Working in the Gig Economy: Taxes on Self-Employment

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Many military spouses – and even some service members – have started a business or side job in today’s gig economy. And being your own employer means you are responsible for additional taxes and tax reporting.

In addition to questions about self-employment taxes, this year you may also wonder how changes due to the coronavirus disease 2019 pandemic could affect your tax returns.

Read on for the latest tax information related to COVID-19 and to learn the basics of self-employment taxes.

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MilTax’s tax preparation and e-filing software is available from mid-January through mid-October. And MilTax consultants are available year-round to help with your tax questions.

Special COVID-19 provisions for the self-employed

Certain COVID-19-related provisions may affect people who are self-employed, including:

COVID-19-related tax credits. If you were unable to work because you or a family member contracted the coronavirus or quarantined, you may be eligible for a qualified sick leave or family leave tax credit under the Families First Coronavirus Response Act.

Unemployment benefits. People who are self-employed may file for unemployment benefits if they have lost their source of income because of COVID-19. These benefits are taxable as income. If you received unemployment compensation, you must report it on your tax returns. The agency paying your benefits will mail you a 1099-G form with the total benefits you received in 2020.

Schedule C and tax filing

In most cases, self-employment income and expenses are reported on a Schedule C. The net profit, after expenses, of Schedule C income is then reported on your federal tax return. It is the responsibility of the taxpayer to keep track of all their sources of income, even if the source does not report it to you or to the IRS.

Self-employment tax

In addition to regular income taxes on your profits, you’ll also be subject to the self-employment tax. This is the Social Security and Medicare tax paid by those who are not employed by someone else. Anyone who has total self-employment income in excess of $400 per year is required to file a Schedule SE and pay self-employment taxes.

State tax filing

Military spouses may report self-employment income just like their regular income, using the state they are permitted to claim for purposes of taxation.

Non-military income of active-duty service members is not protected under the Servicemembers Civil Relief Act, and service members with income from sources other than the military must file with the state in which the income is earned.

Self-employment can bring tax questions. Military OneSource MilTax offers free online tax preparation and e-filing software, as well as free telephone consultations with a tax professional who understands the special needs of military families. With MilTax, there are no hidden surprises.

Schedule an appointment to speak with a MilTax consultant or financial counselor by calling 800-342-9647, or by starting a live chat. OCONUS/International? Click here for calling options.

Income Tax and Rental Properties When You’re in the Military

Exterior of the house

Many military families end up owning rental properties, which can bring special tax challenges. Here’s what you need to know to understand the potential tax impact of your rental property.

Your annual tax return

Each year that you own a rental property, you will need to complete an IRS Schedule E form to report your income and expenses. You’ll report all income received from the property that year, then reduce your income by the amount of your expenses, including mortgage interest, insurance, taxes and property management. You will also depreciate the value of your investment using Form 4562.

The income, expenses and depreciation reported on Schedule E may increase or decrease your overall taxes each year. However, it is important to remember that the depreciation will impact your taxes when you sell. Read IRS Publication 527.

MilTax: Impacted by COVID-19?

Schedule a free, personalized consultation with a MilTax consultant to learn more about how COVID-19 may impact your specific situation. MilTax consultants are trained tax experts who can help you address the realities of military life, from rental properties to combat pay.

Taxes when you sell your rental property

When you sell a rental property, you may have to pay capital gains taxes and recaptured depreciation taxes, technically called unrecaptured section 1250 gain.

Capital gains taxes are based on any profit made on the sale of your rental property, as determined by subtracting the purchase price and any improvements from the sales price. There are two rules that may help military families exclude capital gains from taxation.

The first rule applies to all taxpayers. The capital gains exclusion permits taxpayers to exclude a certain amount of profit from their taxable income as long as they have lived in the house, as a primary residence, for 24 out of the previous 60 months. The amount that can be excluded is $250,000 for a single taxpayer and $500,000 for a married couple filing jointly. This means that as long as your profit is below these amounts, and you meet the residency requirement, you aren’t taxed on the profit.

