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Overlooked Military Tax Deductions


It’s that time of year again! Military members, as W-2 employees, don’t have all that many options when it comes to sidestepping a tax bite. Uncle Sam knows everything you make from the military, and except for certain pay earned in a combat zone and some special allowances like BAH, it’s nearly all taxable.

But there are some deductions and exemptions available to you – some applicable to routine work-related expenses that any employee can claim, and some only available to the military.

Unreimbursed Employee Expenses

First of all, get familiar with this concept. Unreimbursed employee expenses are any ordinary and necessary expenses that are incurred for the convenience of an employer, for which you are not reimbursed. For it to be classified as ‘ordinary,’ it means that the expense is routine and commonly accepted in your profession, trade or business – whether formally required by an employer or not.

Generally, you can deduct these expenses to the extent they exceed 2 percent of your adjusted gross income (AGI).

Some examples:

Trade publications. Do you subscribe to military and defense-related trade journals or professional journals? These deductions are typically deductible if, combined with other unreimbursed employee expenses, they exceed 2 percent of your AGI.

Military uniforms for Guard and Reserve personnel. If you buy uniforms and you do not receive a uniform allowance, you can generally deduct the cost of these uniforms if local regulations restrict you from wearing the uniform off duty. You can’t deduct uniform costs if you are on active duty.

  • Military battle dress uniforms and utility uniforms that you cannot wear when off duty
  • Articles not replacing regular clothing, including insignia of rank, corps devices, epaulets, aiguillettes, and swords
  • Reservists' uniforms if you can wear the uniform only while performing duties as a reservist

This is a curious rule, because civilian workers whose employers impose a specific uniform can generally deduct the cost of their uniforms. The rules that apply to the military are less favorable than those that apply to civilian employees..

The cost of obtaining a passport for work-related travel - to the extent you are not reimbursed.

Home office and storage. Is there an area of your home used exclusively for a home office and for storing your military gear? Some commanders and first sergeants in the reserve components have to maintain home offices just to keep up with the daily demands of running a unit that may be 50 miles or more from their homes. If you have a home office, or you have a significant amount of your home square footage devoted exclusively to storing gear and planning military activities (and to services provided for other employers, if any), you may be able to claim a deduction for the business use of your home. For example, if you have a 3,000 square foot home, and you have 150 square feet dedicated solely to a home office or storage, that’s 5 percent of your house payment or rent payment, plus a like percentage of utilities, that you may be able to claim.

Legal expenses. If you have legal expenses that arise wholly out of the exercise of your job, and you pay out of your pocket rather than have a JAG attorney take care of it, that is generally a deductible unreimbursed employee business expense. Personal legal expenses are not normally deductible (unless they are related to preparing and filing income tax returns), but professional expenses are. However, if an attorney advises you on tax planning as part of a divorce, that portion of your lawyer’s fees attributable to tax advice is generally deductible.

Debt Repayments. Did you get a debt letter from DFAS on a Form 705? Did you owe the government money? Keep your records – you can generally deduct the amount you paid back to Uncle Sam. The methodology you can use depends on the amount of debt repaid: If it was $3,000 or less, you deduct the amount repaid from your income in the year in which you repaid it. It’s a miscellaneous itemized deduction, so it’s still subject to the 2 percent of AGI threshold. Use Schedule A to IRS Form 1040. You can’t use 1040EZ.

If the amount repaid is more than $3,000, on the other hand, you have a choice: You can choose to deduct the amount repaid in the year in which you paid it back, or you can have the loss deducted from your earnings in the tax year in which the loss occurred, and take a tax credit against this year’s liability. For best results, calculate your net taxes under both methods, and pick the method that works best for you. Note: You probably won’t find this functionality in the cheap, over-the-counter tax prep forms and free services. You may want to see a tax professional and explain the situation. For more information, see IRS Publication 525.

Unreimbursed Travel Expenses. If you have work-related travel expenses that require you to be away from home for more than a day or so, you can generally deduct the cost of lodging expenses, transportation and half of your meals. If you take your own car, you can either deduct the standard federal mileage rate (55½ cents per mile, as of this writing in March of 2013), or you can deduct actual expenses. You can also deduct rental car fees. However, if the military reimburses you for the use of your POV or provides or reimburses you for the rental car, you can’t take this deduction. You can also deduct for parking fees and tolls.

