and whether
you want a deduction or credit for the value.
2013 IRS
50. Deductions and Exemptions
• Personal Exemptions:
– $3,950 (for 2014) for each person who is
supported by the income reported on a tax
return
– Usually one exemption each for the filer,
the spouse and each dependent child
– Deducted from adjusted gross income to
determine taxable income
51. Taxable Income and Taxes
• Taxable income: adjusted gross income
less deductions and exemptions
52. Tax Rates (ordinary income)
• Tax brackets are indexed for inflation
• Marginal Tax Rate: tax on the last dollar
earned
• Not calculated, just looked up
• 10, 15, 25, 28, 33, 35
• Effective or Average Tax Rate
– Take tax liability divided by taxable income
– Always lower than MTR (except those in 10%)
53. Tax Rates (ordinary income) [2 of 2]
Monica and Gabriel are married and filing jointly.
Their taxable income is $40,500. They would pay
10% of the first $17,850 of their income ($1,785).
They would also pay 15% on the remaining
$22,650 ($40,500 - $17,850 = $22,650; $22,650 x
15% = $3,397.5). They would add the two tax
values: $1,785 + $3,397.5; leaving them with a tax
Taxable Income
Additional Tax
liability of $5,182.50. Tax Rate
Applied
$0.00 to $17,850
At 10%
$17,850 to
$72,500
At 15%
Plus $1,785
$72,500 to
$146,400
At 25%
Plus $9,982.50
54. What is a credit?
• Reduces tax liability, not taxable income
• So what is better, a deduction or a credit
– A deduction reduces your tax liability by the
MTR
– The credit reduces tax liability dollar for
dollar
55. Earned Income Tax Credit (EITC)
• Provides tax credit to lower income working families
• Multiply a max amount of earned income by credit %
– There is a schedule that accompanies the form
• Earned income
– Employee compensation, net earnings from self-employment
– No alimony, pension benefits, or investment income
• As of 2001 IRA excludes nontaxable employee compensation
• Taxpayer need not have a child
• Refundable
2013 IRS
56. Child-Related Credits [1 of 2]
• Child tax credit
• Based on # of eligible dependent children
• Increased credit $600-1,000 between 2001-2010
• Phase out when AGI > 110K (75K single)
– Phase out limit depends on # children
• Partially refundable
2013 IRS
57. Child-Related Credits [2 of 2]
• Child and Dependent Care Expenses
– For specific % of expenses related to
working or seeking work
– Home or day care for child or dependent
• Child under 13
• Dependent or spouse is physically, mentally
incapacitated
58. Credit for Retirement Account
Contributions
• Max contribution $2000 per year
• Must be over 18 years old
• Dependents and full time students do not qualify
• Can be used against regular tax and AMT
• Would be based on contributions to
– IRA and Roth IRA
– 401K, 403b, 457 plans, Simple and SEP
– Credit reduced by distributions from plans
• Income Limit
– No credit at all if AGI > $50K (MFJ)
– or $37.5K (HOH) or $25K (MFS & S)
59. Education Credit: American
Opportunity
• Formerly the HOPE scholarship credit
• Credit for four years of post-secondary education
– 100% of first $2,000 paid + 25% of next $2,000
– Max of $2,500 per student
– Half-time or more and pursing a degree
– For tuition, fees, and course materials
– Phase-out: MAGI $160-180K (married); $80K-90K
(single)
• 2001 TRA
– Can be used with 529 or Education IRA distributions as
long as used for different expenses
61. Education Credit: Lifetime Learning
• Credit for an unlimited # of years of post-secondary
education
–
–
–
–
–
20% of expenses paid up to $10,000
Max of $2,000 per tax return
For tuition, fees, and course materials
Do not have to be pursing a degree
Phase-out: MAGI $107-127K (married); $53K-63K
(single)
• 2001 TRA
– Can be used with 529 or Education IRA
distributions as long as used for different
expenses
2013 IRS
62. Education Credit: Lifetime Learning
Bruce and Toni Harper are married and file a joint
tax return. For 2013, their MAGI is $75,000. Toni
is attending a local college (an eligible educational
institution) to earn credits toward a degree in
nursing. She already has a bachelor's degree in
history and wants to become a nurse. In August
2013, Toni paid $5,000 of qualified education
expenses for her fall 2013 semester. Bruce and
Toni can claim a $1,000 (20% × $5,000) lifetime
learning credit on their 2013 joint tax return.
