By Anna Larson
SpouseLink Ambassador &
I am dreading April 17th this year — it’s Tax Day, and it may be the first time our family is faced with owing tax dollars now that we’ve transitioned and retired from active-duty military service. There’s no shortage of horror stories floating around the transition world about being stuck with thousands of dollars owed and having the IRS knocking on your door.
Along with horror stories like those, I’ve also received a lot of advice on what I need to do to make sure we’re prepared for whatever tax shock might be about to hit us. Although some of the advice offered was less than helpful, such as the suggestion to “hide money.” I don’t recommend trying that, and I’m pretty sure that even if you cash those checks and put the money in your mattress there’s a record floating around that the IRS is sure to find.
All jokes aside, tax shock is a real fear for transitioning families and it can feel overwhelming. It makes me want to stick my head under the mattress (where I’ve been hiding all our cash) until April 18th rolls around, and I can pretend I’m in the clear.
Unfortunately, we already know that the IRS won’t look the other way even if I call in sick on the 17th, so I did all of us retiring and transitioning families a favor and went straight to a tax professional to make sure I really understood what impact tax shock might have on our family’s finances now that we’ve transitioned out of active-duty service.
Financial stress is rated high on the list of issues that transitioning and retiring military families face. Christina Miller, EA, from Above the Curve LLC is a tax professional who says the IRS website is her favorite place to hang out. She had the perfect mix of education, experience, and willingness to jump on a SpouseLink livestream to address some of the pressing questions that transitioning families have about taxes.
We start out discussing why your transitioned income can generate such a high tax bill (5:50). The short version is that when you are an active-duty family, a lot of benefits are not calculated as taxable income. When transition time rolls around, however, even if you think you’re making the same income, more of it is being taxed, and that increased taxable income pushes you up into a higher tax bracket that requires you to pay a higher tax rate. You need to prepare both mentally and financially because it’s a perfect storm that causes tax shock!
Next, I ask Christina to address how disability income figures into the mix (11:08). The great news is that disability income is not taxed! In fact, you don’t even get a tax document with your disability income on it.
We also discuss write-offs that military families should be thinking about, including itemized deductions vs. standard deductions and what that threshold is for making a decision on which way one to take (12:12). She addresses healthcare expenses, charitable donations, moving expenses, home mortgage/property taxes, sales tax, and home-based business taxes.
Christina also walks us through the IRS Tax Withholding Estimator and explains each section so you can pre-estimate what you might owe before tax day (23:05).
Throughout, Christina takes some time to answer questions like, “What is the best way to determine how much to withhold for federal and state [taxes]?
Her final piece of advice is to make sure you are comparing apples to apples. Look at what your total compensation package is on MyPay and compare it to the total compensation package a potential new employer might offer you to make sure you’re getting the same level of benefits you’re expecting.
By the end of this livestream, after hearing all of Christina’s great explanations, I hope you feel a lot more confident in what you can do when it comes to estimating exactly how much tax shock you can expect during your own retirement and transition process. I know speaking with her gave me a better understanding and provided me with the resources I needed to set my own mind at ease.
About Anna Larson
Anna is a copywriter and digital marketing strategist, and owner of NomadAbout, a digital marketing strategies company that helps entrepreneurs and other business owners showcase their organizations through social media, websites, and marketing campaigns what they are passionate about and how they do it better than anyone else. She is active in the military community, co-hosting a weekly business-oriented livestream and co-leading the Fort Cavazos (formerly Fort Hood) Cha Chapter of the Association of Military Spouse Entrepreneurs.
Europe, Africa, and the United States, her family made the leap into military retirement. Anna is also a SpouseLink Ambassador with two kids and two dogs. She’s a long-time homeschool mom that loves dance parties, popcorn, camping, and snorkeling in the ocean. In her spare time, you’ll find her traveling the world with her family, relaxing around a fire pit, or on a long walk with her pups.