Newspapers and media reports have been filled with talk of inflation and recession. Experts are arguing about the definition of the latter. Pundits are pondering whether the slowdown reflected in the latest consumer price index report means that inflation has peaked. You, in the meantime, are still staring in disbelief at the numbers that are rolling by as you fill your tank with gas or the total tally when you buy a few bags of groceries. 

Are We in a Recession?

It really doesn’t matter what anyone calls the nation’s economic condition when you’re having trouble paying your household bills – or worrying that’s where you’ll find yourself soon. Though gas prices have been dropping steadily and retailers like Walmart, and Home Depot are reporting strong financial results, there is some concern that higher prices may be driving their gains, and there is only so long that consumers will be able to maintain their spending habits.

That diminished spending on goods and services is one of the top signs of recession, along with cuts in manufacturing and production, increases in unemployment, and stagnating or dropping income. As frightening as each of these elements sounds, it is when you personally experience a combination of them that you feel a real impact. The good news is that there are steps you can take to prepare.

Can You Recession-Proof Yourself?

Recessions impact everybody one way or another, but they are definitely more painful for those who aren’t prepared. Here are a few things that you can do to minimize the financial impact on your family:

Review your financial plan. If you have been investing, now is the time to take a look at your short- and long-term goals and weigh them against the potential of a shifting economy. If you have too much money in one particular investment, now might be a good time to diversify, and if you are anticipating needing to take a significant amount of cash out in the short term, it’s a good idea to make sure that your investments aren’t particularly vulnerable to market volatility.

Take a close look at your spending and make adjustments. We all give ourselves a bit of grace when it comes to our budgets, but if you have reason to believe that rising prices are going to do more than make you wince, now is a good time to analyze what you’re spending on and see what you can eliminate or cut down on. Refinancing loans, canceling subscriptions, and being a bit more frugal in your habits are just a few examples of things that can make a big difference.

Have a contingency plan, and the savings to back it up. Do you have an emergency savings fund? Is there enough in it? Most experts advise calculating your monthly expenses and then putting away at least three times that amount to carry you through a job loss or some other economic crisis.

Pay down debt. If you are carrying credit card debt, or have any other loans that are charging you high-interest rates, double down on paying them off. It may hurt to skip a luxury in favor of putting more into paying down your debt, but if you face a job cutback, you’ll be glad for every dollar less that you owe.

Find extra income. It may sound more easily said than done, but if you can find a way to earn some money on the side, it will cut into the impact that rising prices are having on your lifestyle – or help you pay down debt or boost your savings.

The good news is that most recessions end in less than a year. We’ve been here before and we’ll get through it again, but that doesn’t mean that it will be easy. If you need financial advice to help you navigate the challenge, contact our office today to set up an appointment.

A frequent question that arises when borrowing money is whether or not the interest will be tax deductible. That can be a complicated question, and unfortunately, not all interest an individual pays is deductible. The rules for deducting interest vary, depending on whether the loan proceeds are used for personal, investment, or business activities. Interest expense can fall into any of the following categories:

  • Personal interest – is not deductible. Typically this includes interest from personal credit card debt, personal car loan interest, home appliance purchases, etc. 
  • Investment interest – this is interest paid on debt incurred to purchase investments such as land, stocks, mutual funds, etc. However, interest on debt to acquire or carry tax-free investments is not deductible at all. The annual investment interest deduction is limited to “net investment income,” which is the total taxable investment income reduced by investment expenses (other than expenses related to investments that produce non-taxable income). The investment interest deduction is only allowed to taxpayers who itemize their deductions. 
  • Home mortgage interest – includes the interest on debt to purchase, construct or substantially improve a taxpayer’s principal home or second home. This type of loan is referred to as acquisition debt. For the interest to be deductible the debt must be secured by the home purchased, constructed, or substantially improved. A secured debt is one in which the taxpayer signs a mortgage, deed of trust, or land contract that makes their ownership in a qualified home security for payment of the debt; provides, in case of default, that the home could satisfy the debt; and is recorded under any state or local law that applies. In other words, if the taxpayer can’t pay the debt, their home can then serve as a payment to the lender to satisfy the debt.
    • For Debt Incurred Before 12/16/2017 – the debt for which the interest is deductible is limited to $1,000,000 ($500,000 for married separate).
    • For Debt Incurred After 12/15/2017 – the debt for which the interest is deductible is limited to $750,000 ($375,000 for married separate).
  • Passive activity interest – includes interest on debt that’s for business or income-producing activities in which the taxpayer doesn’t “materially participate” and is generally deductible only if income from passive activities exceeds expenses from those activities. The most common passive activities are probably real estate rentals. For rental real estate activities, there is a special passive loss allowance of up to $25,000 for taxpayers who are active but not necessarily material participants in the rental. The $25,000 phases out for taxpayers with adjusted gross income between $100,000 and $150,000. 
  • Trade or business interest – includes interest on debts that are for activities in which a taxpayer materially participates. This type of interest can generally be deducted in full as a business expense. 

Because of the variety of limits imposed on interest deductions, the IRS provides special rules to allocate interest expenses among the categories. These “tracing rules,” as they are called, are generally based on the use of the loan proceeds. Thus interest expense on a debt is allocated in the same manner as the allocation of the debt to which the interest expense relates. Debt is allocated by tracing disbursements of the debt proceeds to specific expenditures, i.e., “follow the money.”