The second rule is the military extension of the capital gains exclusion. This allows active-duty military members who are away from their property due to permanent change of station orders to extend the 60-month period up to an additional 10 years. This means that eligible military members may exclude their capital gains as long as they occupied the primary residence for two of the previous 15 years.

There are special limitations for situations in which a homeowner moves back into a previous rental property.

Recaptured depreciation is a separate part of the calculation that takes into account the depreciation that you’ve taken over the years that the property has been a rental. It’s very important to note that you are subject to taxes on that depreciation whether you actually took the depreciation or not.

Military members who are selling a house should consult IRS Publication 523, Selling Your Home. Another good resource for military-related tax questions is the IRS’s Publication 3, the Armed Forces’ Tax Guide.

Tax help when you need it most

Even when you understand the concepts, you may benefit from professional help with your income taxes. Military families can access free tax assistance from Military OneSource’s MilTax service or through the Volunteer Income Tax Assistance program.

MilTax is a suite of free tax services for the military, including easy-to-use tax preparation and e-filing software, personalized support from tax consultants and current information about filing taxes in the military. It’s designed to address the realities of military life – including deployments, combat and training pay, housing and rentals and multistate filings. MilTax is 100% free with no hidden surprises.

The VITA program offers in-person tax assistance at military locations worldwide. VITA volunteers are specially trained to address the tax questions of military personnel.

Call Military OneSource at 800-342-9647 or via live chat to schedule a free appointment with a MilTax consultant or a financial counselor. OCONUS/international? Click here for calling options.

Tax Breaks for Families With Special Needs

Service member filling out tax form

If you are filing taxes on behalf of yourself or a family member with special needs, you may be eligible for certain tax breaks.

Tax-filing tips

Here are some tips for military families with members who have special needs:

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MilTax’s tax preparation and e-filing software is available from mid-January to mid-October. It’s easy to use and guaranteed to be 100% accurate.

  • Claim all eligible dependents. If you have a family member who is permanently and totally disabled, you may be able to claim them as a dependent, regardless of age. Read IRS Publication 501.
  • Explore the adoption credit. If you have adopted a child with special needs, you may be eligible for a credit. You may also be able to exclude employer-provided adoption benefits from your income. See IRS Tax Topic 607.
  • Try to recoup child and dependent care expenses. If you pay for child or dependent care so you can work or look for work, you may be eligible for a credit of up to 35% of your expenses. Care of children under the age of 13 qualifies, as does paid care of a spouse or other dependent who is not able to care for himself or herself. Read IRS Publication 503.
  • Explore the Earned Income Tax Credit.  You may be eligible for the Earned Income Tax Credit on behalf of a family member who is permanently and totally disabled. This can be a son, daughter, adopted child, stepchild, foster child, brother, sister, stepbrother, stepsister, half brother, half sister or their descendant. See IRS Publication 596.
  • Explore the Credit for the Elderly or the Disabled. If you or a family member is retired, on permanent and total disability, and under age 65, you may qualify for the Credit for the Elderly or the Disabled. You can take the credit only if you file Form 1040 or 1040A. Read IRS Publication 524.
  • Find out whether you can claim medical and dental expenses. Depending on how much you spend on medical care ─ including equipment, supplies and diagnostic devices, you may be able to deduct a portion from your taxes. Read IRS Publication 502.
  • Understand education-related tax incentives. The Center for Parent Information and Resources can help you explore the relationship between school vouchers, education savings accounts and tax incentives and the implications and considerations for students with disabilities.

Educate yourself on the tax breaks you and your family may be eligible for. Through Military OneSource MilTax, you can receive year-round access to tax consultants who have extensive knowledge of the tax benefits for military members and families. During tax season, access the free MilTax preparation and e-filing software to maximize your refund and get everything you’ve earned. You can also access special needs consultations through Military OneSource by calling 800-342-9647. OCONUS/International? Click here for calling options.

Ins and Outs of Tax Filing When You Are Deployed

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Deployed service members are expected to file their taxes. Fortunately, the Internal Revenue Service realizes service members and their families face unique circumstances and offers tools – and some special extensions – to make tax filing easier. Military OneSource also provides MilTax — a suite of free tax services for eligible service members and their families.

