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Special Tax Benefits for Members of the Armed Forces

Posted By Rhette Baughman, Arizona Small Business Association, Friday, July 18, 2014
Updated: Wednesday, August 13, 2014

Special tax benefits apply to members of the U. S. Armed Forces. For example, some types of pay are not taxable. And special rules may apply to some tax deductions, credits and deadlines. Here are ten of those benefits:  

1. Deadline Extensions.  Some members of the military, such as those who serve in a combat zone, canpostpone 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.   

2. Combat Pay Exclusion.  If you serve in a combat zone, certain combat pay you get is not taxable. You won’t need to show the pay on your tax return because combat pay isn’t included in the wages reported on your Form W-2, Wage and Tax Statement. Service in support of a combat zone may qualify for this exclusion.   

3. Earned Income Tax Credit.  If you get nontaxable combat pay, you may choose to include it to figure your EITC. You would make this choice if it increases your credit. Even if you do, the combat pay stays nontaxable.   

4. Moving Expense Deduction.  You may be able to deduct some of your unreimbursed moving costs. This applies if the move is due to a permanent change of station,   

5. Uniform Deduction.  You can deduct the costs of certain uniforms that regulations prohibit you from wearing while off duty. This includes the costs of purchase and upkeep. You must reduce your deduction by any allowance you get for these costs.   

6. 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. In other cases when your spouse is absent, you may need a power of attorney to file a joint return.   

7. Reservists’ Travel Deduction.  If you’re a member of the U.S. Armed Forces Reserves, you may deduct certain costs of travel on your tax return. This applies to the unreimbursed costs of travel to perform your reserve duties that are more than 100 miles away from home.   

8. Nontaxable ROTC Allowances.  Active duty ROTC pay, such as pay for summer advanced camp, is taxable. But some amounts paid to ROTC students in advanced training are not taxable. This applies to educational and subsistence allowances.   

9. Civilian Life.  If you leave the military and look for work, you may be able to deduct some job hunting 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.   

10. Tax Help.  Most military bases offer free tax preparation and filing assistance during the tax filing season. Some also offer free tax help after April 15. 

For more on this topic, refer to Publication 3, Armed Forces’ Tax Guide. It’s available on IRS.gov, or call 800-TAX-FORM (800-829-3676) to get it by mail.


This series is brought to you by the Southwest Area Stakeholder Liaison Team covering Arizona, New Mexico & Texas. It is designed for you to share with anyone who will find the information useful. We are interested to hear if you think this information is helpful. Please provide your feedback or topic request to us at sl.southwest@irs.gov and include “Workshop Wednesday” in the subject line.

To access previous editions, click here: Workshop Wednesday Archive links 

 Small business owners, especially new sole proprietors, can find a wealth of information covering their federal tax responsibilities on www.IRS.govThe SB/SE Tax Center is the “Go To” IRS.gov page for everything small business.


Tags:  IRS  Small Biz  Small Business  Tax  Taxes  tips 

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Should You Make Your Business an LLC?

Posted By Rhette Baughman, Arizona Small Business Association, Monday, June 16, 2014
Updated: Wednesday, August 13, 2014

If you are launching a new business, you may want to consider forming a separate entity such as a corporation or LLC, to protect your personal financial life.

The legal form of your business brings different tax implications. When forming an LLC, you receive the benefits of creating a separate entity and thus protecting your personal assets.

When it comes to taxes, however, the IRS has no tax return for an LLC per se. You may treat the LLC as a C or S corporation, partnership or sole proprietorship and file accordingly. Your state taxing agency may have a special set of LLC tax forms for your entity to file.

Entity selection is not something to rush into without first consulting a good business attorney and tax professional.

While the internet is a great resource, there are many error-filled websites offering bad advice that can be costly down the road and land you in hot water with the IRS.


There are many things to consider when choosing a business entity. First of all, if you have no assets to protect and a good insurance policy, you may be fine operating as a sole proprietor. But this is something that must be discussed with an attorney to protect your personal finances.

Your company’s success and reputation does not hinge on how it’s classified, and employee benefits are deductible by all business entities. However, the only way to ensure the deductibility of benefits paid to an owner/shareholder is to incorporate as a C corporation. An LLC can elect to be treated as a C Corporation for tax purposes and therefore enjoy this benefit.

Another benefit of becoming an LLC is that you free yourself from personal liability for corporate debt. However, in the real world, lenders seek personal guarantees for corporate debt.

When setting up a separate entity, one must consider the cost. There will be a separate charge for income tax preparation, usually a minimum state franchise tax and filing fees upon formation.
Currently Illinois charges $500 to form a LLC, the highest filing fees in the nation. Eliot Richardson, founder of The Small Business Advocacy Council (SBAC), has been working to pass legislation in Illinois to lower LLC Fees from $500 to $39 and for series LLCs from $750 to $59. The filing fee for a corporate structure in Illinois is only $150 by comparison.

Richardson testified at a hearing last Wednesday in Springfield, IL with disappointing results. The bill had already passed through the senate but the house stalled on reducing the filing fee. No further hearings are planned.

Richardson stated in his testimony, “Some business owners may elect corporate status simply because the fee is lower, when really their best choice is the LLC structure."

Originally published at FOX Small Business. Written by Bonnie Lee.
Photo Credit: The Waving Cat via PhotoPin CC

Tags:  assets  c corp  LLC  s corp  small biz  small business  starting business  startup  tax  taxes  tips 

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