2013 IRS
63. Education Credits
• For each student, you cannot claim both
American Opportunity credit and Lifetime
Learning credit at the same time
– You could claim American Opportunity for one
student and Lifetime Learning for the other
– For each student, you could alternate credits.
American Opportunity one year and Lifetime
Learning the next
2013 IRS
64. Credit for Excess Social Security Tax
Withheld
• Common if you worked for two or more
employers and earned more than $117,000,
that too much social security tax was withheld
• Max amount of social security tax that should
be withheld for 2014 is $7,254 (6.2% of
$117,000)
• Can claim the excess over the maximum social
security tax as a credit again your income tax
65. The Big Picture
• Taxes affect many savings and
consumption decisions
– Buying a home
– Using home equity loans for other major
purchases
– Absorbing job-related expenses
– Investing
• Tax-deferred (401K, 403b, TSP)
• Tax-exempt (municipal bond)
66. Tax Liability Forgiveness
• Liability forgiven, or if paid is returned, if
servicemember dies:
–
–
–
–
In active service in a combat zone
From combat zone injuries
From terrorist or military action wounds or injuries
If work qualified the member for speical military pay for duty
subject to hostile fire or imminent danger
Army Private John Kane died in 2013 of wounds
incurred in a terrorist attack in 2012. His income tax
liability is forgiven for all tax years from 2011 through
2013.
2013 IRS
67. Filing Returns
• Send return to the IRS Center for the state in
which you live.
Miguel is stationed in Texas but his
permanent home is in Florida. He should
send his return to the IRS Center in Florida
• Returns should be filed by regular due date,
April 15th, 2014, unless filing for an extension
or if servicemember is serving in a combat
zone or is serving overseas.
2013 IRS
68. Automatic Filing Extensions
• Extends the due date for the return but
not the timing of tax due. Tax unpaid by
April 15th will gain interest
• Depends on where you were located
during tax year; in the U.S or abroad
– Inside U.S:
• File form 4868 by April 15th or pay part of tax
liability by credit or debit card and get an
automatic 6 month extension
2013 IRS
69. Automatic Filing Extensions
– Outside U.S. and Puerto Rico
• Automatic 2 month extension, don’t have to file
4868 if
– You live outside US/Puerto Rico and post of
duty is outside US./Puerto Rico, OR
– As a result of an assigned tour of duty, you
were outside the US for a period that
includes the entire due date of the return
2013 IRS
70. Extension of Deadlines [1 of 4]
• Automatically allows postponement of filing
taxes, payment of taxes, and filing refund
claims if servicemember is:
– In a combat zone or qualifying service outside of
a combat zone
– Part of a contingency operation (deployed outside
of U.S, away from permanent duty station)
– Hospitalized outside of the US as a result of
combat or contingency operation injury or
hospitalized up to five years in U.S.
2013 IRS
71. Extension of Deadlines [2 of 4]
• Deadline extended for 180 days following the later
of:
– Last day in combat zone, qualifying service outside of
combat zone, contingency operation, or
– Last day of any continuous qualified hospitalization for
injury from service in combat zone or contingency
operation
• In addition to the 180 days, the deadline is extended
by the number of days left to take action with the IRS
when combat zone was entered
– Number of days between deployment and the April 15 th
deadline
2013 IRS
72. Extension of Deadlines [3 of 4]
Petty Officer Leonard Brown's ship entered the Persian Gulf
on January 5, 2012. On February 15, 2012, Petty Officer
Brown was injured and was flown to a U.S. hospital. He
remained in the hospital through April 21, 2013. The
deadlines for filing Petty Officer Brown's 2011, 2012, and
2013 returns are figured as follows.
The 2011 tax return. The deadline is January 28, 2014. Petty
Officer Brown has 282 days (180 plus 102) after his last day in
the hospital (April 21, 2013) to file his 2011 return. The 102
additional days are the number of days in the 3½ month filing
period that were left when he entered the combat zone (January
5– April 15, 2012).
2013 IRS
73. Extension of Deadlines [4 of 4]
The 2012 tax return. The deadline is January 31,
2014. Petty Officer Brown has 285 days (180 plus
105) after April 21, 2013, to file his 2012 tax return.
The 105 additional days are the number of days in the
2013 filing period that were left when he entered the
combat zone (January 1– April 15, 2013).
