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Accessing Your Small Business Success


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Accessing Your Small Business Success

A couple of years ago, I decided to abandon a long, unsuccessful job search. After many months of desperately looking for the perfect job, I chose to start a home based business. Because I’d never been an entrepreneur before, I was more than a little anxious. I was excited as well. Thankfully, I’ve enjoyed success in my new business venture. At the end of every month and year, I carefully analyze my revenues. Because I have a background in accounting, I know how to calculate various financial statement ratios that help me determine how my business is doing on many different levels. If you’re a struggling small business owner, consider hiring an accountant to help you access the success of your business. On this blog, you will learn the types of consulting services an accountant can offer a small business owner.

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The Tax Treatment Of Combat Pay For Returning War Veterans

Members of the military sometimes have unique income tax situations. Service members can use nontaxable pay earned in a war zone to qualify for certain tax benefits.

Most forms of regular military pay are taxable. However, allowance payments received for housing or subsistence are not taxable. Military pay earned in an area officially designated as a war zone is also excluded from taxable income. That nontaxable form of military pay is referred to as combat pay.

Designated combat zones

There are military conflicts in several areas of the world that are designated as combat zones. Military pay earned in a combat zone is not reported on your year-end Form W-2 as wages. Instead, the amount of nontaxable combat pay is entered in a separate box on Form W-2, along with the code Q.

Effect of combat pay on the Earned Income Credit

You can choose to include nontaxable combat pay as wages for purposes of calculating the Earned Income Credit. Alternatively, you can choose not to include the nontaxable pay if that results in a larger credit. There is no option to include only a portion, so either all the nontaxable pay is included for the credit calculation, or none of the pay is included.

Combat pay as earnings for IRA contributions

Nontaxable military pay earned in a designated war zone may also be used to fund an individual retirement account. If you are enrolled in another type of retirement plan, your IRA tax deduction may be limited. Even when combat pay is used to calculate additional tax benefits, the pay itself remains nontaxable.

Automatic filing extension

Military personnel serving in a combat zone are granted an automatic extension on most federal tax matters, including return filing. The 180-day extension period commences on your last day in a designated combat zone. If you are due a refund, you might prefer to file a return before the extension deadline. However, you may not be physically present to sign the tax return.

If you are married and serving in a war zone, your spouse back home can sign for you and attach a signed statement to the tax return explaining your presence in a combat zone. Another signing option is available, but it requires action on your part before you leave for service. IRS Form 2848 can be used to grant limited power of attorney to someone else to sign your tax return for you. Contact a CPA, such as those at Amos Maney & Payne CPA's LLC, for more information about tax preparation for service members.