Flipping a Property Acquired in a 1031 Exchange

I ran into a 1031 exchange issue that I hadn’t run into in a while.  I was brought in to settle a disagreement between two CPAs.

An owner, we’ll call him X, of an piece of nicely appreciated investment real estate we’ll call Property A, entered into a 1031 exchange, selling Property A, known as the “relinquished property,” for about $2 million.  X then found Property B to replace it.

Unknown to X at the time, there had been other bidders bidding on Property B, but X’s bid was the highest.  So through the exchange intermediary, X was able to enter into acquire Property B.  One of the other bidders, we’ll call him Y, eventually reassessed the situation and for whatever reason Y decided he had to have Property B.  A few days before X could close on Property B, Y approached X and offered him $2.5 million for Property B.  X called his CPA to ask if he could finish the exchange tax free, then immediately sell the property to Y and put the proceeds into a second tax free exchange, to acquire a new property to be identified later.

X’s CPA felt very uneasy about the deal and told his client he didn’t think so.  X would love to have the extra $500k, but the tax on a taxable exchange would be more than the extra $500k X would get for reselling Property B to Y.  Word of this got back to Y’s CPA, who assured X’s CPA that his client Y, a big time developer, did this kind of transaction all the time.  Still uneasy, X’s CPA reached out to me to get a better handle on the issues.

I am well aware of what big time developers do, but that doesn’t make it legal.  I have handled many developer clients, some of whom completed “aggressive” tax free exchanges, for whom I have filed tax returns.   They come to me because I know the rules, and I can often help them restructure a transaction for success.   But this transaction is over the line.  Years ago I had to turn down a potentially extremely lucrative client that I had been chasing for years once I found out he used this technique as a common practice.   I found out later he had other shady ideas.  Shady developers don’t want me as their CPA.

Here are the issues:

A taxpayer’s intent to hold both the relinquished property and replacement property for investment or for use in a trade or business is a requirement for every 1031 exchange.  A simultaneous flip of the replacement property, where the taxpayer agrees to sell before the close of replacement property is clearly NOT allowed.  Now if Y had approached X out of the blue the day after the closing of X’s purchase of Property B, you could argue that X actually did hold Property for investment, albeit for one day.  But these were NOT the facts.  You cannot possibly hold the replacement property for investment if you are under contract to sell the property before you acquire it.  Clearly at the time the exchange is completed, if X goes through with the sale Y, by his actions X has clearly demonstrated that when he took title to the the property he held it with the intent of immediately reselling it.

I called a real estate tax attorney friend that I know to see if he had any workarounds.  Half seriously my friend the attorney suggested the taxpayer tell the buyer to “go away” (wink wink) and have come back later after the close (the longer the better).  Personally I would not go there.  The IRS and the Tax Court will look the evidence surrounding the acquisition to determine whether the taxpayer’s use of the replacement property after the exchange is consistent with an intent to hold the property for investment.  And any discussion that X’s CPA has with X evidencing a change of intent before, during, or after the exchange is fair game for the IRS.  CPAs, unlike my friend the attorney, don’t have attorney-client privilege.  That also goes for any discussions X or his CPA have with the intermediary as well.  And finally, since there is no supportable tax-free position for the immediate resale, preparer penalties would be applicable if X’s CPA prepares X’s return that way.   Not a pretty picture.

The bottom line is this:

Sorry, but you can’t flip a property acquired in a 1031 exchange.  No exceptions.

