The Internal Revenue Service is helping Military personnel with a new law that gives income exclusions for death benefits and specific types of home sales. Some qualifying taxpayers need to file an amended return in order to claim these tax breaks. The IRS has asked that they put the words “Military Family Tax Relief Act” in red at the top of these returns to speed up the processing of the forms.

This new law doubles the benefit that is paid to survivors of deceased  Military personnel to $12,000. It makes the whole amount tax-free and the changes are effective for deaths that occurred after Sept. 10, 2001. Only $3,000 was tax-free before this new law took affect. Those who already received these benefits paid taxes on the benefits that were received for deaths after the effective date have the option of filing an amended return on the 1030X Form, which will reduce their adjusted gross income by the $3,000 they had previously reported as taxable. For those who got these benefits in 2003, and all future years, won’t have to report them on their tax returns.

Some taxpayers may even be able to exclude the gain on the sale of their home if they have owned and used the home as their primary residence for at least two of the five years before the sale. A maximum exclusion may apply to taxpayers who are serving in the Military who fulfil at least part of the two-year rule. Some Military personnel keep ownership of a home while they are away on active duty but when they return, they sell it without living in it. This may cause them to become disqualified for the exclusion.

The new law allows taxpayers on extended duty in the Military or who are serving overseas to suspend this five-year period for up to 10 years during their tour. They are considered to be on “qualified” extended duty when they are stationed at least 50 miles from the residence they intend to sell, or when they are living in government housing under Military orders for more than 90 days, or for an indefinite period.

These changes apply only to home sales that take place after May 6, 1997. The Military taxpayer can use this provision for one property at a time. They may also exclude the gains on only one home sale in a two-year period. The law allows for qualified Military taxpayers who sold their homes before 2001 until November of 2011 to file their amended returns in order to claim the exclusion, even though a regular amended return must be filed within three years of the original return’s due date.

You need to use the 4506 Form, “Request for Copy or Transcript of Return,” to get a previous  year’s tax return. This form, and the 1040X Form can be found on the IRS Web site.  If you need more information, consult a tax professional. 

 Daniel Stoica Accounting Professional

The cop who tried to write off his flattop haircut. The interstate cheeseburger incident. These are just a couple of examples of some strange things people have tried to claim as deductions on their taxes.

According to Behold Bankrate, the following are some of this year’s strangest, but true, attempts at claims for tax deductions.

For several years, Behold Bankrate has published a list of some of the strangest tax deduction attempts desperate taxpayers thought they could slip past the IRS. Everything from breast implants to barking security systems have been added to some taxpayer’s 1040s in an effort to get as much of a tax break as possible.

This is meant to deter anyone considering trying to dupe the IRS by trying to claim their pet parrot as a speech therapy tool. The IRS doesn’t take attempts to get out of your tax obligations lightly.

With that said, here are just a few of Bankrate’s 10 strangest tax deductions of 2011. For a complete list, please visit http://www.bankrate.com/finance/taxes/10-craziest-tax-deductions-for-2011-2.aspx.

The tale of the wedding deduction! This is, and always has been, a nondeductible expense, but it turns up every year in different forms. Many people try to use that $50,000 wedding as a business travel and entertainment expense. “I had a client who insisted on deducting the cost of his wedding,” said a Massachusetts CPA. “He could not understand why this was not deductible as a charitable donation, and I could not understand where he expected to take the deduction. Like he was nice enough to marry her?”

The “Tony Soprano” Incident! Tax preparation can sometimes involve not quite on the up-and-up “negotiations”, as a New Jersey CPAs tells. “The manager and family member of a famous entertainer suggested the purchase of a $2 million building for office and production space, certain it would be a $2 million write-off that year,” the CPA says. “When the manager found out that it would take over 30 years to recover the expense, the manager was angry, embarrassed and annoyed. At one point, a suitcase with a very large amount of cash was given as an incentive to his accountant to somehow ‘make it work.’ The money was refused and the outrageous claim never made it onto the tax return, at least not the one the accountant prepared!”

The Subscription Ploy! Sometimes a self-employed person will try to take as much of a deduction as they can with dues and subscriptions, as a Massachusetts CPA found out, completely by accident. “A self-employed real estate professional had thousands of dollars in dues and subscriptions. When we reviewed the details of the account, the client was trying to deduct some personal subscriptions to adult magazines. We convinced the client that this type of subscription was considered a nondeductible personal expense.”

So, before you try to deduct something you aren’t sure about, it’s probably a good idea to ask your tax professional before you add it to your tax return. It keeps the IRS from possibly auditing you, and it will keep you off this list.

Danie Stoica Accouting Professional