The Looming Capital Gains Tax Hike: The Potential Impact on Businesses and Individuals
June 3, 2021
To listen to this video in podcast form:
James Eaton, CPA/PFS, MBA is a Principal of SC&H Group’s Tax Services practice with experience consulting clients on tax planning, annual compliance requirements, entity structuring, M&A consulting, and estate and trust planning.
- To connect with James directly, email email@example.com
Ken Mann, is a Managing Director of SC&H Capital, our Investment Banking and Advisory practice, where he provides distressed M&A advisory to private company business owners. With more than 25 years of experience, Mann leads the team’s go-to-market strategy, lender and attorney interface, offer and purchase agreement negotiation, and everything in between.
- To connect with Ken directly, email firstname.lastname@example.org
James Eaton: Hi, I’m James Eaton. I’m a partner in the Tax department here at SC&H and I’m here with Ken Mann.
Ken Mann: I’m a Director for SC&H Capital. In particular, I specialize in what are known as special situations, companies that have some financial or other trouble that makes it a little bit more difficult for them to raise money or to go to market.
James Eaton: So Ken and I got together because we were really interested in the tax and the more global economic effects of some of the proposed changes to tax law. These are some of the changes we’ve heard about, specifically with respect to changes to the capital gains tax and tax rates that have been discussed in Washington and the Biden administration. Ken and I, we’ve chatted about these things, we got some ideas and we’d like to work on them and share them with the group. Ken, do you want to give a quick overview of what you’re hearing on the street about these changes?
Ken Mann: Yeah, I think the one that I’m focused on, that my clients care most about, is the change in treatment of capital gains. Where they don’t get a preferential rate compared to income tax, but rather just are treated at the taxpayers highest income tax bracket. This is a huge swing. It would take people roughly from 23% to 43% on long-term capital gains just in federal taxes before you apply the state. We’ve seen here in the last week or two, some states jumping on the bandwagon and adding to their capital gains tax. So, that’s a pretty meaningful difference and it impacts the sale of businesses. It can impact the sale of your home, investment properties, and so forth. It’s got a lot of people scratching their head and saying, wait, do I need to go to market now?
James Eaton: Super. Let’s take a minute and go back and think about what it is that we’re hearing. So, we hear these things, we see them on the news, and one of the main tenets of the proposals coming out of Washington – they talk about a couple of different things. They talk about raising the long term capital gains tax rate to the taxpayers highest ordinary income tax rate. That begets the question, what is the taxpayers highest ordinary income tax rate? And that’s the second follow on effect. So there’s been a discussion of taking that highest ordinary income tax rate from 37% back up to a 39.6% rate where it’s been maybe for the past 8 to 10 years. It was there for a long time. That was the highest ordinary income tax rate. We have a couple of factors. Will my taxes go up if the highest ordinary income tax rate goes from 37 to 39.6%? That would be true. The discussion we’re hearing is that for folks making greater than a million dollars, like in so many cases, the devil’s in the details. We have to think about what that means as far as is it AGI, is it taxable income, how do we deal with married versus single folks versus head of household? Those were things we’d like to see more detail on us as we come along. But I think the more important factor that we’re outlining, Ken, is this idea that for folks making more than a million dollars, capital gains rates would go from some lower rate to the taxpayers highest ordinary rate. Let’s just assume if you were making more than million dollars, you’re going to be in the highest tax bracket.
So, again, what are our tax rates now? Well, for very low income taxpayers, long term capital gains rates and those are rates for assets held greater than a year are 0%. Then for the middle class, middle-market clients, those tax rates are 15%. Once you get over a few hundred thousand dollars of income then you’re looking at a capital gains rate of 20%. Then we add on the net investment income tax, the NIT tax, that’s another 3.8%, so that’s getting us to Ken’s 23% or 24% federal tax rate when he’s working with his clients that are saying, hey, I’m selling something. What that would look like under the new proposal would be instead of being at a 20% plus 3.8%, you’d be at somewhere in that 37% to 39% plus 3.8%. That’s getting us to 43% to 44% federal tax rate and then 5% to 8%, maybe something like that in many states, getting pretty close to 50%. You pick a couple of the states with higher tax rates, you’re looking at 52% to 54% tax rates on a capital gain transaction. One of the things you and I have talked about is, well, that’s only for folks making a million dollars, but in your line of work, that’s everybody you talk to, because even if you only make a few hundred thousand a year, when you sell your business, you’re going to be in one of these million scenarios. You want to think about that?