Retirement Plan Options for Small Businesses

Employer-sponsored retirement plans have become a key component for retirement savings. They are also an increasingly important tool for attracting and retaining the high-quality employees you need to compete in today’s competitive environment. Besides helping employees save for the future, however, instituting a retirement plan can provide you, as the employer, with benefits that enable you to make the most of your business’s assets. Such benefits include: Tax-deferred growth on earnings within the plan Current tax savings on individual contributions to the plan Immediate tax deductions for employer contributions Easy to establish and maintain Low-cost benefit with a highly-perceived value by your employees Here’s an overview of four retirement plans options that can help you and your employees save: SIMPLE: Savings Incentive Match Plan A SIMPLE IRA plan allows employees to contribute a percentage of their salary each paycheck and to have their employer match their contribution. Under SIMPLE IRA plans, employees can set aside up to $12,000 in 2014 (same as 2013) by payroll deduction. If the employee is 50 or older then they may contribute an additional $2,500. Employers can either match employee contributions dollar for dollar – up to 3 percent of an employee’s wage – or make a fixed contribution of 2 percent of pay for all eligible employees instead of a matching contribution. SIMPLE IRA plans are easy to set up by filling out a short form. Administrative costs are low and much of the paperwork is done by the financial institution that handles the SIMPLE IRA plan accounts. Employers may choose either to permit employees to select the IRA to which their contributions will be sent, or to send contributions for all employees to one financial institution. Employees are 100 percent vested in contributions, get to decide how and where the money will be invested, and keep their IRA accounts even when they change jobs. SEP: Simplified Employee Pension Plan A SEP plan allows employers to set up a type of individual retirement account – known as a SEP-IRA – for themselves and their employees. Employers must contribute a uniform percentage of pay for each employee. Employer contributions are limited to whichever is less: 25 percent of an employee’s annual salary or $52,000 in 2014 ($51,000 in 2013). SEP plans can be started by most employers, including those that are self-employed. SEP plans have low start-up and operating costs and can be established using a single quarter-page form. Businesses are not locked into making contributions every year. You can decide how much to put into a SEP each year – offering you some flexibility when business conditions vary. 401(k) Plans 401(k) plans have become a widely accepted savings vehicle for small businesses and allows employees to contribute a portion of their own incomes toward their retirement. The employee contributions, not to exceed $17,500 in 2014 (same as 2013), reduce a participant’s pay before income taxes, so that pre-tax dollars are invested. If the employee is 50 or older then they may contribute another $5,500 in 2014 (same as 2013). Employers may offer to match a certain percentage of the employee’s contribution, increasing participation in the plan. While more complex, 401(k)plans offer higher contribution limits than SIMPLE IRA plans and IRAs, allowing employees to accumulate greater savings. Profit-Sharing Plans Employers also may make profit-sharing contributions to plans that are unrelated to any amounts an employee chooses to contribute. Profit-sharing Plans are well suited for businesses with uncertain or fluctuating profits. In addition to the flexibility in deciding the amounts of the contributions, a Profit-Sharing Plan can include options such as service requirements, vesting schedules and plan loans that are not available under SEP plans. Contributions may range from 0 to 25 percent of eligible employees’ compensation, to a maximum of $52,000 in 2014 ($51,000 in 2013) per employee. The contribution in any one year cannot exceed 25 percent of the total compensation of the employees participating in the plan. Contributions need not be the same percentage for all employees. Key employees may actually get as much as 25 percent, while others may get as little as 3 percent. A plan may combine these profit-sharing contributions with 401(k) contributions (and matching contributions). Call Me First Pension rules are complex, and the tax aspects of retirement plans can also be confusing, so call me first. I’ll help you find the right plan for you and your employees.

Can I Deduct Demolition Costs in the Current Year?

I get this question a lot, in reference to commercial property or residential rental property.  If you demolish a building leaving nothing but the foundation, or even bare land, the answer is no.  But hey, yo u say, I bought this property and it had a structure that I paid for, it was perfectly good, but now it’s gone.    The answer is still no, even though the structure demolished was in great condition.  Think farm house standing in the way of a new development.     If it was so valuable, why did you knock it down?  Because you wanted the land it sat on.  The theory underlying the rules stated below make sense.

In the case of the demolition of any structure, no deduction is allowed to the owner or lessee of the structure for any amount expended for the demolition or any loss sustained as a result of the demolition.   Instead, such amounts are added to the cost of the land on which the structure was located per I.R.C. § 280B. Thus, the tax life of the adjusted basis of the demolished building goes on, now as in nondepreciable land.  Other than a historical building or hazmat removal, the only other rules that might help are those of the “Partial Demolition”safe harbor rules in Rev. Proc. 95-27, 1995-1 C.B. 704. The safe harbor rules require:

1. Seventy-five percent or more of the existing external walls of the building remain in place as internal or external walls; and
2. Seventy-five percent or more of the existing internal structural framework of the building remains in place.

But don’t get too excited, if you meet the safe harbor rules, you still don’t get to deduct it this year, it increases the amount you get to depreciate.

Bob’s Top 10 Reasons to NOT Own Real Estate in an S Corporation

One of my Real Estate Commandments is “Thou Shalt Not Put Real Estate in a Corporation.” Here are my top ten reasons why not.  And if you are thinking “Hey what about C corporations” just know that most of the items below also apply to C corporations and there are ramifications for C corporations that are even worse than what is listed below.  You are just going to have to trust me on that.  It also should be noted that this list is targeted for real estate operators and investors.  If you are building homes and selling them as a business, many of these concerns do not apply. 