Getting started on free military tax filing

If you are a service member or filing taxes on behalf of a service member, keep the following in mind when getting started on your taxes:

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MilTax’s tax preparation and e-filing software is available mid-January to mid-October. Easy to use and guaranteed 100% accurate.

  • Get your statement online: You can go to myPay to get your military W-2 form. It is posted there before being mailed to you. You’ll need your Common Access Card or personal identification number to access it.
  • Gather other important information. Other documents you may need to file your taxes include 1099 forms, deduction and credit information, receipts for child-care expenses, last year’s tax return, and any documents for investments, rental properties or mortgages. You’ll also need your military ID and every family member’s Social Security number, bank account and routing numbers if you are filing electronically, and receipts for charitable donations. If you did not receive an Economic Impact Payment in 2020 or did not receive the full amount you were eligible for, you will need Notice 1444 from the IRS to claim the Recovery Rebate Credit.
  • File the return in your permanent state. If you are stationed away from your permanent home address, you will still pay taxes in your home state in most cases. Note: military spouses who work and live with their service member in a state other than their home state as a result of military orders may not have to pay income tax in the state where they work.
  • Make sure you have a power of attorney in place if someone is filing on your behalf. If your spouse or someone else is filing your tax return, make sure they have all your information and attach the power of attorney – a legal document that provides them authority to make financial decisions in your absence. The person filing your taxes on your behalf will need to attach IRS Form 2848 with the tax return.

Deadline extensions for combat zone and hazardous duty

Filing your taxes after the tax deadline is more common than you think. This is especially true for service members who are deployed. The IRS extends filing deadlines – and paying of your income taxes – for service members who are:

  • Serving in a combat zone or directly supporting those in a combat zone, serving in a contingency operation, or having a “missing” status. Your tax extension generally starts the day you begin serving in the combat zone for the period of your service plus 180 days afterward. The spouse and family members of those serving in combat zone or contingency operation sometimes also qualify. Your command will notify the Internal Revenue Service of your deployment, so you can receive an automatic federal tax return extension. You may still want to write “COMBAT ZONE” in red on top of your tax return when you do file. You can double-check they have this information by e-mailing the IRS directly at: combatzone@irs.gov with your name, stateside address, birth date, and date of deployment.

For security purposes, do not include any social security numbers in your email to the IRS.

  • Hospitalized outside the United States because of injuries suffered in a combat zone or hazardous duty area. This applies for the period the service member is continuously hospitalized outside of the United States as a result of injuries sustained while serving in a combat zone, including 180 days thereafter. For hospitalization inside the United States, the extension period cannot be more than five years.

Getting help filing taxes, getting an extension

In addition to serving in a combat zone, there are other ways service members can obtain an extension on filing taxes beyond the tax deadline. To find out more about your obligation to file taxes, obtain an extension, and discover service member-specific tax benefits, call 800-342-9647 to schedule a free appointment to talk with a Military OneSource MilTax consultant.

Other tax assistance for service members and their families can be obtained through:

Due to the coronavirus, there this a reduced number of in-person VITA locations, especially overseas. You can call Military OneSource any time, 24/7 to schedule a consultation with a MilTax consultant.

  • Military OneSource MilTax free tax filing services. MilTax tax preparation and e-filing software, available mid-January through mid-October, allows you to prepare and file your federal and state taxes with ease. It’s designed to address military-specific scenarios, such as those described above. If you have questions along the way, call 24/7 to schedule an appointment with a MilTax consultant, 800-342-9647.
  • The IRS has a web page on tax information for military members who serve in the U.S. Armed Forces and uniform services.

Preparing and filing taxes is a citizen and service member duty. But as a member of the military family, you can obtain 100% free access to tax consultants and financial counselors with military expertise. Contact Military OneSource anytime, 24/7 at 800-342-9647 to take advantage of this benefit.

Three Ways for Service Members to Get a Federal Tax-Filing Extension

A marine talks with staff at a tax assistance center.

If you can’t file your federal tax return by this year’s deadline, then consider filing for an extension. It is a more common practice than you might think, and there are special considerations that service members can take advantage of.