These tracing rules, combined with the restrictions associated with the various categories of interest, can create some unexpected results. Here are some examples:

Example 1: A taxpayer takes out a loan secured by his rental property and uses the proceeds to refinance the rental loan and buy a car for personal use. The taxpayer must allocate interest expense on the loan between rental interest and personal interest for the purchase of the car, and even though the loan is secured by the business property, the personal loan interest portion is not deductible.

Example 2: The taxpayer borrows $50,000 secured by his home to be used in his consulting business. He deposits the $50,000 into a checking account he only uses for his business. Since he can trace the use of the funds to his business, he can deduct the interest as a business expense.

Example 3: The taxpayer owns a rental property free and clear and wants to purchase a home to use as his personal residence. He obtains a loan on the rental to purchase the home. Under the tracing rules, the taxpayer must trace the use of the funds to their use, and as the debt was not used to acquire the rental, the interest on the loan cannot be deducted as rental interest. The funds can be traced to the purchase of the taxpayer’s home. However, for interest to be deductible as home mortgage interest, the debt must be secured by the home, which it is not. Result: the interest is not deductible anywhere.

As you can see, it is very important to plan your financing moves carefully, especially when the equity in one asset is being used to acquire another. Please call our office for assistance in applying the various interest limitations and tracing rules to ensure you don’t inadvertently get some unexpected results.

Your charitable contributions include a wide variety of tax-saving opportunities, some you may not be aware of, and some that are frequently overlooked. And there are some contributions that you may believe are deductible that really are not. Being knowledgeable of what is and is not a qualified charity, a qualified charitable contribution, and charitable giving strategies can go a long way toward maximizing your charitable tax deduction.

To be deductible the contributions must be made to qualified charitable organizations, which generally only include U.S. nonprofit groups that are religious, charitable, educational, scientific, or literary in purpose or that work to prevent cruelty to children or animals. You can ask any organization whether it is a qualified organization, and most will be able to tell you. You can also check by going to This online tool will enable you to search for qualified organizations.

Also, to be able to deduct charitable contributions, one must itemize their deductions. This means that to achieve any tax benefit from your charitable donations, you cannot use the standard deduction, which for example is $12,950 for those filing single, $19,400 filing head of household, and $25,900 for married individuals filing jointly for 2022. The standard deduction is adjusted annually for inflation.

If the total of all your itemized deductions does not exceed the standard deduction amount for the year, then you are better off taking the standard deduction, but in doing so, you will get no tax benefit from your charitable contributions. Congress did revise the law to allow limited amounts of cash contributions made in 2020 and 2021 to be deducted without itemizing, but this was only a temporary provision and doesn’t apply in other years.

Bunching – If your charitable deductions are not enough to bring your itemized deductions greater than your standard deduction, the bunching strategy may work for you. When employing the bunching strategy, a taxpayer essentially doubles up on as many deductions as possible in one year, with the goal of itemizing deductions in one year and then taking the standard deduction in the following year. Because charitable contributions are entirely payable at your discretion, they fit right into the bunching strategy.

For example, if you normally tithe at your church, you could make your normal contributions throughout the current year and then prepay the entire subsequent year’s tithing in a lump sum in December of the current year, thereby doubling up on the church contribution in one year and having no charitable deduction for the church in the next year. Normally, charities are very active with their solicitations during the holiday season, giving you the opportunity to decide whether to make contributions at the end of the current year or simply wait a short time and make them after the end of the year. Be sure you get a receipt or acknowledgment letter from the organization that clearly shows the year when the contribution was made.

As a rule, most taxpayers just wait until tax time to add up their potential deductions and then use the higher standard deduction or their itemized deductions. If you want to be more proactive, here are some strategies that might work for you.

Qualified Charitable Distribution – If you are age 70.5 or older, you can make charitable contributions by transferring funds from your IRA account to a charity, which are referred to as qualified charitable distributions (QCDs). The only hitch here is the funds must be transferred directly from the IRA to the charity, meaning your IRA trustee will have to make the distribution to the charity. The tax rules don’t set a minimum amount that needs to be transferred but your IRA trustee may do so. The maximum of all such transfers is $100,000 per year, per taxpayer. Also, note that distributions to private foundations and donor-advised funds don’t qualify for the QCD.

Thus, this strategy allows you to make a charitable contribution without itemizing deductions; since these distributions are tax-free, you can’t also claim a deduction for them. Even better, QCDs also count toward your minimum required distribution for the year. Because QCDs are nontaxable, your AGI will be lower, and you can benefit from tax provisions that are pegged to AGI, such as the amount of Social Security income that’s taxable and the cost of Medicare B insurance premiums for higher-income taxpayers.

Caution: Any IRA contributions made after reaching age 70.5 can diminish the tax benefits of this strategy. If any post-age 70.5 IRA contributions have been made, consult with this office before employing this strategy.

If you decide to make a QCD, check with your IRA custodian on the IRA’s rules for how to request the QCD, and be sure to give the IRA custodian ample time to complete the process if you are making the request toward the end of the year. Always get a written acknowledgment from the charity, for tax-reporting purposes.

Donor-Advised Funds – Contributing to a donor-advised fund is a way to make a large (and generally deductible) charitable contribution in one year and put funds aside to satisfy the donor’s social obligations to make charitable contributions in future years, without incurring the expenses of setting up a private foundation and satisfying annual filing and other private foundation requirements.