So here are my reasons, in no particular order:

1. Allocation of income and losses and distributions of cash and property must be made in accordance with the number of shares owned.  No special deals are allowed. Any variations from this have to be handled in the form of payroll.
2. Shareholders in S corporations are often limited in their ability to deduct rental losses.  All tax losses are limited to the shareholder’s basis in the S Corporation stock, which does NOT include third party debt, such as a mortgage. This is true even if the debt is guaranteed by the shareholder. This can result in higher taxes.
3. Borrowing money in the corporation and distributing it to a shareholder is often taxable because of the basis limitations discussed above.  This makes it difficult to cash in on the equity in the property.
4. Most residential lenders will NOT give a mortgage to an S corporation.  While this can be true of LLCs as well, the workarounds for LLCs are NOT available to S corporations
5. Distributions of appreciated real estate to the owners from the S Corporation are taxable.  This is true of any distribution and especially important if the owners want to split up.  Liquidating the entire S Corporation that has appreciated assets is a taxable event and so is redeeming a shareholder’s stock with appreciated assets.  This is extra tough on the owners if there is no distribution of cash to pay the tax.
6. Transfers of debt-free appreciated property to an S Corporation are taxable if the contributing shareholder is not in control of the corporation immediately after the transfer. This makes it difficult to set up ownership between a “money” partner and “sweat equity” partner.
7. Transfers of mortgaged property to an S Corporation does not increase the basis of your S Corporation stock and thereby could severely limit the deductibility of future losses from that property.
8. S Corporations cannot have any of the following as shareholders: corporations, partnerships and non-resident aliens. Certain trusts, many LLCs and most S corporations are also prohibited from owning an S corporation.
9. There is no step-up in basis for the assets within the S-Corporation when a shareholder dies or someone buys stock. (The S Corporation stock gets a step-up, but not the inside assets).
10. S Corporations historically have had a much higher audit risk than LLCs.

This is not to say LLCs are perfect, but if you are looking to protect yourself from the perils of real estate ownership by forming an entity, whatever you do, don’t put it in a corporation!

How to Pay Less for Your Summer Vacation

The following comes from my newsletter and its such a frequent topic of discussion, it bears repeating here.

The summer travel season is almost upon us. While you look forward to lazing on the beach, visiting the theme parks, and enjoying ice cream cones, also consider ways to fit some business in to your trips.

The idea is to take advantage of tax deductions for which you become eligible when you devote part of your trip to business. As long as most of your travel days are for business purposes, you can deduct the cost of travel (airplanes, trains, cars, etc.) and for hotels, parking, taxi service, meals, and so on.

As defined by the IRS, travel expenses are the Ordinary and Necessary expenses of traveling away from home for your business, profession, or job. An Ordinary expense is one that is common and accepted in your field of trade, business, or profession. A Necessary expense is one that is helpful and appropriate for your business. An expense does not have to be required to be considered necessary.

The key factor is that your trip must be primarily for business. Days of leisure can be added to a trip and still be considered primarily for business. The more days and time per day spent on business will help substantiate the trip. There are no set rules on how many days and how much time per day need to be spent on business for your trip to be considered business related.

Keep all the documentation for business-related travel, including confirmations of appointments, emails, phone records, registration to conferences, etc. The days spent traveling to and from a business trip are considered part of the trip. This includes the weekend if it is impractical to come home between weekday business meetings. Planning ahead can make this happen.

Traveling with Your Spouse

If a spouse goes with you on a business trip or to a business convention, his or her travel expenses can only be deducted if your spouse

1. is your employee,
2. has a bona fide business purpose for the travel, and
3. would otherwise be allowed to deduct the travel expenses.

To be an employee, your spouse must be on the payroll and payroll taxes must be paid. If your spouse is not an employee and travels with you on vacation, you can still deduct the cost of your room at the single-occupancy-per-day rate, rather than half the rate. Meals could also be deductible. If you are paying for lunch or dinner for a customer or business associate and that person’s spouse, the full cost of the meals might qualify under the 50% meal deduction. Let us know if you’re unclear on this deduction; we can give you the details.

Example: Bill drives to Boston on business and takes his wife, Joan, with him. Joan is not Bill’s employee. Joan occasionally types notes, performs similar services, and accompanies Bill to luncheons and dinners. The performance of these services does not establish that her presence on the trip is necessary for Bill’s business. Her expenses are not deductible.

Bill pays $199 a day for a double room. A single room costs $149 a day. He can deduct the total cost of driving his car to and from Boston, but only $149 a day for his hotel room. If he uses public transportation, he can deduct only his fare. Further, if Bill has dinner with a customer and spouse, the meal may be deducted under the 50% meal deduction.

