MILITARY

Pay the smallest legal amount of tax. Know which items of military-related income are taxable on your federal return and which are not.

• Basic active duty pay
• Reserve duty pay
• Special hazardous duty pay
• Enlishment and re-enlishment bonuses
• Mustering-out payments
• Lump-sum separation payments
• Accrued leave payments
• Military retirement pay

• Basic allowance for quarters (BAQ). You can deduct mortgage interest and real estate taxes on your home even if you pay these from your BAQ
• Basic allowance for subsistence (BAS)
• Death gratuity benefits
• Foreign housing and cost-of-living allowances<
• Variable housing allowances (VHA)
• Uniforms
• Moving allowances for temporary lodging
• Dislocation Allowances
• Family separation allowances
• Travel allowances for dependent students
• Disability payments

SALE OF HOME

The Tax Relief Act of 1997 made drastic changes to the laws on the sales of homes. Sales before May 7, 1997 must use the old laws for excluding gain or deferring profits. The old laws provided tax deferral by buying and moving into a new, more expensive home within 24 months of the sale date of the old home. The old laws also provided a profit exclusion (up to $125,000) under certain circumstances.

Under the new law an individual may exclude up to $250,000 in gain (a married couple may exclude $500,000) as long as two years have passed since the last exclusion. Sales made before August 5, 1997 may have the option to used the old exclusion and deferral rules which could be beneficial in some cases. Sales made after August 4, 1997 must follow the new law.

MOVING EXPENSES

To deduct moving expenses, members of the armed forces who move because of a permanent change of station (PCS) do not have to meet certain time and distance tests that apply to civilian employees. In addition, members of the armed forces do not report the value of moving reimbursements unless the reimbursements are more than the expenses.

STATE TAX RETURNS

The Soldiers and Sailors Relief Act provides that a person on active duty in the armed forces, assigned to a duty station other than in his or her home state of residence, does NOT become a resident of the other state by reason of his or her physical presence on military assignment.

In simpler terms, this means that unless you are stationed in your home state, the state in which you are stationed cannot tax your active duty pay.

The state in which you are stationed, however, can tax your pay from second jobs within the state and any income your spouse earned within the state. In that case, if you pay tax to your home state, your home state may give you a credit for all, or part of the tax you pay to the duty-station state.

• Some states (for example, Illinois and Michigan) do not tax any of their residents� military pay.
• Some states (for example, Oregon and Missouri) do not tax their military residents if they are stationed out of state and spent 30 or fewer days in the tax year within the state.
• Some states (for example, Alabama and South Carolina) tax all the income of their military residents, whether or not they have lived in the state during the year.

You and your family may need to file tax returns with several different states. If you have questions about your particular tax situation, the experienced tax return preparers at "J.L. Galang" can answer your questions.

IF YOU THINK YOU'VE OVERLOOKED SOMETHING...

If you discover that you missed some valuable deductions or that you made a mistake on a prior year's return, you may be able to file an amended return. Generally, an amended return may be filed within three years from the date you filed the original return. Talk to you "J.L. Galang" tax return preparer if you have any questions about your prior years' returns.

REMEMBER, many people overpay their taxes without even knowing it. That�s like giving money away. With the ever-changing tax laws, it�s more important than ever to consult with your "J.L. Galang" tax return preparer. We�re here to help you save your tax dollars

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