With Veterans Day on November 11th, it’s an especially good time to think about the sacrifices veterans have made for us and how we can support them. One way businesses can support veterans is to hire them. The Work Opportunity tax credit (WOTC) can help businesses do just that, but it may not be available for hires made after this year.

As released by the Ways and Means Committee of the U.S. House of Representatives on November 2, the Tax Cuts and Jobs Act would eliminate the WOTC for hires after December 31, 2017. So you may want to consider hiring qualifying veterans before year end.

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Employers may want to consider the Work Opportunity Tax Credit (WOTC) for new hires.  WOTC is a federal income tax credit available to employers that hire individuals from targeted groups that have traditionally faced barriers to employment.

The Veterans Opportunity to Work to Hire Heroes Act of 2011 (“VOW to Hire Heroes Act”) expanded the tax credit for veterans and the Protecting Americans from Tax Hikes of 2015 (“PATH Act”) extended WOTC through December 31, 2019.  A qualified veteran is a veteran certified as any of the following: Read More

Today we are going to finish up our series on the military tax documents.  We will look at some miscellaneous items on the RAS that can affect your client’s tax return.

The bottom of the first page and the second page of the RAS has various areas for deductions, including the items mentioned below.  One thing on the RAS that is pre-tax is the deduction for Survivor Benefit Program (SBP) Coverage.  This is a deduction from the retiree’s pay that is set aside for the surviving spouse to receive after the retiree’s death.  It is pre-tax because it is taxable to the surviving spouse.

The middle of the second page has a spot for Former Spouse Protection Act Deductions.  This is a tricky area because it is not straightforward.  In most cases, the amount is not included in the taxable income on page one, nor is it included on the 1099R since the former spouse receives a 1099R of their own.  But, in some older divorces and divorces which occur in non-community property states this amount may be included in the taxable income, and should be deducted from the retiree’s income as alimony.  If the Former Spouse deduction is taxable to the retiree it will not show in the Pay Item Description box under Gross Pay.  This is the case where you would show an adjustment for alimony on the retiree’s 1040.  The way this is reported changed several years ago, and some retirees Read More

We are going to switch gears and look at the military retiree statement, the Retiree Account Statement or RAS. This is the report of pension received by a military retiree. Several tax related items of interest here. Unlike the LES, the dates are a little funky on the RAS, and this is important for determining taxable income and deductions. The “statement effective date” is always the month before the date the income or deduction is actually taken.  There is now a new box of this statement that shows the date that the changes on the RAS will take effect marked “New Pay Date As Of”, which makes things easier. Defense Financial Aid Services (DFAS) and Veterans Administration people use this as a standard dating system. Example: The effective date of 1 September does not actually kick in until 1 October.

Here’s something that may gain you a client for life – especially one who retired in the last 5 years or so – taking notice in the Pay Item Description section of the RAS if there is any VA offset.  If there is, chances are he is still in position to amend prior year returns for any back-dated award.  You should be asking every single military retiree or veteran if they have any kind of awarded VA or military disability income.  If the answer is yes, it should lead you to a discussion about the tax implications of that award.

For a detailed narrative on the ways to handle a disability award for a military member please see my article on this subject here.

Tomorrow we will finish up our series with a look at some miscellaneous items on the RAS that can help you help your clients.

Continuing our discussion on the Military Leave and Earnings Statement (LES) and how it can help your clients.  Today we are going to talk about credits you may be missing for your military clients and retirement contributions.

The LES and Credits

As you know, for the most part, military members do not contribute to their own retirement.  However, there is a Thrift Savings Plan (TSP) option, the government version of a 401K, to which members can voluntarily contribute.  This is also reported on the W2 in box 12 code D or box 14 code E. This line will not usually have a direct effect on the current year’s tax return, as they are already deducted from Box 1 of the W2, unless your client was deployed to a combat zone while making these contributions.

In the middle of the LES the section marked TSP shows the differing characteristics of the TSP program contributions.  The box marked “TSP YTD Deductions” shows the total actual contributions year to date. The box marked “Deferred” shows the amount of those contributions that are deferred; this is because the taxpayer made contributions just like any 401K type contribution.  The box marked “Exempt” shows the total the member has contributed this year that came from exempt combat pay or allowances.  Unlike regular TSP contributions, which are pre-tax and fully taxable on distribution, these contributions are not taxable on distribution and are considered a basis Read More

Continuing our discussion on the Military Leave and Earnings Statement (LES) and how it can help your clients.  Today we are going to rev up your client’s itemized deductions.

The LES and Itemized Deductions

Let’s look at some other areas of the LES.  Military members get lots of different types of pay and allowances depending on their job, marital status, where they live and where they are assigned.  Other than base pay, enlistment or special duty bonuses, most of these allowances are non-taxable.  Of course, you are all aware that all combat and hazardous duty pay is also non-taxable.  For the most part DFAS, the military pay system, is pretty good about getting these numbers right on the LES and the W2s, but it never hurts to check.

There are several items on the LES that affect the itemized deductions on a tax return.  Let’s start with state and local sales taxes.  We all know that as of today, at least, the itemizing taxpayer has the choice of taking a deduction for either the state income taxes paid or estimated sales taxes.  How many of you know that you can increase your client’s formula-calculated standard sales tax deduction by making use of certain items on the LES?

Look at bottom part of the LES on the line titled “YTD Entitle”, this is the total income of all kinds the taxpayer received from the military.  Now, look at box in the middle section of the LES titled “Wages YTD” which should match the W2 box 1.  Quite a difference, isn’t there?  The difference between these figures needs to be added to Read More

One of the tax topics I specialize in at my practice is military affairs.   I know that many of you have large military populations, including active duty, reserve, national guardsmen, retirees, and veterans. Over the next week I am going to provide you with some tips to finding all the nuggets of gold in the military income reporting documents.

How many of you have the IRS Pub 3, the Armed Forces Tax Guide?  If you don’t, then you need to get one here.  It is essential reading for anyone who handles clients affiliated with the military.  The other two places with all the basic information needed to complete military tax returns are the MyPay and Veterans Administration websites.  They are listed in my Library here, under the document Websites/Links of Interest: The Military Taxpayer.

We will start with the Military Leave and Earnings Statement or as it is better known, the LES.  This is the military version of a paycheck stub.

Home Of Record and Spouses

Let’s start with one of the most important items on the form, the Home of Record (HOR).  The Home of Record determines the state treatment of the taxpayer and spouse’s income.  The military member’s Home of Record will Read More

With an increasing number of Veterans returning from serving our country and the previous generation getting old the Veterans Administration (VA) is granting more and more disability ratings for our service members and former service members.  If you are a Tax Professional who prepares returns for people who served or are serving in the U.S. Armed Services or you are a Veteran please take a few minutes to look at this step-by-step guide to the best way to make sure Veterans get the full amount of their tax refunds.

Preparing A Return For A Disabled Veteran