I grew up as a military dependent. So I was particularly thrilled when the National Military Spouse Network asked me to participate in a panel discussion for military spouses who are also entrepreneurs. The panel discussion, Three Key Business Advisors Every Milspouse Business Owner Should Have in Their Network, included an attorney who specializes in business formation, a business consultant who specializes in start-up planning and resources, and a tax professional experienced in solving tax-related issues for business owners (that was me, by the way).
The military spouse entrepreneurs asked a lot of detailed questions. Many of them raised issues that are peculiar to running a business with frequent household moves and tax rules that are not universally understood by taxpayers and tax professionals alike. Three topics that we discussed are highlighted here:
- State Income Taxes for Net Business Profit
Generally, active duty military personnel and their spouses only have to file a state income tax return where they are legally domiciled as their permanent legal home. However, states where business revenue is generated expect to get some income tax revenue from that business. That requires the filing of a non-resident state income tax return to report the portion of the net business profit that was “sourced” in that state. The good news – income reported to and taxed by the “source” state is deducted from the taxable income of the state where the military spouse is a legal resident.
- Finding Tax Help that Knows the Rules for Military
Finding a tax preparer who understands tax rules for active duty military and their spouses is a challenge, especially with all the different state rules that are involved. The need for qualified and knowledgeable tax help is evident from reading #1, above. The IRS has some tips for finding the type of tax professional that you need, credentials to look for and a directory of tax preparers by state who have completed annual tax training at https://www.irs.gov/tax-professionals/choosing-a-tax-professional. Taxpayers should also interview several tax preparers to make sure they feel comfortable with the relationship.
- Finding Reliable Resources
Clear and reliable information sources are essential, but challenging to locate. A few of the websites I shared with the military spouse entrepreneurs were Military Benefits Info (https://militarybenefits.info/military-spouse-act-residency-relief-msrra/), Tax Information for Active Duty Military and Reserve Personnel (https://www.irs.gov/pub/irs-pdf/p4940.pdf) and Armed Forces Tax Guide (https://www.irs.gov/pub/irs-pdf/p3.pdf). Individual military installations may also have tax advice resources available.
This National Military Spouse Network panel discussion for entrepreneurs highlighted the challenges encountered by business owners who move frequently and are subject to complicated tax rules. I hope that the information shared by the Three Key Business Advisors Every Milspouse Business Owner Should Have in Their Network was helpful to everyone who attended and to my readers who serve our country.