If you are in the U. S. Armed Forces, there are special tax breaks for you. For example, some types of pay are not taxable. Certain rules apply to deductions or credits that you may be able to claim that can lower your tax. In some cases, you may get more time to file your tax return. You may also get more time to pay your income tax. Here are some tips to keep in mind:
- Deadline Extensions. Some members of the military, such as those who serve in a combat zone, can postpone some tax deadlines. If this applies to you, you can get automatic extensions of time to file your tax return and to pay your taxes.
- Combat Pay Exclusion. If you serve in a combat zone, your combat pay is partially or fully tax-free. If you serve in support of a combat zone, you may also qualify for this exclusion.
- Moving Expense Deduction. You may be able to deduct some of your unreimbursed moving costs on Form 3903. This normally applies if the move is due to a permanent change of station.
- Earned Income Tax Credit or EITC. If you get nontaxable combat pay, you may choose to include it in your taxable income. Including it may boost your EITC, meaning you may owe less tax and could get a larger refund. In 2015, the maximum credit for taxpayers was $6,242. The average amount of EITC claimed was more than $2,400. Figure it both ways and choose the option that best benefits you. You may want to use tax preparation software or consult a tax professional to guide you.
- Signing Joint Returns. Both spouses normally must sign a joint income tax return. If your spouse is absent due to certain military duty or conditions, you may be able to sign for your spouse. You may need a power of attorney to file a joint return. Your installation’s legal office may be able to help you.
- Reservists’ Travel Deduction. Reservists whose reserve-related duties take them more than 100 miles away from home can deduct their unreimbursed travel expenses on Form 2106, even if they do not itemize their deductions.
- Uniform Deduction. You can deduct the costs of certain uniforms that you can’t wear while off duty. This includes the costs of purchase and upkeep. You must reduce your deduction by any allowance you get for these costs.
- ROTC Allowances. Some amounts paid to ROTC students in advanced training are not taxable. This applies to allowances for education and subsistence. Active duty ROTC pay is taxable. For instance, pay for summer advanced camp is taxable.
- Civilian Life. If you leave the military and look for work, you may be able to deduct some job search expenses. You may be able to include the costs of travel, preparing a resume and job placement agency fees. Moving expenses may also qualify for a tax deduction.
Tax Help. Most military bases offer free tax preparation and filing assistance during the tax filing season. Some also offer free tax help after the April deadline.
The IRS offers many safe and easy ways to pay your taxes. These tips explain many of them:
- Mailed tax bills. The IRS sends bills in the U. S. mail. Try to pay soon and in full to avoid any extra charges. If you can’t pay in full, you’ll save if you pay as much as you can. The more you can pay the less interest and penalties you will owe for late payment. The IRS offers several payment options on IRS.gov.
- Use IRS Direct Pay. The best way to pay your taxes is with IRS Direct Pay. It’s the safe, easy and free way to pay from your checking or savings account. You can pay your tax in just five simple steps in one online session. Just click on the “Payment” tab on IRS.gov. You can now use Direct Pay with the IRS2Go mobile app.
- Get a short-term payment plan. If you owe more tax than you can pay, you may qualify for more time- up to 120 days- to pay in full. You do not have to pay a user fee to set up a short-term full payment agreement. However, the IRS will charge interest and penalties until you pay in full. It’s easy to apply online at IRS.gov. If you have questions about a bill from the IRS, you may call the phone number listed on it.
- Apply for an installment agreement. Most people who need more time to pay can apply for an Online Payment Agreement on IRS.gov. A direct debit payment plan is the hassle-free way to pay. The setup fee is much less than other plans and you won’t miss a payment. If you can’t apply online, or prefer to do so in writing, use Form 9465, Installment Agreement Request. Individuals can use Direct Pay to make their installment payments. For more about payment plan options, visit IRS.gov.
- Check out an offer in compromise. An offer in compromise or OIC may let you settle your tax debt for less than the full amount you owe. An OIC may also be helpful if full payment may cause you financial hardship. Not everyone qualifies, however, so make sure you explore all other ways to pay your tax before you submit one to the IRS. Use the OIC Pre-Qualifier tool to see if you qualify.
Avoid tax surprises. If you are an employee, you can avoid a tax bill by having more taxes withheld from your pay. To do this, file a new Form W-4, Employee’s Withholding Allowance Certificate, with your employer. Use the IRS Withholding Calculator tool on IRS.gov to see if you’re having the right amount withheld. If you are self-employed, you may need to make or change your estimated tax payments.
Many students get summer jobs. It’s a great way to earn extra spending money or to save for later. Here are some tips for students with summer jobs:
1. Withholding and Estimated Tax. If you are an employee, your employer normally withholds tax from your paychecks. If you are self-employed, you may be responsible for paying taxes directly to the IRS. One way to do that is by making estimated tax payments on set dates during the year. This is essentially how our pay-as-you-go tax system works.
