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learn.extension.org/events/3191
Income Tax Tips for Personal Finance
Managers Working with Military Families

Connecting military family service providers
and Cooperative Extension professionals to research
and to each other through engaging online learning opportunities
militaryfamilies.extension.org
MFLN Intro
Sign up for webinar email notifications at militaryfamilies.extension.org/webinars

Today’s Presenters
3
Dr. Barbara O’Neill
•Rutgers Cooperative Extension’s Specialist in
Financial Resource Management
•Outreach Coordinator for the Personal Finance
concentration area of the Military Families Learning
Network.
Taylor Spangler
•Family Consumer Science Extension Program
Coordinator at the University of Florida.
•Coordinator for the Florida Master Money Mentor,
Volunteer Tax Assistance, Financial Ambassadors
and the Florida Saves programs.

Webinar Objectives
Present information on the following topics:
•Federal Income Tax Background
•Features of the Tax Cuts and Jobs Act
•Resources about taxes and the Tax Cuts and Jobs Act
•The tax filing process
•Income tax filing errors and opportunities
•Resources for income tax preparation
•Income tax identity theft

Question 1:
What are the most
frequent tax questions
that you get from clients?

Income Tax Background
Photo by Barbara O’Neill

Background:
Major Taxes Paid in the U.S.
 Taxes on Purchases
– Sales tax and excise tax (e.g., gas, cigarettes)
 Taxes on Property
– Real estate property tax
– Personal property tax
 Taxes on Wealth
– Federal estate tax
– State inheritance tax
 Taxes on Earnings
– Income tax and Social Security tax

Background: The Progressive
Nature of Federal Income Tax
• Progressive tax – Takes a larger
percentage of income from high-income
taxpayers than low-income taxpayers.
– Federal income tax
• Regressive tax – Takes a decreasing
percentage of income as income increases.
– State sales tax

Background: Marginal Tax Rate Is
Applied to the Last Dollar Earned
• Marginal Tax Bracket (MTB) – Income-range
segments that are taxed at increasing rates as
income goes up
• Marginal Tax Rate – The tax rate applied to your
last dollar of earnings
• Established by Congress and change periodically
2018 Federal Marginal rates:
10%, 12%, 22%, 24%, 32%, 35%, and 37%

Background: Tax Credit Versus
Tax Deduction
$100 Tax Credit
Reduces Your Taxes by $100
$100 Tax Deduction
Amount Your Taxes are Reduced
is Based on Your Tax Bracket
Example: $5,000 x .22% mtb = $1,100 of tax savings; $3,900 net cost

Background:
Types of Deductions
Deduction = An amount subtracted from gross income to
reduce the amount of income subject to tax.
•Standard Deduction- Amount established each year by tax
code; no need to itemize deductions; amount is based on a
taxpayer's filing status, age, etc; no receipts needed
•Itemized Deduction- Specific amounts spent on certain goods
and services throughout the year; allowed deductions are
outlined by the IRS and include such expenditures as mortgage
interest and charitable donations
www.investopedia.com/terms/i/itemizeddeduction.asp#ixzz1zxopAxpP
www.money-zine.com/Calculators/Mortgage-Calculators/Mortgage-Tax-Deductio
(Mortgage tax deduction calculator)
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Background: Itemizing Required
for Charitable Gift Benefits
• If you claim the standard deduction on your tax
return, charitable gifts will not provide a tax benefit
– Psychic benefits of giving to charity are another issue
• You must itemize expenses on Schedule A to deduct
charitable donations.
• Donors' deductions are limited to 50% of adjusted
gross income; rollover of excess for up to 5 years

Background: Refundable and
Non-Refundable Tax Credits
• Refundable: When tax credits are greater than the
amount of tax you owe, the IRS sends you a tax
refund for the difference
– Example: Earned Income Tax Credit (EITC)
• Non-Refundable: Credit can’t be used to increase
your tax refund or to create a tax refund when you
wouldn’t have already had one. In other words, your
savings cannot exceed the amount of tax you owe.
– Example: Child and Dependent Care Expenses Credit

Background: Earned
Income Tax Credit
• Credit paid to low- and moderate-income workers with
qualifying child(ren) or, in some cases, no children
• Maximum EITC credit on 2017 tax returns is
– $510 with no children
– $3,400 with one qualifying child
– $5,616 with two qualifying children
– $6,318 with 3+ qualifying children
http://www.eitcoutreach.org/blog/how-much-are-the-eitc-and-ctc-worth-in-2018/