Ken Mann: Yeah, I think that’s a great point. A couple of things to think about there. Even if you don’t make $1 million dollars a year, you’re going to in the year you sell your business or your investment property. So all of a sudden, you’re over that $1 million. It’s easy to make it seem like that’s a tiny percentage of the population but a lot of people have assets that would put them over $1 million. I think with capital gains tax tends to ignore is the lumpiness, so to speak, meaning if I own a business for 10 years and it appreciates at $200,000 a year, that would keep me well under the million dollars. But because I have to take it all at once, $200,000 a year times 10 years is $2 million dollars. We all know, many business owners whose business and personal income is a couple hundred thousand dollars a year. Just take a small business making $350,000 a year. If they can sell that for a five times multiple, boom, they’re over the number. Then likewise, inflation. If you own a building or inflation has increased the value of your asset, your family farm, your industrial building, whatever it is over some long period of time, capital gains tax don’t really make any allowance for that, unlike income tax where those brackets creep up over time to keep up with inflation. The $1 million threshold to me sounds good, but people shouldn’t take a lot of comfort in that. I think everyone that we work with is going to be over that $1 million dollars in the year they sell their business.
James Eaton: We should take maybe one moment to clarify. Folks don’t always get the idea that when we say, hey, there’s a $1 million level, that doesn’t mean that when you make a million one that all your capital gains are subject to that very high rate. What we would be talking about is the marginal income above that $1 million level. So if we had $1.5 million in your example of capital gains, we’d have a little bit that might be subject to that 0% rate and we’d have some that was subject to that 15% rate, and maybe we’d have a bunch that was subject about 20% plus 3.8% rate. Only the marginal income above our $1 million level would be subject to this very high tax rate. In that scenario, the question we often get, hey, I’m in a “x”. I’m in a 37% tax bracket. I made $1 million. Shouldn’t my tax be $370,000, but it’s only $250,000. What’s going on here? Because you get the benefit of those lower rates as they move up. So it’s a graduated system.
Ken Mann: Let me ask you James, is that fairly certain to hold true if there is an increase in the capital gains tax? Certainly if it becomes ordinary income, it’s true. But is there a proposal on the table that says, no, it’s a cliff, you are over a million so you pay this on all of it.
James Eaton: Like so many things, we don’t have a bill yet to even review. What we have is a white paper and a statement of intent from the administration. I think the working assumption is that we’re thinking it would be marginal over $1 million. The Biden administration has been very forthright in saying, hey, folks making less than $400,000, which I guess in today’s world is the definition of middle class, are not going to be impacted. But to your point, someone making $350,000 or $400,000 a year, living a good life, and selling a business for $2 million, they would say, I’m a $400,000 person who’s being impacted, I’m having a one time liquidity event. But I think the working assumption is that we’re assuming it’s going to be one of these million dollars and you go up. The classic example of this is, a few years ago, New York had an estate tax. Let’s just say the exemption was like $2 million. So if you had an estate worth $1.999 million, you have zero. But if you had an estate and was worth $2 million and one, you owed 10% on the entire two million. So your marginal tax rate on the $2 between $1.999 million and $2 million and one was like infinity percent, so I think that’s what we’re hoping to avoid. The question of whether there would be a phase in range that would be a little bit further down the road as far as it goes.
Ken Mann: One other quick point before you move on to another topic. I think in 1966 when Congress got all hopped up about the fact that there were 155 people who were making over $200,000 and they needed to be taxed differently. The alternative minimum tax captured 155 people. In 2017 it captured 5 million people. So I think people should anticipate that if this doesn’t raise the revenue it was designed to, that number could change. It could creep down over time to impact other people.
James Eaton: Ken I didn’t know we were going to do statistics, I would have been better prepared. I love tax statistics and if you want to see some interesting things, we could spend some time there. I think to your point, you could argue that we are dealing today, this very day, we are dealing with the aftermath of that alternative minimum tax (AMT). I say that briefly to say that AMT kicked in back in the day and we were dealing with that back through 2017. In order to do away with the alternative minimum tax, the 2019 tax reform did away with the state and local tax deduction, SALT deduction. By and large, the vast majority of people that were subject to the AMT was because of that. So we did away with the AMT and we did away with the SALT deduction. So people said, high tax areas, we’re not getting this benefit. Then in my practice, we’ve been working with the Maryland pass-through entity election for a year now, which is basically a workaround to get business owners a deduction that went away because the AMT was supposed to work. That is the law of unintended consequences, I think.