2. New Employees. When you get a new job, you need to fill out a Form W-4, Employee’s Withholding Allowance Certificate. Employers use this form to calculate how much federal income tax to withhold from your pay. The IRS Withholding Calculator tool on IRS.gov can help you fill out the form.
3. Self-Employment. Money you earn working for others is taxable. Some work you do may count as self-employment. These can be jobs like baby-sitting or lawn care. Keep good records of your income and expenses related to your work. You may be able to deduct those costs. A tax deduction generally reduces the taxes you pay.
4. Tip Income. All tip income is taxable. Keep a daily log to report your tips. You must report $20 or more in cash tips received in any single month to your employer. And you must report all of your yearly tips on your tax return.
5. Payroll Taxes. You may earn too little from your summer job to owe income tax. But your employer usually must withhold social security and Medicare taxes from your pay. If you’re self-employed, you may have to pay them yourself. They count for your coverage under the Social Security system.
6. Newspaper Carriers. Special rules apply to a newspaper carrier or distributor. If you meet certain conditions, you are self-employed. If you do not meet those conditions, and are under age 18, you may be exempt from Social Security and Medicare taxes.
7. ROTC Pay. If you’re in ROTC, active duty pay, such as pay you get for summer advanced camp, is taxable. Other allowances you may receive may not be taxable.
Day camps are common during the summer months. Many parents enroll their children in a day camp or pay for day care so they can work or look for work. If this applies to you, your costs may qualify for a federal tax credit. Here are 10 things to know about the Child and Dependent Care Credit:
- Care for Qualifying Persons. Your expenses must be for the care of one or more qualifying persons. Your dependent child or children under age 13 generally qualify.
- Work-related Expenses. Your expenses for care must be work-related. In other words, you must pay for the care so you can work or look for work. This rule also applies to your spouse if you file a joint return. Your spouse meets this rule during any month they are a full-time student. They also meet it if they are physically or mentally incapable of self-care.
- Earned Income Required. You must have earned income. Earned income includes wages, salaries and tips. It also includes net earnings from self-employment. Your spouse must also have earned income if you file jointly. Your spouse is treated as having earned income for any month that they are a full-time student or incapable of self-care.
- Joint Return if Married. Generally, married couples must file a joint return. You can still take the credit, however, if you are legally separated or living apart from your spouse.
- Type of Care. You may qualify for the credit whether you pay for care at home, at a daycare facility or at a day camp.
- Credit Amount. The credit is worth between 20 and 35 percent of your allowable expenses. The percentage depends on your income.
- Expense Limits. The total expense that you can use in a year is limited. The limit is $3,000 for one qualifying person or $6,000 for two or more.
- Certain Care Does Not Qualify. You may not include the cost of certain types of care for the tax credit, including:
- Overnight camps or summer school tutoring costs.
- Care provided by your spouse or your child who is under age 19 at the end of the year.
- Care given by a person you can claim as your dependent.
- Keep Records and Receipts. Keep all your receipts and records for when you file taxes next year. You will need the name, address and taxpayer identification number of the care provider. You must report this information when you claim the credit on Form 2441, Child and Dependent Care Expenses.
- Dependent Care Benefits. Special rules apply if you get dependent care benefits from your employer.
Keep in mind this credit is not just a summer tax benefit. You may be able to claim it at any time during the year for qualifying care.
If you filed for an extension of time to file your 2015 federal tax return – and you benefit from advance payments of the premium tax credit being made to your coverage provider – it’s important you file your return sooner rather than later.
You must file your 2015 tax return and reconcile your advance payments to ensure you can continue having advance credit payments paid on your behalf in future years. Advance payments of the premium tax credit are reviewed in the fall by the Health Insurance Marketplace for the next calendar year as part of their annual re-enrollment and income verification process. If you do not file and reconcile, you will not be eligible for advance payments of the premium tax credit in 2017. Use Form 8962, Premium Tax Credit, to reconcile any advance credit payments made on your behalf and to maintain your eligibility for future premium assistance.
If you got a six-month extension of time to file, you do not need to wait until this fall to file your return. You can – and should – file as soon as you have all the necessary documentation. Taxpayers who have not filed and reconciled 2015 advance payments of the premium tax credit by the Marketplace’s fall re-enrollment period – including those that filed extensions – may not have their eligibility for advance payments of the PTC in 2017 determined for a period of time after they have filed their tax return with Form 8962.
Remember that filing electronically is the easiest way to file a complete and accurate tax return.
If you purchased 2016 health care coverage through the Health Insurance Marketplace, you may have chosen to have advance payments of the premium tax credit paid to your insurance company to lower your monthly premiums. If this is the case, it’s important to let your Marketplace know about significant life events, known as changes in circumstances.