EITC Income Limits (2018)
Adjusted gross income (AGI) must each be less than:
•$49,298 ($54,998 married filing jointly) with three or more
qualifying children
•$45,898 ($51,598 married filing jointly) with two qualifying
children
•$40,402 ($46,102 married filing jointly) with one qualifying child
•$15,310 ($21,000 married filing jointly) with no qualifying
children
https://www.irs.gov/credits-deductions/individuals/earned-income-tax-credit/eitc-income-li

Background:
Child Tax Credit
• A $1,000 credit is available for each qualifying child
under the age of 17 claimed as a dependent (2017)
– The Child Tax Credit is non-refundable
• The Child Tax Credit will rise to $2,000 per
qualifying child in 2018
– Up to $1,400 per child is refundable

Background: Child and
Dependent Care Credit
• Available for workers who pay employment-related
expenses for the care of children or other qualified
individuals (e.g., incapacitated spouse) while they
are working, seeking work, or in school full time
• The total expenses that may be used to calculate the
credit are capped at $3,000 (for one qualifying
individual) or at $6,000 (for 2+ qualifying individuals)
https://www.irs.gov/taxtopics/tc602

Background: Saver’s Credit
(Retirement Plan Savings)
https://www.irs.gov/retirement-
plans/plan-participant-
employee/retirement-savings-
contributions-savers-credit

Background: Completing the
Federal Income Tax Return
 Filing status
 Income
 Adjustments to income
 Tax computation
 Tax credits
 Other taxes (such as from self-employment)
 Payments (e.g., withholding and estimated payments)
 Refund or amount you owe
• Refunds can be directly deposited to a bank account
• Payments may be directly debited from a bank account
 Signature (most common filing error)

Background: Tax-Rate
Schedules and Tax Tables
• Tax-Rate Schedules – Used by filers with a taxable
income of $100,000 or more; requires a mathematical
computation to determine tax liability
• Tax Tables – Used to look up one’s tax liability
according to tax filing status and income range

Federal
Income
Tax Table
Filing Status
Taxable Income
Tax Liability

Background: Tax Withholding

Background: Impact of W-4
Form Decisions on Net Pay
0 allowances = max taxes deducted* =
Smaller take home pay =
Larger tax refund
+ allowances = less taxes deducted =
Larger take home pay =
Smaller tax refund
NOTE: Taxpayers can add extra withholding beyond “0” allowances; e.g., +$50 more

2018 Tax Withholding

General Tax Planning
Strategies to Minimize Taxes
If you expect Then you should Because
The same or a
lower tax rate next
year
Accelerate
deductions into this
year
Greater benefit to
higher rate
The same tax rate
next year
Delay income into
next year
Delay paying taxes
A higher tax rate
next year
Delay deductions Greater benefit
Accelerate income Taxed at lower rate

Background:
Alternative Minimum Tax (AMT)
– Paid by taxpayers with high amounts of certain
deductions and various types of income
– Designed to ensure that those who receive tax
breaks also pay their fair share of taxes
– Has increasingly been affecting less affluent
taxpayers, especially in high-tax states (e.g., NJ)
– A high proportion of long-term capital gains to
ordinary income can trigger the AMT

Background: Tax Avoidance
and Tax Evasion
Tax Avoidance (Minimization)
– Legitimate methods to reduce your tax obligation
to your fair share but no more
(e.g., deductions, credits, tax-deferred/tax-free investing)
Tax Evasion
– Illegally not paying taxes you owe, such as not
reporting all income or overstating deductions

Question 2:
What questions/comments
are you getting about the
new tax law (TCJA)?