We could spend a lot of time on this. Maybe we think about how does this impact a going concern business versus an investment property versus maybe a primary residence? I’ve lived that for some years. But before we do that, let’s take 1 minute and talk about another something in this sphere. And the question is, we hear a lot of folks saying, if you do this kind of tax on capital gains, not only is it going to effect private investors, but the public markets could be affected. Do you have any thoughts on that?
Ken Mann: You set up the table for me to throw out another statistic. According to the Congress’s estimators of such facts, the CBO, every 1% increase in capital gains tax decreases the number of dollars realized through sales by 1.2%. The theory is that you can choose when to sell an asset, whether it’s a stock, a home, or whatever, so you will choose to hold onto it and pass it on to your heirs or to sell it when there’s a different administration in office or what have you. I do think it’s going to impact the markets. It has to to a certain degree. I think many people will try to capture the gains that they have before year end and then others that don’t are probably not going to be so eager to trade in or out in the next few years. They might become long term holders of whatever asset pool they’re in. It certainly has to change the calculus that an investor goes through. What type of investment do I want to be in? How long am I going to hold it? How much cash do I want to take off the table right now when I can? How can it not impact it, would be my question.
James Eaton: Yeah, I think you can spend a lot of time looking at these things. It’s very interesting with respect to barriers to entry and exit being one school of thought. There are people in the world who think we should have a 0% capital gains rate because then people would get into and out of the best investments for them at any given time. The flip side of that is the people that say, my sweat equity should be no different than your capital equity and those should be taxed the same way. Broadly in the past, say 20 years or so, we’ve had an idea of some portion of that. The capital gains and dividends rates have been roughly half of what ordinary income tax rates have been. Interestingly, that was something that has been orthodoxy of one of the political parties for a long time. The dotcom burst in the late 90s and into 2000 really gave a charge to that. The idea was, we should cut these capital gains rates to stimulate the investment economy. It’s now been 20 years since these sort of things and we think capital gains rate and dividends rates should be lower. For a long, long time they weren’t. They were closer to 28% or higher. It’s a really interesting exercise and normalization. What seems normal. I think another aspect that affects capital markets is tangential. The ongoing discussion of changes to the step-up in basis regime. Currently when someone passes away the pieces of their assets are stepped up to its fair market value. If I had a million dollars of stock and no basis, I would sell it and I have a large capital gain. Maybe I’d owe $200,000 in taxes, but if I hold those assets until I die and I pass those to my heirs, their basis has stepped up to the fair market value. After I pass, my heirs sell the million dollars and their basis is a million and they have zero gain and thus, they owe zero tax. So there’s been an inherent bias toward buy and hold once you get to a certain point in life, both in public markets and in your line of work in private businesses.
Ken Mann: Yeah, I think it’s critical to know what the outcome is going to be there, because think about it. It’s one thing to buy and trade out of a publicly traded stock. It’s a different matter to sell your family business or your family farm or whatever it is, your family’s beach house, because suddenly a tax bill is due upon someone’s death and you don’t happen to have a couple of $100,000 laying around to pay that tax. It is both a substantial change in the tax that would be due if he didn’t have to step-up and potentially a change in when that tax would be due. It could cause people to have to sell upon inheriting an asset that came with a big tax bill.
James Eaton: I think while we’re looking into our crystal ball, the one step further down the line is the idea, depending on who you talk to, making death a taxable event or another party might say, having a dean sale at death. Maybe that’s more like, Canada has a scenario like this, maybe the U.K., where you say, ok, at my demise, my assets are deemed to be sold. So, you would still get the step-up in basis because you would have a taxable event. But in that scenario, you say, I have got that million dollars of Apple stock, even though I don’t sell it, which doesn’t actually force the market down, I’m going to treat it on my income tax return, my state income tax return, as if I sold it, so that I’m going to have capital gains tax on this. That puts you into the regime where that could cause a phantom income experience and that could drive us up over a million. Now we’re in these high tax rates and all these sort of things. You can build these methodologies on top of each other.
Ken Mann: Yeah, who do we want to take first? The home, an investment property or a business.
James Eaton: Let’s think about a business first. I think that could be fun.