While generally considered a tax strategy for those with an unusually high income for the year, donor-advised funds are available to everyone, although most such funds set up through brokerages have minimum donation requirements, often $5,000–$25,000. Although they may bear the donor’s name, donor-advised funds are not separate entities but are mere bookkeeping entries. They are components of a qualified charitable organization. A contribution to a charity’s donor-advised fund may be deductible in the year when it is made if it isn’t considered earmarked for a particular distributee. The charity must fully own the funds and have ultimate control over their distribution. To document the contribution, the taxpayer must get a written acknowledgment from the fund’s sponsoring organization that it has exclusive legal control over the contributed assets. Although the donor can advise the charity, which generally will follow the donor’s recommendations, the donor cannot have the power to select distributees or decide the timing or amounts of distributions. The charity must also ensure that all distributions from the fund are arm’s length and do not directly or indirectly benefit the donor.

Example: Don and Shirley donate $25,000 to a donor-advised fund in one year. The $25,000 can be in the form of cash or even appreciated stock. Don and Shirley get a deduction for the full $25,000 as a charitable contribution on their return for the year of the contribution and can suggest the amounts of distributions from the donor-advised fund that should be made to various charities over a number of years. Thus, Don and Shirley achieve a large charitable contribution in one year that can be used to fund their charitable obligations over several years and can claim the $25,000 as an itemized deduction on their return for the year when they made the donation. They do not get a charitable contribution deduction when the funds are paid out from the fund to the various charities.

Volunteer Expenses – If you volunteered your time for a charity or governmental entity, you probably qualify for some tax breaks. Although no tax deduction is allowed for the value of services performed for a qualified charity or federal, state or local governmental agency, some deductions are permitted for out-of-pocket costs incurred while performing the services. The following are some examples:

  • Away-from-home travel expenses while performing services for a charity, including out-of-pocket round-trip travel costs, taxi fares, and other costs of transportation between the airport or station and hotel, plus 100% of lodging and meals. These expenses are only deductible if there is no significant element of personal pleasure associated with the travel or if your services for a charity do not involve lobbying activities. 
  • The cost of entertaining others on behalf of a charity, such as wining and dining a potential large contributor (but the costs of your own entertainment and meals are not deductible). 
  • If you use your car or another vehicle while performing services for a charitable organization, you may deduct your actual unreimbursed expenses that are directly attributable to the services, such as gas and oil costs, or you may deduct a flat 14 cents per mile for the charitable use of your car. You may also deduct parking fees and tolls.
  • You can deduct the cost of the uniform you wear when doing volunteer work for the charity, as long as the uniform has no general utility. The cost of cleaning the uniform can also be deducted.

Misconceptions – There are some misconceptions as to what constitutes a charitable deduction, and the following are frequently encountered issues:

  • No deduction is allowed for contributions of cash or property to the extent the donor received a personal benefit from the donation. Often, the IRS attributes at least some (if not total) personal benefit to amounts spent for items like dinner tickets, church school tuition, YMCA dues, raffles, etc. To determine the allowed contribution amount, subtract the FMV of the “personal benefit” item from the cost and deduct the remainder. Most charities now allocate the deductible, non-deductible portions. 
  • Taxpayers who have purchased tickets for benefit football games, youth-group car washes, parish pancake breakfasts, school plays, etc., with no intention of attending these events, may think they can deduct the expense as a direct contribution to the sponsoring institution. The IRS does not allow such deductions. On the other hand, if the taxpayer returns the ticket to the organization for resale and does not receive a refund of the cost of the ticket, the entire amount paid for the ticket is deductible. 
  • No deduction is allowed for the depreciation of vehicles, computers or other capital assets as a charitable deduction.

    Example: Kathy volunteers as a member of the sheriff’s mounted search and rescue team. As part of volunteering, Kathy is required to provide a horse. Kathy is not allowed to deduct the cost of purchasing her horse or to depreciate the value of her horse. She can, however, deduct uniforms, travel, and other out-of-pocket expenses associated with the volunteer work.

    However, a taxpayer may deduct the cost of maintaining a personally owned asset to the extent that its use is related to providing services for a charity. Thus, for example, a taxpayer is allowed to deduct the fuel, maintenance, and repair costs (but not depreciation or the fair rental value) of piloting his or her plane in connection with volunteer activities for the Civil Air Patrol. Similarly, a taxpayer—such as Kathy in our example, who participated in a mounted posse that is a civilian reserve unit of the county sheriff’s office—could deduct the cost of maintaining a horse (shoeing and stabling). 
  • A taxpayer who buys an asset and uses it while performing volunteer services for a charity can’t deduct its cost if he or she retains ownership of it. That’s true even if the asset is used exclusively for charitable purposes. 

No charitable deduction is allowed for a contribution of $250 or more unless you substantiate the contribution with a written acknowledgment from the charitable organization (including a government agency). To verify your contribution:

  • Get written documentation from the charity about the nature of your volunteering activity and the need for related expenses to be paid. For example, if you travel out of town as a volunteer, request a letter from the charity explaining why you’re needed at the out-of-town location. 
  • You should submit a statement of expenses to the charity if you are paying out of pocket for substantial amounts, preferably with a copy of the receipts. Then, arrange for the charity to acknowledge the amount of the contribution in writing. 
  • Maintain detailed records of your out-of-pocket expenses—receipts plus a written record of the time, place, amount, and charitable purpose of the expense.

