Terms to Help Taxpayers Better Understand Retirement Arrangements

Contribution: The money that someone puts into their retirement account.

Distribution: The amount that someone withdraws from their retirement account.

Required distribution: A person generally must start taking withdrawals from their retirement account when they reach age 70 and a half.

Traditional: An IRA or 401(k) where contributions may be tax-deductible, but the funds in a traditional retirement account are taxed when they are withdrawn.

Roth: An IRA or 401(k) where the funds are not taxed when they are withdrawn, but contributions are not tax-deductible.

Savings Incentive Match Plan for Employees. This is commonly known as a SIMPLE IRA. Employees and employers may contribute to traditional IRAs set up for employees. It may work well as a start-up retirement savings plan for small employers.

Simplified Employee Pension. This is known as a SEP-IRA. An employer can make contributions toward their own retirement and their employees' retirement. The employee owns and controls a SEP.

Rollover: This is when the retirement account owner receives a payment from their retirement plan and deposits it into a different retirement account within 60 days.

IRS Reminds Taxpayers of the Home Office Deduction Rules

The Internal Revenue Service wants individuals to consider taking the home office deduction if they qualify. The benefit may allow taxpayers working from home to deduct certain expenses on their tax return.

The home office deduction is available to qualifying self-employed taxpayers and independent contractors. Employees who receive a paycheck or a W-2 exclusively from an employer are not eligible for the home office deduction between 2018-2025, even if they are currently working from home.

There are two basic requirements to qualify for the deduction: 1) The taxpayer needs to use a portion of the home exclusively for conducting business on a regular basis, and 2) the home must be the taxpayer’s principal place of business.

To claim the deduction, a taxpayer must use part of their home for one of the following:

● Exclusively and regularly as a principal place of business for a trade or business ● Exclusively and regularly as a place where patients, clients, or customers are met in the normal course of a trade or business ● As a separate structure that's not attached to a home that is used exclusively and regularly in connection with a trade or business ● On a regular basis for storage of inventory or product samples used in a trade or business of selling products at retail or wholesale ● For rental use ● As a daycare facility

The term "home" for purposes of this deduction:

● Includes a house, apartment, condominium, mobile home, boat, or similar property ● Includes structures on the property, like an unattached garage, studio, barn, or greenhouse ● Doesn’t include any part of the taxpayer’s property used exclusively as a hotel, motel, inn, or similar business

Deductible expenses for business use of home normally include the business portion of real estate taxes, mortgage interest, rent, casualty losses, utilities, insurance, depreciation, maintenance, and repairs. In general, a taxpayer may not deduct expenses for the parts of their home not used for business; for example, expenses for lawn care or painting a room not used for business.

A taxpayer can use either the regular or simplified method to figure the home office deduction.

● Regular method: divide expenses of operating the home between personal and business use. ● Simplified Option: use a prescribed rate of $5 per square foot of the portion of the home used for business (up to a maximum of 300 square feet).

IRS Reminds Taxpayers of the October 15 Due Date

The Internal Revenue Service today reminds taxpayers who filed an extension that the October 15 due date to file 2019 tax returns is approaching. Taxpayers should complete their tax returns and file on or before the October 15 deadline.

Although October 15 is the last day for most people to file, some taxpayers may have more time:

● Members of the military and others serving in a combat zone typically have 180 days after they leave the combat zone to file returns and pay any taxes due.

● Taxpayers in federally declared disaster areas who already had valid extensions have more time. For details, see the disaster relief page on IRS.gov.