I know, you don’t have to file your taxes until April 15th (and if you’re in a combat zone you can delay even longer), but you may want to file as soon as you’re allowed – especially if you’re due a refund. So let’s talk taxes for a minute.
First of all, if you don’t earn much money, you may qualify for something called the Earned Income Tax Credit (EITC). That’s a tax credit from the government that can amount to several thousand dollars. You should take the time to find out if you qualify and if you will save money by claiming the credit.
There are even special military rules for the EITC. Nontaxable military pay like combat pay, the Basic Allowance for Housing (BAH), and the Basic Allowance for Subsistence (BAS) don’t count as earned income when you do your EITC calculations. But you can opt to include nontaxable combat pay in earned income for EITC, which might result in an even larger EITC credit for you. It’s definitely worth doing the math both ways to see which works out better for you.
If the idea of math and tax calculations makes your head hurt, think twice before paying someone to file your taxes for you. Did you know there is likely to be a tax office on your base that will help you fill out the forms – for free? Its volunteers are trained by the Volunteer Income Tax Assistance (VITA) program of the Internal Revenue Service (IRS) – and there are also VITA tax centers in many local communities offering free tax-preparation assistance to those who make $50,000 or less. Why pay for what you could get for free at a VITA center?
If you like to use computer software programs to do your taxes yourself, you also have no-cost options for that. Military OneSource offers a link to free tax-prep software for the military, and the IRS also offers a variety of free tax-prep software if your adjusted gross income is $57,000 or less.
So, once you’ve filed your taxes you may be getting a nice refund. Although spending the refund right away may be appealing, consider saving or investing part of it, or using some of it to pay off debt. The IRS gives you flexibility by offering a split payment option for your refund. You can fill out IRS Form 8888 and they will divide your refund payment between up to three accounts that you designate. You decide how much goes where. And, if you’re thinking long-term, you can also tell the IRS to use part or all of your refund to buy U.S. Series I Savings Bonds for yourself or someone else.
And remember, if you get a big tax refund every year, you might think about adjusting your withholding so you don’t have so much taken out of your pay each month. Having a big refund is nice, but consider that you could have that money going to paying off debt or earning interest in a savings account all year, rather than waiting until you get the money back as a tax refund!