Household Goods and Used Clothing – One of the most common tax-deductible charitable contributions encountered is that of household goods and used clothing. The major complication of this type of contribution is establishing the dollar value of the contribution. According to the tax code, this is the fair market value (FMV), which is defined as the value that a willing buyer would pay a willing seller for the item. FMV is not always easily determined and varies significantly based upon the condition of the item donated. For example, compare the condition of an article of clothing you purchased and only wore once to that of one that has been worn many times. The almost new one certainly will be worth more, but if the hardly worn item had been purchased a few years ago and has become grossly out of style, the more extensively used piece of clothing could be worth more. In either case, the clothing article is still a used item, so its value cannot be anywhere near as high as the original cost. Determining this value is not an exact science. The IRS recognizes this issue and in some cases requires the value to be established by a qualified appraiser.

Remember that when establishing FMV, any value you claim can be challenged in an audit and that the burden of proof is with you (the taxpayer), not with the IRS. For substantial noncash donations, it might be appropriate for you to visit your charity’s local thrift shop or even a consignment store to get an idea of the FMV of used items. The next big issue is documenting your contribution. Many taxpayers believe that the doorknob hanger left by the charity’s pickup driver is sufficient proof of a donation. Unfortunately, that is not the case, as a United States Tax Court case (Kunkel T.C. Memo 2015-71) pointed out. In that case, the court denied the taxpayer’s charitable contributions, which were based solely upon doorknob hangers left by the drivers who picked up the donated items for the charities. The court stated that “these doorknob hangers are undated; they are not specific to petitioners; they do not describe the property contributed; and they contain none of the other required information.”

Documenting Charitable Contributions – The IRS provides requirements for documenting both cash and non-cash contributions.

Cash Contributions – Taxpayers cannot deduct a cash contribution, regardless of the amount, unless they can document the contribution in one of the following ways:

  1. A bank record that shows the name of the qualified organization, the date of the contribution, and the amount of the contribution. Bank records may include a. A canceled check, b. A bank or credit union statement, or c. A credit card statement. 
  2. A receipt (or a letter or other written communication) from the qualified organization showing the name of the organization, the date of the contribution, and the amount of the contribution. 
  3. Payroll deduction records.

Cash Contributions of $250 or More – To claim a deduction for a contribution of $250 or more, the taxpayer must have a written acknowledgment of the contribution from the qualified organization that includes the following details:

  • The amount of cash contributed; 
  • Whether the qualified organization gave the taxpayer goods or services (other than certain token items and membership benefits) as a result of the contribution, and a description and good faith estimate of the value of any goods or services that were provided (other than intangible religious benefits); and 
  • A statement that the only benefit received was an intangible religious benefit if that was the case. 

If the acknowledgment does not show the date of the contribution, then the taxpayer must have one of the bank records described above that does show the contribution date. If the acknowledgment includes the contribution date and meets the other tests, it is not necessary to also have other records.

The acknowledgment must be in the taxpayer’s hands before the earlier date the return for the year the contribution was made is filed, or the due date, including extensions, for filing the return.

Noncash Contributions Deductions of Less Than $250 – A taxpayer claiming a noncash contribution with a value under $250 must keep a receipt from the charitable organization that shows:

  1. The name of the charitable organization, 
  2.  The date and location of the charitable contribution, and 
  3. A reasonably detailed description of the property. The taxpayer is not required to have a receipt if it is impractical to get one (for example, if the property was left at a charity’s unattended drop site). 

Noncash Contributions Deductions of At Least $250 But Not More Than $500 – If a taxpayer claims a deduction of at least $250 but not more than $500 for a noncash charitable contribution, he or she must keep an acknowledgment of the contribution from the qualified organization. If the deduction includes more than one contribution of $250 or more, the taxpayer must have either a separate acknowledgment for each donation or a single acknowledgment that shows the total contribution. The acknowledgment(s) must be written and must include:

  1.  The name of the charitable organization, 
  2. The date and location of the charitable contribution, 
  3. A reasonably detailed description of any property contributed (but not necessarily its value), and
  4. Whether the qualified organization gave the taxpayer any goods or services because of the contribution (other than certain token items and membership benefits).

Noncash Contributions Deductions Over $500 But Not Over $5,000 – If a taxpayer claims a deduction over $500 but not over $5,000 for a noncash charitable contribution, he or she must attach a completed Form 8283 to the income tax return and must provide the same acknowledgment and written records that are required for contributions of at least $250 but not more than $500 (as described above). In addition, the records must also include:

  1. How the property was obtained (for example, purchase, gift, bequest, inheritance, or exchange), 
  2. The approximate date the property was obtained or—if created, produced, or manufactured by the taxpayer—the approximate date when the property was substantially completed, and 
  3. The cost or other basis, and any adjustments to this basis, for property held for less than 12 months and (if available) the cost or other basis for property held for 12 months or more (this requirement, however, does not apply to publicly traded securities).

If the taxpayer has a reasonable case for not being able to provide information on either the date the property was obtained or the cost basis of the property, he or she can attach a statement of explanation to the return.