But there are certain things you should know when you request a penalty-free extension for your federal taxes, including what kinds of extensions require you to pay the taxes you owe upfront and which ones allow you to delay your payment.

A benefit of military membership: More ways to get a tax-filing extension

There are three types of extensions available to service members:

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MilTax’s tax preparation and e-filing software is available mid-January through mid-October. And MilTax consultants are available year-round to help with tax questions or extensions.

  • You can get an automatic extension on filing your U.S. individual income tax return if you do so using IRS Form 4868 before the due date. But note that if you owe taxes, you will be charged interest from the date the payment was due if you do not make a payment by the original filing deadline.
  • If your duty post is outside the United States or Puerto Rico, you qualify for an automatic two-month extension. To receive this extension, you must attach a statement to your return explaining your situation and how you qualify. If you can’t file your return within the two months, you can request another four-month extension. If you owe taxes, your interest will start accruing from the date the payment was originally due.
  • If you are serving in a combat zone or contingency operation, an automatic extension can be granted for filing your tax return, paying your owed taxes or filing a claim for a refund. This deadline is extended for 180 days after you leave the eligible area, after that area is no longer designated a combat zone or after your operation is no longer considered a contingency operation. You can also receive an extension if you are hospitalized outside the United States because of injuries sustained in a combat zone or hazardous duty area.

Military OneSource MilTax provides trained tax consultants who have extensive knowledge of the tax benefits for military members and their immediate family members. They can help you file for an extension, determine what you’re eligible for and answer any tax questions you may have. Contact Military OneSource at 800-342-9647 or live chat to schedule a free appointment with a MilTax consultant. OCONUS/international? Click here for calling options.

Don’t forget these factors

Other things to consider:

  • Don’t forget to address your state tax deadline as well. Filing for a federal tax return extension does not necessarily mean you will get one for your state taxes. Speak with a MilTax consultant about your state’s requirements.
  • Make sure your spouse has power of attorney, or that you have filed IRS Form 2848 Power of Attorney and Declaration of Representation, if you want your spouse to file a joint return while you are overseas, in a combat zone or contingency operation or otherwise incapacitated. There are specific rules for spouses for joint or separate returns, so gather more information from your tax adviser or ask a MilTax consultant.
  • If the IRS sends you a notice of examination before learning that you’re entitled to a deadline extension, contact your legal assistance office.

Filing for an extension on filing your federal tax return is simple if you have the right information. Speak to a MilTax consultant or another tax adviser to ensure you are selecting the proper extension before the original deadline and that you pay any taxes owed by the original deadline, if necessary. If you live in the United States, Canada, Puerto Rico, the U.S. Virgin Islands, Guam or Saipan, call 800-342-9647 or live chat to schedule an appointment to speak to a trained tax consultant. OCONUS/International? Click here for calling options.

To receive tax services in Spanish, call 800-342-9647, and a third-party translator will facilitate the call. If you’re hearing impaired and require a telecommunications device, or TTY/TDD, dial 711 and give the toll-free number 800-342-9647.

Preparing, Filing and Tax Refunds – The Essentials

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T-A-X-E-S. This five-letter word doesn’t have to bring on a feeling of dread. Get ahead of your taxes and stay organized with Military OneSource MilTax, a suite of free tax services from the Department of Defense designed exclusively for our military community. MilTax includes easy-to-use tax preparation and e-filing software, personalized support from tax consultants and current information about filing taxes in the military.

Free MilTax Software

MilTax’s tax preparation and e-filing software is available from mid-January to mid-October. It’s easy to use and guaranteed to be 100% accurate.

Start your tax return early.

The tax deadline always seems to come sooner than you expect. Be prepared for tax season so there is no last-minute scramble to find everything, and so you can secure your tax refund early. Before filing, organize your paperwork and establish a specific place for all incoming tax documents, such as W-2 forms, as they arrive in the new year. You may need to track down others. You’ll also need Social Security numbers, birth dates and other information for everyone included in the return.

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Access free tax filing services.

Free MilTax preparation and e-filing software is available from mid-January through mid-October. Powered by an industry-leading tax service provider, it’s designed to address situations specific to the military. You will need a Military OneSource account and an additional account with the software provider to get started filing and to take advantage of this free benefit you earned with your service. Remember to return to Military OneSource, not the software provider’s website when you access the software in the future.