Federal Marginal Tax Rates:
2017 and 2018

Tax Cuts and Jobs Act
The Tax Cuts and Jobs Act was passed by the U.S. Senate and
House of Representatives in late December 2017 and signed by
President Trump on December 22, 2017.
This law will impact individual taxpayers and businesses on a
scale that has not been seen in over 30 years.
Photo by Barbara O’Neill

Tax Cuts and Jobs Act #1
• Eight year period of lower individual tax rates from
2018 through 2025 with seven temporary tax rate
brackets ranging from 10% to 37%
• Chained CPI (consumer price index) will be used for
future indexing, resulting in lower inflation adjustments
than the previous CPI
• Elimination of personal exemptions (from 2018-2025)
• Nearly double the standard deduction ($12,000 for
singles and $24,000 for married couples filing jointly in
2018)

Tax Cuts and Jobs Act #2
• $10,000 cap for state and local tax (SALT)
deductions (e.g., state income tax and municipal
property tax) for taxpayers who itemize
• Repeal of all miscellaneous deductions that were
previously subject to 2% of adjusted gross income
(AGI) floor (e.g., union dues, uniform expenses,
unreimbursed business expenses, tax prep fees)
• Enhanced child tax credit of $2,000 per qualifying
child; $1,400 of the credit is refundable
• The Affordable Care Act shared responsibility
payment remains in effect for 2017 and 2018 and is
$0 beginning in 2019

Tax Cuts and Jobs Act #3
• Lower medical expenses deduction threshold of
7.5% of AGI for tax years 2017 and 2018
• Retains the alternative minimum tax for individuals
with higher AMT exemption amounts from 2018
through 2025
• 529 college savings plan distributions can be used
(within the annual limit of $10,000 per student) for
private elementary and secondary school expenses
and homeschooling expenses
• Alimony is no longer deductible by spouses who pay
or taxable to recipient spouses for divorce decrees
signed after December 31, 2018

Tax Cuts and Jobs Act #4
• The moving expense deduction is suspended from 2018
through 2025 with the exception of the moving and storage
expenses of service members
• Interest on home equity loans no longer deductible from 2018-
2025; no grandfathering for existing home equity loans
• Tax-deductible interest is capped on mortgage debt (called
acquisition indebtedness) up to $750,000 on new mortgages;
for mortgages taken out before December 15, 2017, the
previous $1 million debt limit for mortgage interest remains
• The estate tax exclusion was raised to $11.2 million for
individuals and $22.4 million for married couples (with proper
planning to double the individual exemption; i.e., portability)
from 2018 through 2025

Military Income Tax Issues
Photo by Barbara O’Neill

Included and Excluded Income
Included
•Active duty pay
•Special pay for foreign
duty (not in combat)
•Hardship duty pay
•Enlistment/reenlistment
bonus pay
•Hazardous duty pay
Excluded
•Combat zone pay
•Disability compensation
•SEGLI benefits received
for death
•Family separation pay
•Per diem travel
allowances, moving
allowances, and BAH

Other Military Tax Rules
• While combat pay is nontaxable, it IS included for the
purpose of calculating limits on contributions and
deductions for an IRA
• Home sale profits: Exceptions to standard ownership
and use tests during the 5-year period prior to the
sale: two of the preceding 10 years prior to the sale
• Residency for tax purposes is the state a service
member claims as home (typically where enlisted)
• Military spouses can file in resident state or duty
station state; need to compare options

Other Military Tax Rules
• Moving expense tax deduction is still in effect for
active duty service members (or spouses/dependents)
pursuant to a military order or PCS
• Standard 4/15 deadline unless in a combat zone or
stationed outside the U.S.; 180 days after tour ends
• Resource: IRS Publication 3: Armed Forces’ Tax
Guide: https://www.irs.gov/forms-pubs/about-publication-3

Income Tax Resources
Photo by Barbara O’Neill

Recommended Resource
“The Bible”:
Annual Limits Relating to Financial Planning
(College for Financial Planning):
https://www.cffpinfo.com/assets/2017_annual_limits.pdf

Federal Tax Rates
Rutgers Cooperative Extension Tax Information web
page: http://njaes.rutgers.edu/money/taxinfo/

Nerd’s Eye View Blog Post
For a through description and analysis of the Tax Cuts and
Jobs Act, review the blog post Individual Tax Planning Under
the Tax Cuts and Jobs Act written by Michael Kitces.