Deductions Over $5,000 – These donations require time-sensitive appraisals by a “qualified appraiser” in addition to other documentation. When contemplating such a donation, please call this office for further guidance about the documentation and forms that will be needed.

Caution: The value of similar items of property that are donated in the same year must be combined when determining what level of documentation is needed. Similar items of property are items of the same generic category or type, such as coin collections, paintings, books, clothing, jewelry, privately traded stock, land, and buildings. For example, say you donated $5,300 of used furniture to 3 different charitable organizations during the year (a bedroom set valued at $800, a dining set worth $1,000, and living room furniture worth $3,500). Because the value of the donations of similar property (furniture) exceeds $5,000, you would need to obtain an appraisal of the furniture to satisfy the substantiation requirements—even if you donated the furniture to different organizations and at different times during the year. The IRS has strict rules as to who is considered a qualified appraiser.

Do not include items of de minimis value, such as undergarments and socks, in the deductible amount of your contribution, as they specifically are not allowed.

Please give our office a call if you have questions or would like to develop a charitable contribution strategy.

Bowman & Company, LLP is excited to announce that the firm recently received national recognition as one of the 2022 “Best Accounting Firms to Work for” by Accounting Today.

“We consider our team members our firm’s most valuable asset, and we strive to create a workplace where they know how valued they are,” said Bowman managing partner Daniel Phelps. “It is thrilling to have Bowman & Company recognized as a place that provides great opportunities for our team. This is truly one of the best recognitions an accounting firm— or any workplace—can achieve.”

Each year, Accounting Today partners with the Best Companies Group to identify accounting businesses that have excelled in creating quality workplaces for employees. The survey and awards program is designed to identify, recognize, and honor the best employers in the accounting industry. The 100 firms named to the list benefit the industry’s economy, workforce, and businesses. For more information, visit

“Our employee recruiting focus is on finding people who have a vision to stay with us for their entire career,” said Daryl Petrick, Partner at Bowman, “We are fully committed to meeting the needs of our people, to ensure we retain the best people. We recognize that our employees’ needs change over time and believe that they should be able to keep their family commitments without jeopardizing their jobs and financial security.”

“In light of all that,” Petrick added, “we provide growth opportunities, including support for attaining advanced degrees, partner-track training, and collaboration with colleagues around the globe through our international alliance. As a result, we have an employee retention rate that far exceeds the industry norms.  This not only benefits our firm, but also enables us to consistently deliver superior service to our client base.”

On August 7, the U.S. Senate voted to pass the Inflation Reduction Act (IRA). The enormous bill—clocking in at 725 pages—contains a wide range of provisions and comes with a nearly $750 billion price tag. “The bill is fighting inflation and has a whole lot of collateral benefits as well,” said former Treasury Secretary Larry Summers, who reportedly helped craft the legislation.

While there are still hurdles to summit before the bill becomes law, it is important to remain aware of what is potentially in the works. Read on for an overview of the key items contained in the new act.

Provisions for Funding the IRA

In order to cover the $750 billion price tag of the IRA, the authors of the legislation included a variety of savings- and revenue-related provisions. Here is a breakdown of how the IRA will be funded (please note that the numbers are estimates from the Joint Committee on Taxation and the Congressional Budget Office):

  1. Savings in the Healthcare Arena ($288 billion)
    1. Repeal of a Trump-era drug rebate rule
    2. An inflation cap on drug prices
    3. An allowance for Medicare to negotiate certain drug prices
  2. New Revenue
    1. A new 15% corporate minimum tax for corporations with financial statement (“book”) income exceeding $1 billion ($313 billion)
    2. Increased revenue as a result of IRS tax enforcement funding ($124 billion)
    3. A 1% excise tax on corporate stock buybacks
    4. Methane and Superfund fees

How IRA Funds Will be Spent

So how will the $750 billion raised via savings and new revenue be spent? Here is a brief overview of initiatives included in the IRA (please note that the numbers are estimates from the Joint Committee on Taxation and the Congressional Budget Office):

  1. Climate & Energy Spending ($369 billion)
    1. Creation of new clean manufacturing tax credits
    2. Establishment of additional clean electricity grants and loans
    3. Creation of a new “Clean Energy Technology Accelerator”
    4. Incentivization of clean agriculture
    5. Incentivization of clean electronic vehicle manufacturing
    6. Additional energy and climate provisions
  2. Healthcare Spending ($64 Billion)
    1. A three-year extension of Obamacare subsidies for health care insurance costs
    2. A redesign of Medicare Part D and additional health care provisions
  3. IRS Funding
    1. Funding for increased IRS enforcement (namely, to enhance IT systems and compensate specialized employees—for more details, read IRS Commissioner Charles Rettig’s letter on the intended use of funding and plans for enforcement)
  4. Other Spending
    1. Reducing the Federal deficit ($300+ billion)

What’s Next?

Now that the IRA Act has been approved by the Senate, it heads to the House. The new legislation is expected to pass easily in the Democratic-controlled body. Timing is yet to be announced; however, it is likely to move relatively quickly. Upon passage in the House, the IRA will be brought to President Biden for his signature.

As with any legislation in progress, pretty much everything about the IRA remains up in the air until it is enacted by the President. Please be assured that your Bowman & Company, LLP accounting advisors are keeping a close watch on the progress of the IRA and will keep you apprised of any major developments. 