Military OneSource MilTax also offers free tax consultations to eligible service members and their families. Have a question or need help starting your tax return? MilTax consultants are specially trained to help with tax situations specific to service members and their families so you can receive your tax refund sooner. Call 800-342-9647 or live chat 24/7 to schedule an appointment with a MilTax consultant.

You can also get in-person support at a Volunteer Income Tax Support Assistance office location. The VITA program, provided by the Internal Revenue Service, provides coordinators for the Army, Marine Corps, Navy, Air Force and Coast Guard. These specialists are trained to address military-specific tax issues like combat-zone benefits and applying Earned Income Credit guidelines. They oversee the operation of military tax programs worldwide and serve as the main IRS outreach for military personnel and their families.

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Educate yourself on tax extensions.

Filing taxes after the official deadline is common, but there are important things to understand. For starters, you must file Form 4868 before the tax deadline. MilTax consultants can help make your tax – or extension – filing easy.

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Maximize your tax refund.

A tax refund isn’t free money, even if it feels that way. You worked hard to earn it, so put it to good use to help secure your financial future. Pay down your highest-interest credit card debt, build up an emergency fund, donate to a charitable organization or invest in yourself by using your refund for a certification class.

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Preparing for tax season can be stressful. Get peace of mind by creating a plan and using Military OneSource MilTax. Get started now.

PCS and Taxes: Deducting Military Moving Expenses

Man moving boxes

Service members who move due to a permanent change of station may be eligible to deduct some of their unreimbursed moving expenses from their federal income tax returns. Many of these costs are covered by military allowances, so you’ll want to save your receipts and log your expenses to calculate any possible deduction at the end of the tax year.

Check out IRS Tax Topic 455, Moving Expenses for examples and more details.

Who is eligible?

Only active-duty military members who relocate due to PCS orders or, in some cases, their unaccompanied family members, can deduct moving expenses. These include orders to a first duty station and orders when separating or retiring from military service.

Free MilTax Services

MilTax’s tax preparation and e-filing software is available from mid-January through mid-October, and MilTax consultants are available year-round to help with your tax questions.

What expenses can be deducted?

In general, you can deduct unreimbursed expenses directly related to the moving and storage of your household goods, as well as costs (subject to approval) related to travel from your old location to a new one. This includes expenses for the taxpayer and any member of their household.

Among the costs you can deduct as part of your move are:

  • Packing materials
  • Shipping of vehicles
  • Transporting pets
  • Stopping and starting essential utilities
  • Some storage fees
  • One night’s lodging at your old location if your furniture has been moved
  • First night’s lodging at your new location
  • Moving of household goods, whether by car, container or via a moving contract

To be a reasonable travel expense, the route you take, for example, must be the shortest, most direct one available from your previous home to your new one.

What expenses cannot be deducted?

The following costs are not deductible:

  • Meals
  • Temporary lodging after the first night that you arrive at your new location
  • Vehicle registration
  • Driver’s licenses
  • Purchasing or renting a new home
  • Other expenses for stopovers, side trips or pre-move house-hunting expenses

The IRS has a wealth of additional information to guide you on the process of deducting moving expenses.

How to report deductible expenses

Deductible moving expenses are reported on IRS Form 3903, and any deduction on that form is reported on your regular federal income tax return.

The IRS website provides additional information on the forms used to report moving expenses.

Reimbursements

Many moving expenses are fully or partially covered by military allowances. You cannot claim any expenses paid for by the military, whether paid directly or reimbursed. For example, you cannot deduct mileage and lodging that was reimbursed under the military’s Monetary Allowance in Lieu of Transportation, typically called mileage, or the PCS Per Diem rates.

Military OneSource offers free tax assistance through the MilTax suite of services, including tax preparation, filing software and telephone consultations with a tax professional. Schedule an appointment to speak with a MilTax consultant by calling 800-342-9647. OCONUS/International? Click here for calling options. Or live chat to schedule a free consultation with a MilTax consultant or a financial counselor.