TCJA Tax Law Calculators
• Tax Bill Calculator: Will Your Taxes Go Up or Down? (The
New York Times):
https://www.nytimes.com/interactive/2017/12/17/upshot/tax-
calculator.html?
em_pos=small&emc=edit_up_20171218&nl=upshot&nl_art=0
&nlid=77794120&ref=headline&te=1
• Tax Calculator: What Tax Reform Means For You (Fox
Business):
http://www.foxbusiness.com/politics/2017/12/19/tax-calculator-
what-tax-reform-means-for.html
• Be sure to check the underlying assumptions!
• You will get a rough estimate-not an exact number

TCJA Tax Law Resources
• Congress Passes Sweeping New Tax Legislation (Iowa State University):
https://www.calt.iastate.edu/blogpost/congress-passes-sweeping-new-tax-
legislation
• Details of the Conference Report for the Tax Cuts and Jobs Act (Tax
Foundation): https://taxfoundation.org/conference-report-tax-cuts-and-jobs-
act/
• Preliminary Details and Analysis of the Tax Cuts and Jobs Act (Tax
Foundation): https://taxfoundation.org/final-tax-cuts-and-jobs-act-details-
analysis/
• Tax Cuts and Jobs Act Summary (CCH Incorporated and Wolters Kluwer):
https://goo.gl/CtJMAq
• The Final GOP Tax Bill is Complete. Here’s What Is In It (The Washington
Post): https://www.washingtonpost.com/news/wonk/wp/2017/12/15/the-final-
gop-tax-bill-is-complete-heres-what-is-in-it/?utm_term=.b82bad4b0124

Question #3:
Any Other Good Income
Tax Resources?

What’s New in 2018?
• Disaster Tax Relief and Airport and Airway
Extension Act of 2017
– Eased casualty loss rules, eased access to
retirement funds, and charitable retention tax
credit for victims of Hurricanes Harvey, Irma
and Maria

UF/IFAS Extension
Photo courtesy of IFAS Extension

From Our VITA Tax Sites
• Opportunities for
savings
– Split Your Refund
– Savings bonds
– Debt pay down
– Personal investments/
improvements

Observations From Our VITA
Tax Sites
• Balance “free” tax
prep message and
volunteer-based
program with IRS-
Certified Preparers
• Emphasize refund
accuracy

Questions From Our VITA Tax
Sites
• Questions
– Healthcare forms
– New tax law
• Misconceptions
– Taxpayer focus on
deductions only taken
when itemizing
– 1099 underpayment

Question 4:
What are some common
misconceptions about
taxes or tax errors?

Free Tax Prep Options
• VITA
– https://irs.treasury.gov/freetaxprep/
– http://www.militaryonesource.mil/vita-location-
lookup (includes installation program
directory)
• AARP
– https://www.aarp.org/money/taxes/aarp_taxai
de/

Free File Software options
• 12 software companies provide a free
federal return to active military personnel
with an AGI of $66,000 or less.
– Finder lists income, residency, and age
restrictions
– From $33,000- $66,000 maximum AGI
– Some states excluded
• https://apps.irs.gov/app/freeFile/jsp/index.j
sp

Know Before You Go
• Valid photo identification
• Social Security cards and birth dates for you,
your spouse and dependents
• Your wage and earning forms, such as Forms
W-2, W-2G, and 1099-R
– W-2 forms are usually available for military members
by the end of January and can be downloaded
from MyPay website
• Interest and dividend statements (Forms 1099)

Know Before You Go
• Other relevant information about your income
and expenses
– E.g., total amount you paid for child care and the
provider’s identifying number (usually an Employer
Identification Number or Social Security number)
• A copy of your last year’s federal and state tax
returns, if available
• Routing and account numbers for direct deposit
of your tax refund

Opportunities to Save
• Typically measured by Form 8888 split
– Positive financial behaviors include paying
down debt or transportation/ housing/
education investments
• Tax Time savings tips
– Make it personal, build on trust
– Use anchor points
– Mention several times
– https://prosperitynow.org/resources/start-
savings-conversation-toolkit-vita-volunteers

Question 5:
What are your thoughts
on over-withholding?

Refund Timing
• The IRS issues most refunds within 21
days
– Check status of refund at
https://www.irs.gov/refunds
• EITC/ACTC hold
https://cdn.themilitarywallet.com/wp-content/uploads/2012/01/irs-wheres-my-refund.jpg

Refund Timing
• Refund
anticipation loans/
checks are
interest-bearing
loans
– https://www.irs.gov/e-
file-providers/tax-
refund-related-
products http://blogs.reuters.com/great-debate/files/2012/04/tax.jpg

Question 6:
How do your service
members use their tax
refunds?