That is an important question because the actual money you have to spend when you retire depends upon the after-tax sources of your retirement income. Thus it is important to understand how the various retirement vehicles are taxed. There is significant diversity in taxation since a retiree must consider both Federal and state taxes on retirement income. Of all the states one might consider retiring to, there are eight that have no state income tax. These are Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming. However, to make up for no revenue from individual income taxes these states may be funded by other types of taxes, such as property taxes, sales taxes, or excise taxes.

Social Security Benefits – Social Security is probably the leading source of retirement for most retirees, and determining the federal taxation can be somewhat complicated the IRS provides a worksheet. Without using the worksheet we know that no more the 85% of Social Security benefits are subject to federal taxation and in many lower-income situations, none of the Social Security benefits are taxable. The actual calculation involves adding your other income to half of your annual Social Security benefit. If the amount is less than $32,000 for married tax filers or less than $25,000 for single filers in 2022, you will avoid federal taxes on your benefits. However, those filing Married Separate will find that 85% of their Social Security benefits are always taxable.

State Tax – Besides the states that have no state tax, there are 30 that do not tax Social Security benefits, The balance, VT, CT, RI, WV, MO, MN, ND, NE, KS, CO, UT, NM, and MT, tax Social Security benefits based on factors such as age and income or a modified amount. See the Tax Foundation Map.

Roth IRA Retirement Account – Roth IRA contributions are limited to the lesser of earned income or the annual limit which is $6,000 ($7,000 if age 50 or over). With a Roth IRA, a taxpayer gets no tax deduction when contributions are made. However, what the taxpayer gets is tax-free accumulation, and after age 59-½, all distributions are tax-free, including the account earnings, provided the 5-year holding period has been met. Since the earnings are also tax-free once the age and holding period requirements are satisfied, the sooner an individual begins making contributions, the greater the benefits at retirement. However, contributions to Roth IRA are restricted for higher-income taxpayers.

Traditional IRA Retirement Account – Like Roth IRA contributions, traditional IRA contributions are limited to the lesser of earned income or the annual limit which is $6,000 ($7,000 if age 50 or over). Unlike Roth IRAs, generally, contributions are deductible in the year of the contribution. Thus future distributions are fully taxable including the earnings. Where an individual also has a qualified retirement plan, the deductibility is phased out for those with higher incomes. However, they can still make non-deductible contributions, in which case a prorated amount of the distributions will be non-taxable. In addition, individuals can elect to make non-deductible contributions which may be appropriate when an individual intends to subsequently convert the traditional IRA to a Roth IRA as discussed next.

Spousal IRA – Generally, IRA contributions are only allowed for taxpayers who have compensation (the term “compensation” includes wages, tips, bonuses, professional fees, commissions, taxable alimony received, and net income from self-employment). Spousal IRAs are the exception to that rule and allow a non-working or low-earning spouse to contribute to his or her own IRA, otherwise known as a spousal IRA if their spouse has adequate compensation. The maximum amount that a non-working or low-earning spouse can contribute is the same as the limit for a working spouse.

Example: Tony is employed, and his W-2 is $100,000. His wife, Rosa, age 45, has a small income from a part-time job totaling $900. Since her own compensation is less than the contribution limit for the year, she can base her contribution on their combined compensation of $100,900. Thus, Rosa can contribute up to $6,000 to an IRA.

Back-Door Roth IRA – Where a high-income individual would like to contribute to a Roth IRA but cannot because of the high-income limitations, there is a workaround, commonly referred to as a back-door Roth IRA, that will allow funding of a Roth IRA for some individuals. Here is how a back-door Roth IRA works:

  1. First, an individual contributes to a traditional IRA. For higher-income taxpayers who participate in an employer-sponsored retirement plan, a traditional IRA is allowed but is not deductible. Even if all or some portion is deductible, the contribution can be designated as not deductible. 
  2. Then, since the law allows an individual to convert a traditional IRA to a Roth IRA without any income limitations, the individual can convert the non-deductible Traditional IRA to a Roth IRA. Since the Traditional IRA was non-deductible, the only tax related to the conversion would be on any appreciation in the value of the Traditional IRA before the conversion is completed.

Potential Pitfall – There is a potential pitfall to the back-door Roth IRA that is often overlooked by investment counselors and taxpayers alike that could result in an unexpected taxable event upon conversion. For distribution or conversion purposes, all IRAs (except Roth IRAs) are considered as one account and any distribution or converted amounts are deemed taken ratably from the deductible and non-deductible portions of the traditional IRA, and the portion that comes from the deductible contributions would be taxable.

This may or not may affect the decision to use the back-door Roth IRA method but does need to be considered prior to making the conversion.

Saver’s Credit – Low- and moderate-income workers can take advantage of a special tax credit that helps them save for retirement and earn a special tax credit. This credit helps offset part of the first $2,000 workers voluntarily contribute to traditional or Roth Individual Retirement Arrangements (IRAs), SIMPLE-IRAs, SEPs, 401(k) plans, 403(b) plans for employees of public schools and certain tax-exempt organizations, 457 plans for state or local government employees, and the Thrift Savings Plan for federal employees.

Employer Pensions – Generally, since employer pension plans are fully funded by the employer, pension payments will be fully taxable.

Employee Funded Retirement Plans – These include plans such as 401(k) plans, 403(b) plans, self-employed plans, and SEP IRAs. Since these plans are funded with pre-tax dollars the individual receives a current tax deduction (income deferral); thus, the income and accumulated earnings will be taxable when withdrawn for retirement, after reaching age 59½ or later.

