For active duty military members, understanding and making the most of tax benefits is an important part of smart financial planning. The unique nature of military service creates opportunities that can make a big difference in your tax situation, but it requires careful consideration and strategic action. Here are some suggestions to help you maximize your tax savings.
1. Leverage Non-Taxable Income
Military service comes with a variety of allowances that are non-taxable. Take advantage of these by allocating them strategically towards your savings or major expenses. For instance, consider using non-taxable allowances for housing to pay down your mortgage faster or invest in future financial growth. Planning around this non-taxable income can help reduce your overall taxable liability.
2. Plan Around Combat Pay
If you’re serving in a combat zone, your income may be excluded from federal taxes. Use this to your advantage by contributing to tax-advantaged accounts like a Roth IRA. Since combat pay is non-taxable, Roth contributions can be particularly powerful, as you’re essentially investing tax-free money for tax-free growth.
3. Deduct Eligible Moving Expenses
If you’ve had a Permanent Change of Station (PCS), you may be eligible to deduct unreimbursed moving expenses. Keep careful records of everything—from transportation costs to lodging during your move. Proper documentation can ensure that you make the most of every deduction available.
4. Review Your State Residency Options
As a military member, you have some flexibility when it comes to state residency. If you are stationed in a state with no income tax, you may be able to maintain residency there and avoid paying state taxes. Be strategic about where you choose to establish your state of residence, especially if you’re considering making a change.
5. Make Use of Retirement Contributions
The Thrift Savings Plan (TSP) is a fantastic retirement savings tool for military members. If you have tax-free combat pay, consider contributing those funds into the TSP Roth option. This allows you to invest money that was never taxed and benefit from tax-free withdrawals in retirement.
6. Utilize Child and Dependent Care Benefits
If you’re deployed and need child care, make sure to explore credits that are available for dependent care. This can help offset some of the costs associated with care while you’re serving away from home. Keeping track of these expenses throughout the year makes tax time easier.
7. Charitable Contributions for Maximum Impact
The holiday season and deployments often lead to charitable giving. Make sure you keep records of any donations—both cash and non-cash contributions. These can add up quickly and help reduce your taxable income when you itemize deductions.
Final Thoughts
Active duty military members have access to several tax benefits that can improve financial stability. By being proactive and making strategic choices throughout the year, you can reduce your tax burden and make the most of your unique position. If you have questions or need personalized help, consider reaching out to our office.
If you have questions or need personalized help, reach out to Holloway Financial Group. Their team specializes in helping military members navigate and strategize to maximize their tax benefits. Don’t leave money on the table—schedule a consultation today and take control of your financial future.