The 2013 tax return. The deadline is not extended
because the 180-day extension period after April 21,
2013, plus the number of days left in the filing period
when he entered the combat zone (105) ends on
January 31, 2014, which is before the due date for his
2013 return (April 15, 2014).
2013 IRS
74. Signing Returns
• Should sign own return unless other
conditions met:
– Overseas or Incapacitated
• Grant power of attorney, Form 2848
– In combat zone
• Souse can sign, providing a statement explaining
the situation
2013 IRS
75. Continue the Conversation
• Find the Personal Finance Team online
» Facebook: PersonalFinance4PFMs
» Twitter: #MFLN
» LinkedIn: Military Personal Finance Managers
Group
Notas del editor
January, 2014
Understand basic taxes: Ask rhetorical questions: What is the purpose of having income taxes? What are different types of Income taxes?
Implications for you: Considerations that need to be made when chosing
Tax management/reduction strategies: What are ways people can minimize their taxes?
Taxpayers must indicate what their filing status is.
Someone who is single shouldn’t face the same tax brackets as someone who is married and has another income.
Different types are single, married filing joint return, married filing separately, head of household, and qualifying widow(er) with dependent child
1099
If you have even a savings account, you may receive a 1099, which is taxable interest paid. This represents income from someone other than an employer.
DIV- dividends earned on a stock
G- certain government payments
R- distributions from retirement plans like IRA or 401k plans
MISC- for self employment or rental income
1098
Indicator you made payments from mortgage interest.
You will also get this when you start paying student loans.
If you have taxable income less than $50,000, you can use a 1040EZ.
If you have no itemized deductions but you have an IRA, you would use a 1040A.
A schedule is a worksheet for specific situations:
Schedule A is for itemized deductions.
Schedule B is for interest and dividend income
Schedule C is for small business income.
What is gross income? It includes everything.
Subtract certain adjustments (above the line deductions) to get to your adjusted gross income. This takes up the first page of the 1040.
On the second page, we subtract itemized deductions (figure these out on a schedule, and enter total here). Then we arrive at taxable income.
Calculate all the taxes you can apply (capital gain, income and wage tax…)
Subtract the credits. These will reduce the tax.
Figure how much you owe
Look at your W2 statements and figure how much was withheld. If you owe more than you originally paid in, you still have to pay. If you paid more than you needed, you will get a refund.
Read slide
One common theme of what's included in gross income is whether or not your economic status is improved. Not included:
Garage sale proceeds, you sell a shirt for 50 cents that you bought for $50 dollars, you aren't being improved by that at all, you’re actually taking a massive loss. You can’t take the losses, but you won’t be taxed for the petty change.
If you were in an unfortunate accident and receiving a cash settlement, you do not include gross income because you are essentially being returned to the state you were before.
Income from municipal bonds are investments issued by local governments to fund their activities and are not included.
Combat Zone Pay explain in more detail later
“State bonus payments. Bonus payments made by a state (or a political subdivision thereof) to a member or former member of the uniformed services of the United States or to a dependent of such member are considered combat pay (and therefore may not be taxable) if the payments are made only because of the member's service in a combat zone. See Combat Zone , later, for a list of designated combat zones.” [taken from IRS Pub 3]
“You are on extended duty when you are called or ordered to active duty for a period of more than 90 days or for an indefinite period.”
Home can be a:
-House
-Houseboat
-Mobile Home
-Cooperative Apt
-Condominium
AGI is very important.
Part of gross income that we do not have to pay taxes on.
Contributing to IRAs ( traditional, not Roth)
Contributing to health savings accounts
The amount you pay in student loan interest up to $2500 can be subtracted (only the interest portion)
Qualified moving expenses such as moving for a job without getting reimbursed are all deductions you can subtract.
Reservist deduction on line 24 of Form 1040, U.S. Individual Income Tax Return
Example taken directly from IRS Publication 3
Can only deduct these expenses if they are due to a change in station and are unreimbursed.
Cannot deduct allowances.
You have a choice of deductions between standard deductions and itemized deductions.
Based on your filing status, you are entitled to a standard deduction (the amount you receive if your itemized deductions do not exceed the standard deduction)
For single, or married filing separately, the standard deduction is $5,150 (2006).
For married filing jointly or a widow(er) you receive $10,300 (2006).