With travel outside of the United States, the transportation for business trips of one week or less may be deducted. However, only a portion of transportation costs for longer trips is deductible.

Example: You live in New York. On May 4 you flew to Paris to attend a business conference that began on May 5. The conference ended at noon on May 14. That evening you flew to Dublin where you visited with friends until the afternoon of May 21, when you flew directly home to New York. The primary purpose for the trip was to attend the conference.

If you had not stopped in Dublin, you would have arrived home the evening of May 14. You did not meet any of the exceptions that would allow you to consider your travel entirely for business. May 4 through May 14 (11 days) are business days and May 15 through May 21 (7 days) are non-business days.

You can deduct the cost of your meals (subject to the 50% limit), lodging, and other business-related travel expenses while in Paris.

You cannot deduct your expenses while in Dublin. You also cannot deduct 7/18 of what it would have cost you to travel round-trip between New York and Dublin.

You paid $450 to fly from New York to Paris, $200 to fly from Paris to Dublin, and $500 to fly from Dublin back to New York. Round-trip airfare from New York to Dublin would have been $850.

You figure the deductible part of your air travel expenses by subtracting 7/18 of the round-trip fare and other expenses you would have had in traveling directly between New York and Dublin ($850 – 7/18 = $331) from your total expenses in traveling from New York to Paris to Dublin and back to New York ($450 + $200 + $500 = $1,150). Your deductible air travel expense is $819 ($1,150 – $331).

What Expenses Are Deductible?

Here’s what you can deduct when you travel away from home for business.

Transportation Expenses
You can deduct Transportation Expenses when you travel by airplane, train, bus, or car between your home and your business destination. If you were provided with a ticket or you are riding free as a result of a frequent traveler or similar program, your cost is zero. If you travel by ship, additional rules and limits apply.

Taxi, Commuter Bus, Subway, and Airport Limousine Fares
You can deduct the fares for these and other types of transportation that take you between

• the airport or station and your hotel, and
• the hotel and the work location of your customers or clients, your business meeting place, or your temporary work location.

Baggage and Shipping Expenses
You can deduct the cost of sending baggage and sample or display material between your regular and temporary work locations.

Car Expenses
You can deduct the cost of operating and maintaining your car when traveling away from home on business. You can deduct actual expenses or the standard mileage rate, as well as business-related tolls and parking. If you rent a car while away from home on business, you can deduct only the business-use portion of the expenses.

Lodging and Meals
You can deduct your lodging and meals if your business trip is overnight or long enough that you need to stop for sleep or rest to properly perform your duties. Meals include amounts spent for food, beverages, taxes, and related tips. Additional rules and limits may apply.

Cleaning Clothes
You can deduct the dry cleaning and laundry expenses you incur while away on business.

Telephone
All business calls while on your business trip are deductible. This includes business communication by fax machine or other communication devices.

Tips
You may deduct the tips you pay for any expense listed above.

Other Expenses
You can deduct other similar ordinary and necessary expenses related to your business travel. These expenses might include transportation to or from a business meal, public stenographer’s fees, computer rental fees, or Internet access fees.

Clarification Not In Newsletter

One thing my newsletter did not make clear, if your spouse is co-owner of the business and works with you, obviously, their involvement IS business. If your spouse is co-owner by virtue of community property but does not share part of the social security/self-employment tax burden it is extremely difficult to get the IRS to agree your spouse has a business purpose in his/her travel.

Ask Us

If you have any questions about how to grab some tax deductions from your summer travels this year, just give us a call or send us an email.

New Tax Reporting Rules for Landlords

The recently enacted Small Business Jobs Act of 2010,may affect you if you are an owner-manager of rental property.  Under this legislation, you will be required to send a Form 1099-MISC annually to every vendor (individual, partnership or corporate) who provides $600.00 or more in services for your rental properties.  Think gardener, handyman, etc.  Please note that these requirements are different than and are in addition to the Form 1099 requirements that resulted from the recent healthcare legislation.

 

Starting in 2011 you need to obtain a completed IRS Form W-9 from every service provider you already use. That form will give you their correct name, federal ID# or Social Security number, and address.  And I suggest getting that information right away with any new vendors before they start work.  Do not wait and create a mad scramble to obtain the information right before the deadline.  This is the surest way to end up with incomplete forms.  

 

Beginning in 2012, annually you will be required to prepare a Form 1099-MISC and send one copy by January 31st to each vendor and by February 28, 2012 one copy to the IRS with an appropriate Form 1096 cover sheet.  Presently we do not know if California will require it’s own filings.

