Tax Planning

11 Dec
IRS, Tax, Taxes

Tax Planning

IRS, Tax, Taxes


The only certain things in the financial world are death and taxes and although you may have similar opinions about both, you can help mitigate the pain of taxes with a well informed plan of attack.  Due to their income levels, most servicemembers should qualify for a tax refund so there’s a financial incentive for you to get your taxes done.  However, don’t fall for the intellectual trap that your refund is a gift from the federal government — it’s just the return of an interest-free loan you made to the government as you paid (actually overpaid) your taxes throughout the year.


When it comes to taxes, the active duty military pay system offers some major advantages over our civilian counterparts due to the many non-taxable allowances.  While an E-7 (14 years in, stationed at Fort Bragg, with dependents) would be paid a total salary (Basic Pay + BAH + BAS) of $71,807.88, only $50,144.40 would be taxable.  An O-3 (6 years in, stationed at Tinker AFB, with no dependents) has a total salary of $86,019.96, only $66,488.40 is taxable.  Servicemembers stationed overseas also have additional tax-free allowances in COLA and overseas housing allowance (OHA).  All of these allowances give military pay a huge tax advantage since servicemembers don’t have to pay taxes on such a large part of their take-home pay.

Even if you don’t have access to all of your required documentation, start gathering them now.  It will make the process much simpler once it comes time to file.  Designate a specific location (a folder, a drawer, an electronic file, etc.) where you can place all the relevant information, so that when you are ready to file, you have everything you need.

Here are some of the things you should start gathering:

  • Social Security number(s) and date(s) of birth for you, your spouse and other eligible family members
  • All W-2 forms, from all employers, for you and your spouse
    • Servicemembers find their W-2 on MyPay
  • Child care, education and adoption costs documentation
  • Form 1099 for independent contractors
  • Investment income forms
  • Alimony information
  • Social Security benefits information
  • Miscellaneous income forms
  • Form 1098-E for student loan interest
  • Form 1098 for home mortgage interest
  • Form 1095 for minimum essential healthcare coverage requirement under the ACA
    • Servicemembers find their Form 1095 on MyPay after 31 Jan 2016
  • Charitable donations receipts
  • Medical and dental expense bills
  • Real estate tax documents
  • Receipts for any deductible expenses
  • Last year’s tax return


While the future of the Affordable Care Act (ACA) or Obamacare is uncertain, its provisions still apply to 2016 so all Americans including all military members (active duty, retired, Selected Reserve, or Retired Reserve) and their eligible family members must have health care coverage that meets a minimum standard called minimum essential coverage or pay a fee. Your TRICARE coverage meets the minimum essential coverage requirement under the ACA.  “The term “active duty” means full-time duty in the active service of a uniformed service for more than 30 consecutive days”.


In January 2017, DFAS will be providing IRS Form 1095-C to all U.S. military members, and IRS Form 1095-B to all Retirees, Annuitants, former spouses and all other individuals having TRICARE coverage during all or any portion of tax year 2016. An IRS Form 1095 documents you (and your family members, if applicable) have the minimum essential coverage.  These forms will document the information that DFAS will provide to the IRS on yourself and your authorized family members. The forms will be required to be reported with your 2015 federal tax return. DFAS will provide you with IRS Form 1095 series forms no later than Jan. 31, 2017.


If only you had to worry about meeting IRS deadlines and having the correct documentation when it comes to tax time, however there’s a more dangerous threat out there.  As thieves have increasingly targeted stealing people’s’ identities, part of that fraud has shifted to stealing people’s’ tax returns as last year’s average return was more than $2700.  The Internal Revenue Service (IRS) has worked extensively with states and the tax-preparation industry to help combat this disturbing trend.  You may discover some of these new anti-fraud methods with unique log-in codes in addition to the standard login and password, shorter logout times after inactive periods, and fewer chances to log back in if you mistyped your password.  However, these won’t do much to help you if your identity was previously stolen and a thief already filed a tax return with your name and/or social security number.  Most people who experience identity theft at tax filing time, don’t even realize it until they go to file their taxes and realize their refund was already claimed.


If you are victim of identity theft, report it immediately to the Federal Trade Commission at  Then you should set up a fraud alert with at least one of the three major credit bureaus — Equifax (, 888-766-0008); Experian (, 888-397-3742); or TransUnion (, 800-680-7289).  Whichever bureau you choose will pass the alert on to the other two and all three agencies will give you a free copy of your credit report.  You can also request that the bureaus issue a credit freeze which will prevent any new credit accounts from being opened with your name and social security number without your permission.


Finally, you will need to fill out Form 14039 at, an Identity Theft Affidavit.  The IRS will then issue you an “identity protection personal identification number” (known as an “IP Pin”) intended to prevent further fraud by giving you an additional number to prove your identity.  However, as a part of a continuing pilot program right now the IRS is giving IP Pins to all residents of the District of Columbia, Florida, and Georgia.  Since many servicemembers are residents of these states, I recommend getting an IP Pin this year in order to help prevent fraud from even happening in the first place.


Remember to practice good INFOSEC when dealing with anything to do with your SSN.  Although servicemembers are used to using this number frequently due to the military’s heavy reliance on it, you should be wary of thieves attempting to impersonate the IRS in this tax season.  The IRS will NEVER contact ask for personal or financial information via email, text, or social media, and will never contact you by phone demanding payment or asking for your credit card number or bank account information.  Some IRS impersonators have even threatened to remove security clearances or threaten arrest.  If you hear of this happening to you or anyone else you know, report this type of behavior immediately at or call the IRS at 800-366-4484.


  1. You can transfer any amount of money into the TSP from certain qualified retirement savings plans in which you are already invested.

    1. Great point! This is definitely a great way to take advantage of the incredibly low fees in the TSP.


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