Extensions
• File Form 4868 by April 17th
, 2018 to
receive a 6-month extension (October 15th
,
2018).
• Interests accrues on unpaid tax
– “The late payment penalty is usually ½ of 1%
of any tax (other than estimated tax) not paid
by April 17, 2018. It is charged for each month
or part of a month the tax is unpaid. The
maximum penalty is 25%”.
https://www.irs.gov/forms-pubs/extension-of-time-to-file-your-tax-return

Combat Zone Extension
• Additional time to file if you are stationed
overseas or serving in a combat zone
• Deadlines extended for the period of
service, plus 180 days
• Applies to service members and those
working in support of/ under direction of
U.S Armed Forces

Combat Zone Pay
Considerations
• EITC: While combat pay is nontaxable,
service members may elect to include it as
earned income it to qualify for the Earned
Income Tax Credit, which may decrease
tax liability and could increase refund
• IRA: Combat pay is tax-free, but service
members can contribute to a Roth or
Traditional IRA

Filing After ID Theft
• https://www.irs.gov/newsroom/taxpayer-guide-to-
identity-theft
• File a complaint with the FTC at identitytheft.gov
• Contact credit bureaus to place a ‘fraud alert’ on
your credit records
• Contact your financial institutions
• If SS# was compromised, complete IRS Form
14039, Identity Theft Affidavit

17.6 millionidentity theft victims in 2014 (7% of US population)*
Over 370,000 complaints
to the FTC in 2017.
*U.S. Dept. of Justice, Bureau of Justice Statistics, Victims of Identity Theft, 2014 (September 2015)

What Is Tax Identity Theft?
• Filing a fraudulent tax return using another
person’s Social Security number
• Claiming someone else’s children as dependents
• Claiming a tax refund using a deceased
taxpayer’s information
• Earning wages under another person’s Social
Security number

Short-term Trends
Between 2016 and 2017:
•Total identity theft complaints down 7%
•Tax identity theft complaints down 46%
•IRS imposter scam complaints down 54%
» Consumer Sentinel Data

Id Theft Complaint Trends
2013 2014 2015 2016 2017
Total Number of
Identity Theft
Complaints
290,102 332,647 490,220 399,223 371,157
Consumer Sentinel Data

Scope of the Tax Id Theft Problem
2014 2015 2016 2017
Percentage of Id Theft
Complaints that are Tax-related
33% 45% 33% 22%
Consumer Sentinel Data

How Does Tax Identity Theft Happen?
• Lost or stolen wallets, Medicare cards,
smartphones
• Theft by family, friends, visitors, advisors
• Dumpster diving
• Stolen mail or tax returns
• Imposter scams
• Corrupt insiders
• Corrupt tax preparation services

How Does Tax Identity Theft
Happen Online?
• Data breaches
• Phony emails from imposters
• Unsecure Wi-Fi hotspots
• Peer-to-peer file sharing
• Downloading software or apps from unknown
sources

Warnings Signs of Possible
Tax Identity Theft
• Social Security number is lost, stolen, or compromised
• Unusual delay in getting a refund
• IRS notification:
– duplicate tax return filing
– unreported income
– duplicate dependents

Tips to Minimize Your Risk
of Tax Identity Theft
• Who?
– Know your tax preparer
• When?
– File first: beat the crooks. File your returns as early in the tax
season as possible
• How?
– If mailing, do not put tax returns in outgoing mail; mail tax
returns directly from the post office
– If filing electronically, use a secure network
– Store returns securely and shred drafts

Reducing the Risk of Identity Theft
• Protect what you have
– Minimize personal information in wallets or on smartphones
– Keep personal information secure - locked
• Be careful what you share
– Don’t give info unless you know who’s asking and why
– Don’t click on links sent in unsolicited email
• Monitor
– Review mail and financial statements
– Annualcreditreport.com
• Dispose properly
– Shred

Identity Theft
• Free print materials to order:
www.ftc.gov/bulkorder

Questions?

Connect with MFLN Personal Finance Online!
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MFLN Personal Finance @MFLNPF
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Continuing Education Credits/Certificate
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today’s webinar for AFC-credentialed participants
through AFCPE and CPFC-credentialed participants
through FinCert.
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KZntH
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MFLN Personal Finance
Upcoming Event
Getting to Know You: Introducing
Personal Finance Managers to
Cooperative Extension and to Each Other
• Tuesday, March 27, 2018
• 11:00 am – 12:30 pm Eastern
• Location: learn.extension.org/events/3243
For more information on MFLN Personal Finance go to:
militaryfamilies.extension.org/personal-finance
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