Health Savings Accounts (HSA) – Although the tax code refers to these plans as “health” savings accounts, an HSA can act as more than just a vehicle to pay medical expenses; it can also serve as a retirement account. For some taxpayers who have maxed out their retirement plan options, an HSA provides another resource for retirement savings—one that isn’t limited by income restrictions in the way that IRA contributions are.

Since there is no requirement that the funds be used to pay medical expenses, a taxpayer can pay medical expenses with other funds, allowing the HSA to grow (through account earnings and further tax-deductible contributions) until retirement. In addition, should the need arise, the taxpayer can still take tax-free distributions from the HSA to pay medical expenses. Unlike traditional IRAs, no minimum distributions are required from HSAs at any specific age.

Withdrawals from an HSA that aren’t used for medical expenses are taxable and subject to a 20% penalty, with one exception: an individual age 65 or older will pay income tax on non-medical related distributions from their HSA but won’t owe a penalty for using the funds for other than medical expenses.

Example: Henry, age 70, has an HSA account from which he withdraws $10,000 during the year. He also has unreimbursed medical expenses of $4,000. Of his $10,000 withdrawal, $6,000 ($10,000 – $4,000) is added to Henry’s income for the year, and the other $4,000 is both tax- and penalty-free. If Henry had been 64 years old or younger, he’d be taxed on the $6,000 and pay a penalty of $1,200 (20% of $6,000).

Brokerage Accounts – Some individuals invest in stocks and mutual funds for their future retirement. These investments, if held for more than a year, will produce long-term gains or losses. Long-term gains are taxed at zero, 15%, or 20% depending on the individual’s total income for the year. However, investments held for less than a year will be taxed as ordinary income (taxed at the individual’s regular tax rate, which could be as high as 37%). In addition, a surtax may apply to the individual’s investment income. It is 3.8% of the lesser of the taxpayer’s net investment income or the excess of their modified adjusted gross income over $250,000 for a joint return or surviving spouse, $125,000 for a married individual filing a separate return, and $200,000 for all others.

Bond Investments – Those who are approaching retirement or have already retired may wish to switch their retirement investments into less uncertain investments since they may not have the longevity to stay the course for recovery. Bonds provide a safer alternative. Generally, income from municipal bonds is exempt from taxation for federal purposes. In addition, interest earned from municipal bonds issued by an individual’s home state is also exempt from state income taxes.

Home Equity – Provided a retiree has not used up their home equity, that equity can provide a source of retirement income by selling the home and taking advantage of the home gain exclusion of $500,000 for married couples ($250,000 for others). They can do this by downsizing or selling and renting. To qualify for the exclusion the individual must have owned and lived in the home for at least two out of the last five years before the sale. For married taxpayers filing jointly, both spouses must have used the home as their main residence for two of the five years before the sale, while only one spouse needs to be the owner for two of the five years.

Reverse Mortgage – As an alternative to selling the home, homeowners aged 62 and older can stay in their home while converting the home equity via a reverse mortgage. With a reverse mortgage, the lender pays the homeowner rather than the homeowner making payments. In addition, since the payments constitute home equity they are not taxable.

Whole Life Insurance Cash Value – Cash value accumulated in an insurance policy can also provide a source of income during retirement. The income will be tax-free up to the amount that was paid into the policy.

For some individuals, there may be other available sources of retirement income. Please call our office for assistance in your retirement planning.

Amber, Christopher, Maribel, and John!

Bowman & Company is happy to announce the promotions of Amber Dominguez, Christopher (Chris) Buzo, Maribel Galan, CPA, and John Normington. These four professionals will take on new their new roles as Supervisors.

Amber has been in the accounting field for four and a half years with Bowman and is in the final stages of finishing up earning her CPA license. She attributes a great deal of her success to those who have mentored her in official and unofficial capacities. In the office, Amber is most passionate about working with Non-Profits. Outside of work, Amber is passionate about cats and finding loving homes for her foster kittens. Amber is currently managing the balance of transitioning from staff on audit engagements to in charging those engagements and is looking forward to new opportunities.

Chris has been in the accounting field for five years and with Bowman for one and a half years where he has enjoyed working with the team specializing in Tax Accounting. While Chris feels there are many resources available at Bowman to support him in his professional development, he felt that the people he works with and everything he has learned from them to be his most valuable resource. Chris is a “learn by doing” individual and takes the knowledge he gains and uses it to gain proficiency. Chris is passionate about maintaining a reputation for reliability and dependability for the Firm and his colleagues. 

Maribel has been in the accounting field for over five years and has spent the past two and a half years with Bowman.  She initially began her career working in Audit before transitioning to the Tax side of the firm. She considers her transition to the Tax team to be one of her top experiences at Bowman because of the resources available and people who supported her as she gained new expertise. Maribel appreciates the example of the many Firm leaders who demonstrate a work-life balance, and she hopes to emulate this in her own career. She looks forward to broadening her technical tax skills and becoming someone at the Firm who others will view as a resource.