These changes – such as those to your income or family size – may affect your premium tax credit. Reporting the changes will help you avoid getting too much or too little advance payment of the premium tax credit. Getting too little could mean missing out on premium assistance to reduce your monthly premiums. Getting too much means you may owe additional money or get a smaller refund when you file your taxes. If your income for the year turns out to be too high to receive the premium tax credit, you will have to repay all of the payments that were made on your behalf, with no limitation. Changes in circumstances that you should report to the Marketplace include:
- an increase or decrease in your income
- marriage or divorce
- the birth or adoption of a child
- starting a job with health insurance
- gaining or losing your eligibility for other health care coverage
- changing your residence
Changes in circumstances may qualify you for a special enrollment period to change or get insurance through the Marketplace. In most cases, if you qualify for the special enrollment period, you will have sixty days to enroll following the change in circumstances. You can find Information about special enrollment at HealthCare.gov.
The Premium Tax Credit Change Estimator can help you estimate how your premium tax credit will change if your income or family size changes during the year. This estimator tool does not report changes in circumstances to your Marketplace. To report changes and to adjust the amount of your advance payments of the premium tax credit you must contact your Health Insurance Marketplace.
The Affordable Care Act requires you and each member of your family to have minimum essential coverage, qualify for an insurance coverage exemption, or make an individual shared responsibility payment for months without coverage or an exemption when you file your federal income tax return.
In general, the annual payment amount is the greater of these two amounts:
- A percentage of your household income – 2 percent of income above filing threshold for 2015
- A flat dollar amount – $325 per adult and $162.50 per child for a family maximum of $975 for 2015
However, this is capped at the national average premium for a bronze level health plan available through the Marketplace. You will owe 1/12th of the annual payment for each month you or your dependents don’t have either coverage or an exemption.
Your payment amount is capped at the cost of the national average premium for a bronze level health plan available through the Marketplace. For 2015, the annual national average premium for a bronze level health plan available through the Marketplace is $2,484 per year – or $207 per month – for an individual and $12,240 per year – or $1,020 per month – for a family with five or more members.
If you are required to make a payment, you can use the worksheets located in the instructions to Form 8965, Health Coverage Exemptions, to figure the shared responsibility payment amount due.
If you did not have coverage and your income was below the tax filing threshold for your filing status, you qualify for a coverage exemption. You do not have to file a tax return solely to claim this exemption. However, if you do file a return, you should file Form 8965, Health Coverage Exemptions, and you should not make a payment with your return.
If you use your home for business, you may be able to deduct expenses for the business use of your home. If you qualify, you can claim the deduction whether you rent or own your home. You may use either the simplified method or the regular method to claim your deduction. Here are six tips that you should know about the home office deduction:
- Regular and Exclusive Use. As a general rule, you must use a part of your home regularly and exclusively for business purposes. The part of your home used for business must also be:
- Your principal place of business, or
- A place where you meet clients or customers in the normal course of business, or
- A separate structure not attached to your home. Examples could include a garage or a studio.
- Simplified Option. If you use the simplified option, multiply the allowable square footage of your office by a rate of $5. The maximum footage allowed is 300 square feet. This option will save you time because it simplifies how you figure and claim the deduction. It will also make it easier for you to keep records. This option does not change the rules for claiming a home office deduction.
- Regular Method. This method includes certain costs that you paid for your home. For example, if you rent your home, part of the rent you paid may qualify. If you own your home, part of the mortgage interest, taxes and utilities you paid may qualify. The amount you can deduct usually depends on the percentage of your home used for business.
- Deduction Limit. If your gross income from the business use of your home is less than your expenses, the deduction for some expenses may be limited.
- Self-Employed. If you are self-employed and choose the regular method, use Form 8829, Expenses for Business Use of Your Home, to figure the amount you can deduct. You can claim your deduction using either method on Schedule C, Profit or Loss From Business. See the Schedule C instructions for how to report your deduction.
- Employees. You must meet additional rules to claim the deduction if you are an employee. For example, your business use must also be for the convenience of your employer. If you qualify, you claim the deduction on Schedule A, Itemized Deductions.
Bartering is the trading of one product or service for another. Often there is no exchange of cash. Some businesses barter to get products or services they need. For example, a gardener might trade landscape work with a plumber for plumbing work.
If you barter, you should know that the value of products or services from bartering is normally taxable income. This is true even if you are not in business.
A few facts about bartering:
- Bartering income. Both parties must report the fair market value of the product or service they get as income on their tax return.
- Barter exchanges. A barter exchange is an organized marketplace where members barter products or services. Some operate out of an office and others over the Internet. All barter exchanges are required to issue Form 1099-B, Proceeds from Broker and Barter Exchange Transactions. Exchanges must give a copy of the form to its members who barter each year. They must also file a copy with the IRS.
- Trade Dollars. Exchanges trade barter or trade dollars as their unit of exchange in most cases. Barter and trade dollars are the same as U.S. currency for tax purposes. If you earn trade and barter dollars, you must report the amount you earn on your tax return.
- Tax implications. Bartering is taxable in the year it occurs. The tax rules may vary based on the type of bartering that takes place. Barterers may owe income taxes, self-employment taxes, employment taxes or excise taxes on their bartering income.
- Reporting rules. How you report bartering on a tax return varies. If you are in a trade or business, you normally report it on Form 1040, Schedule C, Profit or Loss from Business.