Military Officer - February 2006 - (Page 60) For those without the time or expertise to personally manage TSP investments, there is good news. Fund L, or Lifestyle Funds, became available in August 2005, offering a professionally designed mix of the other TSP funds (Funds C, ■ Find IRS publications and tax forms online at www.irs.gov. F, G, I, and S). ■ For expert advice, consult an enrolled agent or other tax You can specialist at www.naea.org. choose a target ■ Visit MOAA’s updated, state-specific tax guide on the Web year for retireat www.moaa.org/financialcenter. ment — L 2010, 2020, 2030, 2040 — or select the L Income option, Home Ownership Tax Relief Under IRS rules, you must own and live in your principal resiand the Lifestyle Fund will dence for at least two years to fully exclude the gain on the sale of that principrovide automatic lower pal residence from income taxes (up to $500,000 for married couples and up to risk adjustments over $250,000 for singles). Shaw adds: “While both tests have to be met, they do not time. Thus an aggressive have to be met simultaneously. If you had to make a permanent change of stainvestor just beginning tion (PCS) and wished to sell your residence, you would qualify for the full or active duty might choose a reduced excludable gain. In many cases, the reduced excludable gain may be the L 2030 Lifestyle enough to exclude the gain on your current residence should you wish to sell.” Fund, while a more conIf you receive a PCS or extended temporary duties more than 50 miles from servative investor who the residence, a special provision allows active duty military to suspend residenwill retire in 2007 might cy requirements on a principal residence for up to 10 years and still benefit from opt for the L Income this powerful tax break. Shaw advises referring to IRS Publications 3 and 523. Lifestyle Fund. Resources You may choose to itemize either state income taxes or state sales taxes on Form 1040, Schedule A, for 2005. For those who itemize, state income taxes usually will provide the larger deduction. If you are filing taxes in a state that does not levy an income tax (Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, or Wyoming), the sales tax deduction is a better choice. (Note: New Hampshire levies neither a state income tax nor a state sales tax). “In either case, pay particular attention to large-ticket items you purchased in 2005, such as an automobile or boat,” advises California-based enrolled agent David A. Shaw, a federally licensed tax expert. “You will get to add the sales tax paid on the specific items to the amount allowed in the IRS tables for the sales tax deduction. In many states, due to the rising costs of these items, the sales tax deduction may be your best option when calculated correctly.” Higher TSP Limits State Sales Tax Deduction If you are currently serving, your Thrift Savings Plan (TSP) contributions in 2005 were limited to 10 percent of base pay, plus 100 percent of special pays and bonuses, up to a maximum of $14,000. For those age 50 and older, a special catch-up provision is allowed for an additional $4,000 in contributions. In 2006, the percentage of salary limit is lifted for participants in the Uniformed Service TSP, and the contributory limit has been increased to $15,000 annually (plus an additional $5,000 catch-up provision for those age 50 and older). This will allow many junior and mid-grade officers to put more money into their TSPs, resulting in tax-deferred savings with pretax dollars while lowering the current tax bite. TSP Lifestyle Funds 60 MILITARY OFFICER FEBRUARY 2006 http://www.irs.gov http://www.naea.org http://www.moaa.org/financialcenter
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