John started his accounting career with Bowman and has been with the firm for seven years. He attributes a great deal of his success and career development to his co-workers, who are always very helpful, and the guidance and support of the Partners. John also shared a secret to his success: consolidating questions to be respectful of other’s time and covering multiple topics at once. John currently specializes in Low-Income Housing Tax Returns and was previously focused in Audit. John recalls a time when managing the budget of each project was a challenge and how he overcame this through understanding the nuances for each project. John appreciates all of the fun activities we do at Bowman, especially night out at the ballpark.

Congratulations Amber, Christopher, Maribel, and John!

Natasha Doran and Ivan Alatorre

Bowman & Company is excited to announce the promotions of Natasha Doran and Ivan Alatorre. They will be taking on new roles and responsibilities as Senior Accountants.

Natasha has been in the accounting field for over 30 years and a member of the Bowman team for three and a half years. She remembers that prior to joining Bowman, many of her accounting questions were unanswered. When she started at Bowman, she was pleased at the many resources available to her, as well as the helpful team she worked with to gain additional knowledge and skill with higher level clients. Natasha specializes in Trusts, Tax and Client Accounting Advisory Services (CAAS). She remembers that working on Trusts was initially intimidating and now she handles them quite often. Natasha appreciates the flexibility at Bowman, which allows her to manage family needs. In her off time, you will likely find her on a beach in her favorite place, Hawaii. 

Ivan began his career in the accounting field at Bowman and has been with the firm for one and a half years with Bowman. He attributes his success and career development to his ability to ask questions and not being afraid to fail. Ivan currently works in both Audit and Tax and enjoys the dynamics of each. A naturally quiet person, Ivan has learned the benefit of overcoming this challenge because when he interacts with his coworkers and peer and asks questions, he always learns something new. His motto is “just do it” (but we won’t tell Nike).  In his new role, Ivan is looking forward to higher level tasks and responsibilities, as well as being someone his coworkers depend on. 

Congratulations Natasha and Ivan!

Whitney Kesterson

Bowman & Company is pleased to announce the promotion of Whitney Kesterson. Whitney takes on new responsibilities as a Senior Manager.  

Whitney has 10 years of private industry accounting experience and 11 years of public accounting experience, of which five of those years have been with Bowman. Whitney attributes much of her career development to being proactive, learning and absorbing as much as possible and also becoming a SME (subject matter expert) in specific areas of accounting. Whitney’s areas of accounting expertise are focused on audits of employee benefit plans, low-income housing and Title 31 (anti-money laundering) casino compliance. A career highlight for Whitney was her off-site visit with the Alliott Global Alliance and meeting professionals from all around the world.

In her new role, Whitney is looking forward to continuing to pursue learning opportunities and sharing her skill set as well as developing others and being a mentor to staff.


On July 27, the legislative text of the Inflation Reduction Act (IRA) was made public. The enormous bill—clocking in at 725 pages—contains a wide range of provisions and comes with an $800 billion price tag. “The bill is fighting inflation and has a whole lot of collateral benefits as well,” said former Treasury Secretary Larry Summers, who reportedly helped craft the legislation.

According to a recent article from Vox, there are three big questions when it comes to the passage of the IRA:

  1. Will Arizona senator Kyrsten Sinema support the IRA?
  2. Will Democratic House moderates support the IRA?
  3. Will a vote on the IRA occur prior to the Senate’s annual summer recess, which is scheduled to begin on August 8?

While there are many hurdles to summit before the bill becomes law, it is important to remain aware of what is potentially in the works. Read on for an overview of the key items contained in the new act.

Provisions for Funding the IRA

In order to cover the $800 billion price tag of the IRA, authors of the legislation included a variety of savings- and revenue-related provisions. Here is a breakdown of how the IRA will be funded:

  1. Savings in the Healthcare Arena – $320 Billion
    1. Repeal of a Trump-era drug rebate rule ($120 Billion)
    2. An inflation cap on drug prices ($100 Billion)
    3. An allowance for Medicare to negotiate certain drug prices ($100 Billion)
  2. New Revenue – $470 Billions
    1. A new 15% corporate minimum tax ($315 Billion)
    2. Increased revenue as a result of IRS tax enforcement funding ($125 Billion)
    3. Closure of the carried interest loophole ($15 Billion)
    4. Methane and Superfund fees ($15 billion)

How IRA Funds Will be Spent

So how will the $800 billion raised via savings and new revenue be spent? Here is a brief overview of initiatives included in the IRA:

  1. Climate & Energy Spending – $385 Billion
    1. Creation of new clean manufacturing tax credits ($40 Billion)
    2. Establishment of additional clean electricity grants and loans ($30 Billion)
    3. Creation of a new “Clean Energy Technology Accelerator” ($30 Billion)
    4. Incentivization of clean agriculture ($30 Billion)
    5. Incentivization of clean electronic vehicle manufacturing ($20 Billion)
    6. Additional energy and climate provisions ($235 Billion)
  2. Healthcare Spending – $99 Billion
    1. A three-year extension of Obamacare subsidies for health care insurance costs ($64 Billion)
    2. A redesign of Medicare Part D and additional health care provisions ($35 Billion)
  3. IRS Funding – $80 Billion
    1. Funding for increased IRS enforcement
  4. Other Spending – $305 Billion
    1. Reducing the Federal deficit


As with any legislation in progress, pretty much everything about the IRA remains up in the air until it is enacted by the President. Please be assured that your Bowman & Company, LLP accounting advisors are keeping a close watch on the progress of the IRA and will keep you apprised of any major developments.