Ken Mann: Here’s how I look at it. If I told you that you could have a 35% better outcome by doing something now versus later, how inclined would you be to do it now? That’s really what this potentially comes down to. If you’re talking about large enough dollars where the bulk of the money is over the $1 million threshold and you look at how you would be taxed in the future under that plan versus how you would be taxed today by selling today, you achieve a 35% higher net without doing anything, without growing your business, without getting better multiples. So clearly, people are going to look at that and say, well, if I was thinking about getting out sometime in the next four, five, or six years, why don’t I just take the 35% better with no risk? Now, James, we have clients who say, but I’m sure I can grow the business 10% a year. OK, let’s play that out. First of all, there is execution risk. Hopefully you can, but things happen, right? Maybe it doesn’t grow 10%. Secondly, we’re at record high multiples right now. Valuations are through the roof. So, you have to rely on multiples staying exactly the same or improving for that model to work. It’s pretty unlikely, as multiples are largely driven by what return you can get in other environments and what the interest rates are. So, low interest rates are keeping multiples very high. But let’s say that you believe that they’re going to stay exactly the same and you can grow the business 10% a year for three years. Well, that all sounds good. I did a little quick math here and have a simple example. If you had a business that you thought you could sell for $7.7 million today and you can grow it at that 10% a year, you go from $7 million to a valuation of $9.3 million and change, but you actually take home less. So you grew the value a couple million dollars, but your return is less and you got it three years later, you had execution risk, and you had market risk that you have no control over as the multiples. From a business perspective, I think it’s a pretty serious issue.
James Eaton: I think that’s conceptual and you and I maybe live in that world. But in the real world, I had lunch with a client yesterday who said, I’ve been talking to these folks for two years, but I’m going to call them back tomorrow and we’re going to sell this business by the end of the year, which is really interesting. In your world, it’s transactional and you’ve got to say, hey, what can we get when we have a liquidity event? In my kind of world where we work with ongoing clients over a period of time on annual compliance and planning structures, we also look at this and say for years we had folks that would come up with these really fairly complex structures to make their key employees and even some sort of manager, rank and file type employees in for these gains or liquidity events or how we would set these things up. Much of these complex transactions were set up so that those folks could take advantage of capital gains rates in the event of a sale, in the event of a liquidity event. If we say, gains in liquidity event years, of course we’re talking about a $1 million or higher, but let’s just assume that you’re going to sell something for $10 or $15 or $20 million and your key folks are going to get a chunk of that. You can set up, whether it be a bonus plan or synthetic equity plan that when the million comes in, it’s going to come in as wages. Which you would say that’s going to be at a higher tax rate. But in that future period of time, you say it’s really not because if you get over that $1 million threshold then we’re still talking about a scenario where the income would be taxed very close to the same rate. We look at things like that and say from an entity structuring for an ongoing and future looking perspective, maybe that simplifies things. But simplicity at what cost?
Ken Mann: Take away creativity. And yes, it’s going to change deal terms. Earn outs, people try to avoid things that are going to be treated as income. Options, people wanted options because it would be capital gains. Those things will certainly change. Likewise, asset sale versus stock sale. Sellers have preferred stock sales, buyers have preferred asset sales. You’re the tax guy, tell me. It doesn’t seem to make any difference now, you might as well both do an asset sale if you’re going to have capital gains be treated as income. Is that a fair statement?
James Eaton: Yeah, I’m not sure it’s the same thing but it’s much closer. So we have your $7 to $10 million sales. That’s a number we talk about. We’re always going to likely have some ordinary income if we do an asset sale versus a stock sale. But for years the seller would say, I can achieve that 20% or 30% IRR hurdle by structuring it as a stock sale. The buyer would say, I would pay you $10 million if I could buy your assets and then I could depreciate them and that’s a benefit to me as the buyer. I’ll pay you $7 million if I have to buy the stock. Then you would come to folks like you and I and ask, what do I take away in cash if I do an asset sale versus a stock sale? There’s some give and take there. That takes that hurdle from a difference between $10 million and $7 million and maybe it makes up the difference between $10 million and $9 million. What’s the difference here? It really narrows that down. Maybe it makes it much more of a buyer’s market to say, we can buy assets and we can do those with slightly lower multiples, but we get to then buy hard assets to the extent that’s part of the business model, which we can depreciate and recover our basis and get a tax effect. That all goes into your IRR calculations on the buy side. It sort of changes the ground rules that we have taken as the standards for maybe a generation and we have to recalculate and rethink about those things.
Ken Mann: Let’s talk about an investment property.
James Eaton: I think that’s an interesting one. Why don’t you lay out a set of facts we can think about.
Ken Mann: Lots of our clients have some either industrial property that they’re leasing to the business and/or they have rental properties. They might have 10 condos down in Ocean City, for example, that are producing rental income and they’re trying to plan that into their future. Is that my income in retirement? As I see it, a lot of these industrial buildings in particular have been depreciated down to zero. They have no basis. So at the time, if the business owner decides to sell the business and sell the building at the same time or just sell the building, they’re going to have a substantial tax, which currently would be taxed at the preferred capital gains rate. But next year, maybe not. So does that push people to sell the building now and lease it back?