The head of household receives $7,550 (2006).
If your parents declare you as a dependent, you aren't entitled to your $5,150, but you will be getting one based on your earned income.
Marriage Penalty: 1996 Congressional Budget Office Analysis, 42% of married taxpayers paid more in taxes due to being married than if they were each single. Average penalty: $1,380.
However, 51% of the total paid less tax jointly than if they had not married. Average saved: $1,300.
Households where individuals earn similar wages more likely to take a penalty. Households with disparate incomes most likely to benefit.
From Forbes.com [http://www.forbes.com/sites/kellyphillipserb/2013/10/31/irs-announces-2014-tax-brackets-standard-deduction-amounts-and-more/]
Always take advantage of the biggest deductions. If you can itemize more than the standard deduction, always itemize.
Without a mortgage, many people do not qualify for itemized deductions.
They are tricky because they are subject to floors and ceilings.
Medical and dental expenses are out of pocket expenses that exceed over 7.5% of your AGI.
If you make $100,000/year, only the amount that exceeds $7,500 is deducted.
If the expenses are $7,499 or less, you do not get to itemize.
This is considered a floor because there is a minimum amount you can have that can be deducted.
State, local, and property taxes are common (Florida is famous for not having a state income tax).
Charitable contributions can be itemized, but if you do not itemize, you cannot deduct your charitable contributions. You also need receipts for these.
This is subject to a ceiling. You can only deduct up to 50% of your AGI.
Job-related and miscellaneous are subject to a floor, over 2%.
Example taken directly from IRS Publication 3
Examples taken directly from IRS Publication 3
Personal Exemption:
The deduction for the filer if married, for the spouse (if filing jointly), and for each child.
A married family with 2 children would receive 4 exemptions.
If your income exceeds $376,700 if filing individually or $427,550 if filing jointly (2014) you do not qualify for these exemptions.
Personal exemption phaseout begins at an AGI of $254,200 for individual an $305,050 for joint (2014)
Taxable income, as the name indicates, is the amount used to determine income tax owed.
Tax Rates:
Single and earn $10,000- 15% tax bracket.
The first 2 columns tell you exactly where you would be.
You know what bracket you’re in, so you pay this base tax which is $907.5 plus 15% of the amount over $9,075.
The amount you are into this bracket is what you are going to pay the marginal tax of.
The tax lower is 10% of the amount of $9,075, which means you’re paying the $907.5 plus 15% after that.
That’s what we mean by the progressive-tax someone would pay for that income.
For each additional bracket you go up, your tax will increase.
If you make $100,000 you will be paying $18,193.75 plus 28% of the amount over $89,350. ($100,000-$89,350=$10,650, which is subject to 28% taxes).
$10,650 x 28%=$2,982
Add that to the $18,193.75=$21,175.75
Someone who makes $100,000 taxable income would owe 21,175.75
Credit is subtracted from the taxes.
Deduction is subtracted from the income.
They are both good, but if you have a choice between a $1,000 tax credit or a $1,000 tax deduction, you would choose the credit
The credit reduces tax liability dollar for dollar
Deduction reduces tax liability by the dollar amount of the deduction multiplied by the marginal tax rate because it only reduces the income.
These promote social and economic good such as the redistribution of income and wealth, taking care of children, and education.
Tax credit for low income households based on their household compositions
It is affected by whether or not you have a child (it is not required in order to qualify).
Take the amount of earned income multiplied by a credit percentage based upon your level of income.
There are free services that provide for this called vita sites.
This credit is refundable. This means if the credit you qualify for is more than what you actually had withheld from your paycheck, you still get the full amount of the credit so you get back even more than you pay into the tax system.
TRA: Tax reform act
For 2014, Max values for married filing jointly: no children $496, one child $3,304, two children $5,460, more than two children $6,143
If you make too much money, the amount of this credit will be diminished or reduced.
If you are single and make over $75,000, or married and make over $110,000 these credits are reduced.
If someone is entitled to the full amount, it may be partially refunded to them.
Read slides, continued
If you are independent, you should check to see if you are eligible for this credit.
For more information on tax benefits for education, see IRS Publication 970: http://www.irs.gov/pub/irs-pdf/p970.pdf
You can file an amended return.
You would fill out form 1040x, so its basically something you are amending.
20% of your education expenses are covered up to $10,000 worth of expenses making the max credit $2,000.