Military tax questions, answered
The questions military families actually search for, and how they affect your return.
Moving & states
I did a PCS move this year. Do I have to file in two states?
Often yes. A PCS move can create a part-year return in the state you left and another in the state you arrived, unless your state of legal residence stays the same. Active-duty servicemembers keep their state of legal residence regardless of duty station, and a military spouse can usually keep the servicemember's residence under the Military Spouses Residency Relief Act. We sort out which states you actually owe and allocate income correctly.
We are about to PCS again. Can we keep you as our preparer?
Yes, and most clients do. Because the practice is fully online, your next duty station does not change anything. Many military families keep the same preparer for years across several moves.
Military pay
Is my combat-zone pay taxable?
Enlisted members and warrant officers can exclude all military pay earned in a designated combat zone. Commissioned officers can exclude up to the highest rate of enlisted pay plus imminent-danger or hostile-fire pay. The exclusion also extends filing and payment deadlines. We read your LES statements to apply the exclusion and any deadline relief.
Retirement & VA
How is my DFAS retirement pay taxed?
Military retirement pay reported on a DFAS 1099-R is generally taxable at the federal level. Many states, including Virginia, offer a subtraction for military retirement income. We apply the federal treatment and any state subtraction you qualify for.
Do I report VA disability compensation?
No. VA disability compensation is not taxable and is not reported as income. If part of your retirement pay was waived to receive VA compensation, we make sure only the taxable portion of your retirement pay is reported. Getting this wrong is one of the most common errors we see on military returns.
Rental
We could not sell our house before the move and are renting it out. What changes?
The house becomes a rental on Schedule E. You report rental income, deduct operating expenses, and begin depreciating the property. Depreciation is not optional and affects the eventual sale, so it needs to be set up correctly from the first year you rent.
Working with us
What documents do you need from me?
It depends on your return. When you get started, the questions build you a tailored checklist. For most military returns it includes W-2s, any 1099-R, your VA award letter if relevant, LES statements for combat-zone months, PCS orders, and last year's return. You upload everything through a secure portal after the consultation.
How does remote preparation work?
Everything is online. You answer a few questions to get started, we meet by phone or video for the consultation, you sign the engagement letter, and you upload documents to a secure portal. We prepare the return, review it twice, walk you through it, and get your approval before anything is filed.
How do I share my Social Security number and bank details?
Please submit this information through our secure portal. This will become available to you after confirming your appointment. As per IRS regulations, please avoid sharing your SSN or ITIN via email directly.
When should I send my documents?
Once you have all of your forms. Employers and payers generally send W-2s and 1099s by early February, and some investment forms arrive later. To file by the April deadline, we ask for your complete documents about three weeks before it. Filing early with a missing form often means an amended return later.
What if I need more time to gather documents?
We can file an extension. An extension gives you more time to file, not more time to pay, so we help you estimate what you owe and pay it by the April deadline to limit interest and penalties.
Should I just use MilTax or a VITA site?
For a simple return, those are excellent free options, and you are welcome to use them. Foundry is the next step when a return needs more time: more than one state, self-employment or rental income, prior-year returns, or residency questions.
Moving & states
I did a PCS move this year. Do I have to file in two states?
Often yes. A PCS move can create a part-year return in the state you left and another in the state you arrived, unless your state of legal residence stays the same. Active-duty servicemembers keep their state of legal residence regardless of duty station, and a military spouse can usually keep the servicemember's residence under the Military Spouses Residency Relief Act. We sort out which states you actually owe and allocate income correctly.
We are about to PCS again. Can we keep you as our preparer?
Yes, and most clients do. Because the practice is fully online, your next duty station does not change anything. Many military families keep the same preparer for years across several moves.
Military pay
Is my combat-zone pay taxable?
Enlisted members and warrant officers can exclude all military pay earned in a designated combat zone. Commissioned officers can exclude up to the highest rate of enlisted pay plus imminent-danger or hostile-fire pay. The exclusion also extends filing and payment deadlines. We read your LES statements to apply the exclusion and any deadline relief.
Retirement & VA
How is my DFAS retirement pay taxed?
Military retirement pay reported on a DFAS 1099-R is generally taxable at the federal level. Many states, including Virginia, offer a subtraction for military retirement income. We apply the federal treatment and any state subtraction you qualify for.
Do I report VA disability compensation?
No. VA disability compensation is not taxable and is not reported as income. If part of your retirement pay was waived to receive VA compensation, we make sure only the taxable portion of your retirement pay is reported. Getting this wrong is one of the most common errors we see on military returns.
Rental
We could not sell our house before the move and are renting it out. What changes?
The house becomes a rental on Schedule E. You report rental income, deduct operating expenses, and begin depreciating the property. Depreciation is not optional and affects the eventual sale, so it needs to be set up correctly from the first year you rent.
Working with us
What documents do you need from me?
It depends on your return. When you get started, the questions build you a tailored checklist. For most military returns it includes W-2s, any 1099-R, your VA award letter if relevant, LES statements for combat-zone months, PCS orders, and last year's return. You upload everything through a secure portal after the consultation.
How does remote preparation work?
Everything is online. You answer a few questions to get started, we meet by phone or video for the consultation, you sign the engagement letter, and you upload documents to a secure portal. We prepare the return, review it twice, walk you through it, and get your approval before anything is filed.
How do I share my Social Security number and bank details?
Please submit this information through our secure portal. This will become available to you after confirming your appointment. As per IRS regulations, please avoid sharing your SSN or ITIN via email directly.
When should I send my documents?
Once you have all of your forms. Employers and payers generally send W-2s and 1099s by early February, and some investment forms arrive later. To file by the April deadline, we ask for your complete documents about three weeks before it. Filing early with a missing form often means an amended return later.
What if I need more time to gather documents?
We can file an extension. An extension gives you more time to file, not more time to pay, so we help you estimate what you owe and pay it by the April deadline to limit interest and penalties.
Should I just use MilTax or a VITA site?
For a simple return, those are excellent free options, and you are welcome to use them. Foundry is the next step when a return needs more time: more than one state, self-employment or rental income, prior-year returns, or residency questions.