James Eaton: Yeah, so you did give me a great entrée into tax guy dorkdom, which is where I live. We’ve got a couple of things that we think about immediately in this situation and I think maybe that’s different than where you are because we see these things on a daily basis and you deal with actual dollars and we deal with tax concepts. The first couple of things I started thinking about are if we bought this property and then we depreciated, so it has low basis. The proposals we’re seeing, do not change the 1250 recapture rates. So 1250 recapture says that portion of the gain attributable to depreciation you’ve taken in the past will be taxed at a rate not greater than 25%. Let’s say you bought a building for half a million dollars and it’s appreciated to $1 million, but in the meantime you’ve depreciated it down to $250,000. Now we’ve got a sale for a million, basis $250,000, so I have $750,000. But the portion of that gain attributable to the depreciation, so from $500,000 basis down to the $250,000 adjusted basis today, that $250,000 is subject to 1250 regime, which means the tax rates are only going to be 25%. That hasn’t been really terribly high in the past few years, but that turns from maybe a cost to possibly a benefit in this new regime, right. Where the capital gains rate is actually going to be higher than that. So you’re going to say, the portion of my gain attributable to depreciation used to be taxed at a rate of 25%, which is higher than 20%. Now, it’s a tax at a rate of 25%, which is 14 points lower than 39%. So, what will be very interesting to see is if people start thinking that through. We have to figure out there’s a bifurcation of the gain.
Item #2: let’s just say that we do other things, we’re not a real estate professional. If I’m not a real estate professional, I’ve got my condos and Ocean City and I get revenue from them and maybe even their cash flow positive, but I get to depreciate them each year. That’s going to cause that 1250 recapture we talk about. But those losses, if I’m not a real estate professional, are trapped within my tax return. So those losses are passive activity losses and those losses are creating those business losses and when I free them up, they’re not deductible each year. But when I free them up a sale, they offset ordinary income. We see folks that say, I’ve got the place and I bought it for $600,000. It’s been a few years. I can sell it for $800,000. What am I going to do? We look at it and turns out there’s $100,000 of ordinary deductions that have been trapped. That’s another factor that factors into this math. If you free up these ordinary deductions you’ll be picking up capital gains, so ordinary deductions can be really impactful. It’s not the type of thing the really smart folks that have a pretty good handle on what they’re looking at. It’s sort of buried on page 38, on the left, at the bottom right. It’s not a really clear number to see. That’s something we always want to look at. So in the past year, and I guess we’ll continue to see it for the next year, we’ve had a lot of folks that say, I’ve got a $600,000 place and I can sell it for $800,000. That sounds great, and I’d like to lock in that game, but I don’t want to pay taxes and so we’re going to go with the 1031 like-kind exchange which we’ve heard a lot about.
Two comments there. Comment number one is for the proposal, what we’re seeing, it would propose to do away with like-kind exchanges. Those are more limited, starting with the 2018 tax reform act, limited to only real estate transactions. Now, I think the current proposal would actually just get rid of them for real estate transactions as well. That said, a couple of observations. We see a lot of folks that come in and say, I’m going to sell this thing and I’m going to have a big gain. We look at the 1250 and we look at the passive activity losses (PALs) and we say, actually, if you’re going to sell that thing for $800,000, you might end up paying $30,000 or $40,000 in taxes. That might not be the worst thing in the world. Equally, the rules for a like-kind exchange, as they’re currently laid out, are really time sensitive. So you have to identify another piece of property within, let’s say, 45 days, and then you have to buy it and settle it and close it within 6 months. In the past year, we’ve seen a number of clients that sold $800,000 properties and you know what they up buying? $900,000 properties, because you have to reinvest in what is a hot market. There’s a lot that goes into that. What do you see in your line of work? Do those things make sense?
Ken Mann: Yeah, my clients frequently bring up these issues because they’re people of means and they have these properties. But in our engagements, they’re really focused on the industrial property that’s tied to the building where if it’s 50 franchises of restaurant chain, for example, they might have 50 locations, some of which they own, some of which are leased. So they want to understand how these things play in. I’m glad you brought up the 1031 exchange. I mean, that has been a favorite tool of many people and that going away may change people’s thoughts on timing of some transactions as well. We’ve probably spent too much time already, so let’s wrap it up on probably the least significant for most people, which would just be the sale of their primary residence. The first $250,000 for an individual or $500,000 for a family of capital gains is tax free as long as they lived in that property 2 of the last 5 years. But it’s a pretty crazy market, right? I live on the Eastern shore of Maryland. If you happen to own a house on the water there, you’re going, my gain is going to be bigger than $500,000. So what are people going to be looking at there?