Note: If you live more than 100 miles away from your armory or duty station and you are traveling to attend Guard or Reserve drills, you can deduct the cost of your hotel. These hotel costs are ‘above the line’ deductions, so you don’t need to meet the 2 percent of AGI threshold that normally applies to miscellaneous itemized deductions, including unreimbursed employee business expenses.

Reporting: If you have reserve-related travel that takes you more than 100 miles from home, you should first complete Form 2106 or Form 2106-EZ. Then include your expenses for reserve travel over 100 miles from home, up to the federal rate, from Form 2106, line 10, or Form 2106-EZ, line 6, in the total on Form 1040, line 24. Subtract this amount from the total on Form 2106, line 10, or Form 2106-EZ, line 6, and deduct the balance as an itemized deduction on Schedule A (Form 1040), line 21.

You cannot deduct expenses of travel that does not take you more than 100 miles from home as an adjustment to gross income. Instead, you must complete Form 2106 or 2106-EZ and deduct those expenses as an itemized deduction on Schedule A (Form 1040), line 21.

Meals. Meals are deductible if you have to get them away from your home in order to do your job, or if they are a business-related entertainment expense. You can deduct half of the cost of your meals, or if you don’t want to keep a lot of records, you can base your deduction on the standard meal allowance for federal workers, which is $46 per day, as of tax year 2012. Special rates may apply for exceptionally expensive areas. For days you travel on, and days you return, you can base a pro-rated deduction on 3/4ths of the federal rate.

Trade Association Meetings and Conventions. Per IRS Publication 525, you can deduct entertainment expenses that are directly related to, and necessary for, attending business meetings or conventions of certain exempt organizations if the expenses of your attendance are related to your active trade or business. These organizations include business leagues, chambers of commerce, real estate boards, trade associations, and professional associations.

Trips to the Armory. Ok, this can be an important one – especially for reserve unit commanders and first sergeants and other key personnel who have day jobs but are constantly going back and forth to the armory or duty station to take care of business. If you have a regular place of business during the week, and you have to go to the armory for whatever work-related reason on a day on which you are working your regular job, the IRS considers the armory a second place of business. So you can deduct miles going from one work place to another. But you can’t deduct those miles if you aren’t working your regular job that day.

You can also deduct travel expenses to meetings if they occur somewhere other than your main duty station.

Normally, for non-military, non-PCS moves, your new principal workplace must be at least 50 miles farther from your old home than your old workplace was. For example, if your old workplace was 3 miles from your old home, your new workplace must be at least 53 miles from that home. If you did not have an old workplace, your new workplace must be at least 50 miles from your old home. The distance between the two points is the shortest of the more commonly traveled routes between them.

However, members of the military who are moving on PCS orders do not have to meet the distance and time tests listed above.

Unreimbursed Moving Expenses. If you have to relocate because of a PCS, nearly any ordinary and necessary moving out-of-pocket expense that is not reimbursed by the government is deductible. File a Form 3903 to claim moving expenses. See IRS Publication 521 – Moving Expenses.

IRA Contributions – if you meet the income requirements for deductible contributions to a traditional IRA, you can claim these contributions as an adjustment to income. If you are active duty, or if you are a reservist on orders for more than 90 days, you are considered to be covered by a workplace retirement plan for the purpose of calculating your allowable deduction. Otherwise, your individual work arrangements or those of your spouse govern which table to use.

Dues. You can deduct professional dues, such as dues to the Reserve Officers Association, Military Officers Association of America, or Association of the United States Army. You can also deduct dues paid to medical, legal, engineering or other associations as long as your membership is work related. You can’t deduct officers’ club or NCO club dues, alas.

Educational Expenses. You can usually deduct educational expenses if they do not qualify you for a new career or job, but can be reasonably construed to help you improve your performance in your current job. For example, if you are assigned as a forward ordering officer or you are in charge of planning and executing post maintenance and construction activities, you might take some classes in project management. However, this expense is not deductible if it provides you with a license or certificate that qualifies you to launch a new career. Education must be for THIS career, and not for future careers.

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