James Eaton: Exactly. in that scenario, let’s walk through a couple of points. Caution dorky tax guy. It’s not that the $250,000 or $500,000 gain is tax free. I mean, essentially it is but it’s actually better than that, right? It’s excluded from income, so it doesn’t push up your income. Thus you’re less likely to hit that higher rate. That would be important if maybe you’re selling stocks and things as well, it doesn’t bump up your income. That’s a really important one and the concept has been, the idea is that we want to remove barriers to entry and exit in personal home. We want people to be able to buy and sell their homes without having to go through a lot of rigmarole. Twenty years ago, there was this idea that you rolled the gain almost like-kind exchange. You sold a house and if you bought a new house, then your basis in the new house for tax purposes was your basis in the old house. You bought a $200,000 house, you waited 10 years, you sold it for $500,000, and then you bought a $500,000 house. Your basis was $200,000. The idea was eventually you’d have to pay for that. That’s very much the way a like-kind exchange works. That’s been done away with now for 20 years. So you have this opportunity to sell and you have an exclusion and there are some special rules there. For most folks you’d say a $500,000 exclusion would be great but at the end of the day, it’s not like a financial asset. Probably you still need a place to live and so you’re going to have to go reinvest it. So there are already transaction costs. We see that.
Another thing that we talk to clients about is that a like-kind exchange does not apply. A like-kind exchange, by its nature, has to be for business property. So what do we call the investment. Do we call that industrial? It can’t be your personal use property, so you can’t do a like-kind exchange. It’s definitely something to think about if your incomes is over that $1 million threshold, that really becomes impactful. If you’re making t$200,000 or $400,000 or $600,000, you get a $500,000 exemption and you have a few hundred thousand dollars of gain on top of that, then you’re really still back in this regime where you’re looking at a 20% or 24% tax rate, which is a lot. That could be $50,000 in the example, but it’s not as egregious as 50% right off the top. There’s a lot of ifs and what ifs that go into that.
Ken Mann: We’ve covered a lot of ground, there’s many things for people to be thinking about now, especially if they’re nearing retirement and they’re thinking, I might want to sell my business or my investment properties, I might be ready to downsize on my house or what have you. We can’t really try to give answers in a 25 minute conversation, but I think we probably touched on what some of the key issues are. Anything else you want to address while we’re here?
James Eaton: I guess the only thing that I would be remiss if I didn’t mention is, in some of these situations where you have these gains and if that looks like something you don’t want, like the tax impact of the qualified opportunity zone structures came out back in 2018 I think, and we’ve heard a lot about them. We can honestly say in our client group that not a lot of clients have made use of them because there’s a lot of hurdles you have to get through in these sort of things. But any of the gains we’ve outlined would be eligible to be rolled into a qualified opportunity zone funding mechanism, which could either defer or even in some cases exclude gain over the long-term. That’s a long-term buy and hold. Something to just append to the end of what was a pretty wide ranging discussion.
Ken Mann: I think what to take away for business owners is, if this is even on your radar, you’re thinking in the next two or three years, now’s the time to do something. If by June, and I don’t mean it’s necessarily time to sell, it’s time to round up your professionals and have a conversation and understand the likely tax consequences and what some of the tools are, trusts and whatnot that you can set up to minimize the tax paying upon a transaction. I would say June is kind of go time if you’re going to close a transaction by the end of the year. So whatever it is you’re thinking about selling some time soon, round up your professionals and have a discussion sooner rather than later. Well, James, it was great chatting with you. We’ll have to do some deeper dives on some of these topics we covered today, maybe with somebody from other parts of the team that have particular expertise in the areas we’re looking at.
James Eaton: Yeah, I think we’ve got a broad spectrum of folks internally who can talk about a lot of different factors, all of which affect our business owners, our clients, and the sort of perfect storm of events that we have here, which are very high multiples, very low interest rates, changing tax landscape and it puts us in a scenario where folks are having once in a lifetime type scenarios and structures and opportunities that they don’t want to miss out on. That’s all you and I are both saying, which is if you’re thinking about these things, you need to start reaching out and getting ducks in the proverbial row.