 

Prior to 2011 the requirement for filing only applied to businesses (i.e., rental property management companies) and not rental property owners.  If you already are making filings, then no new action is required. 

 

The IRS may assess a penalty for each 1099 with inaccurate or missing information in the amount of $100.00, although the penalty is reduced for quick corrections (before August 1 of the year sent).  That penalty applies even if the bad information is not your fault,so it is important to require all vendors to fully complete a Form W-9 so you can prove you are not responsible for the error.  If there is intentional noncompliance, like not filing a 1099 for a vendor, then the penalty is $250.00 per non-filed 1099.

Schedule E filers may want to obtain an Federal Employer Identification Number (FEIN) for reporting their rental property payments in order to avoid disclosure of their personal social security numbers to vendors.  To be clear about this, the Form 1099-MISC requires all payers to provide an identification number.  In the absence of a FEIN, the only other option will be to disclose to vendors the owner’s social security number on the Form 1099-MISC.  Note – The use of a FEIN will not change your income tax reporting in any way.

Again, because these provisions already apply to businesses, if you are already filing, legislation will not change how you file the Form 1099-MISC.  Obtaining a Form W-9 from all vendors need not wait until next year.  Both the Form W-9 and instructions are available on www.irs.gov. 

Look Out For California Electronic Payments Requirement

Mandatory E-pay Penalty Begins 2011

Beginning January 1, 2011, a MANDATORY electronic payment requirement kicks in  for certain California individual taxpayers.  Electronic payments are required once a person:

• Makes an estimate tax or extension payment (by check or electronic method) of more than $20,000.
• Files an original tax return with a tax liability over $80,000.

This should not be a surprise to anybody as this was supposed to happen two years ago, and got postponed again and again.  Now California says no more grace periods.

The penalty is equal to 1 percent of the amount paid, unless failure to pay was for reasonable cause and not willful neglect.   I am not being flippant when I say that it is unlikely California will find any excuse reasonable.  California is looking for reasons to collect revenue.

If you make a payment or file a return meeting the mandatory requirement, The Franchise Tax Board will send you an FTB 4106 MEO, Mandatory e-pay Participation Notice, advising you that all future payments must be remitted electronically.  NOTE: If you do not receive notification from FTB, you are still required to remit payments electronically once you meet either of the above thresholds.

Tax preparation software may also remind you to e-pay, BUT, if your tax preparation software generates paper Form 540-ES vouchers when you meet the mandatory e-pay threshold, you must still pay electronically.

Again, once you meet the mandatory e-pay threshold, you are required to make all  payments thereafter electronically, regardless of the amount, type, or taxable year. For example: You make your fourth quarter 2010 estimated tax payment of $25,000 on January 15, 2011 electronically because you had an unusually big gain in December of 2010.  Any payment made after that (for example, a bill payment from a previous year or your tax due on April 15, or any 2011 estimated tax payment) must be made electronically even if they drop down to $1.

One client of mine was worried about the “big brother” aspect of this.  “Won’t this give the FTB direct access to my account?” he asked.    Sure it will, but they could also just copy the numbers off your check, and when you think about it,  even checks are all scanned and turned into electronic payments anyway.

To find out how to pay electronically, see the FTB’s Webpay page at http://www.ftb.ca.gov/online/webpay/index.asp.

CPA’s to Become Agents of the IRS?

TIGTA is one of my favorite acronyms coming out of the federal government.  It’s hard consonants are appropriate.  Even if you don’t know what it means, most folks would instinctively be leary of dealing with something called TIGTA.

TIGTA is the Treasury Inspector General for Tax Administration.  It is a division of the IRS and they are the “Eichmann” division of the IRS.  Their mandate is to increase the efficiency and effectiveness of the IRS.  If you have ever been through an IRS audit, you know they are no fun.  But chances are you were not subjected to a TIGTA audit, which the IRS  equivalent of a colonoscopy, your return is audited line by line, where full documentation of every number item is required.   

The man in charge of TIGTA is J. Russell George.   In a statement made recently, Mr. George chilled me to the bone.  The topic affects tax preparers directly, but it is a statement that not just tax preparers should be afraid of, but all taxpayers.  Mr. George said the following:

“Paid tax preparers prepared more than half of individual tax returns in 2009.  The IRS must step up its efforts to engage this community in its effort to close the tax gap.”

OMG.  They want to engage ME in it’s effort to close the tax gap.   I see three huge problems. 

1. People taking money under the table don’t come to somebody like me and if they do they don’t tell me about it.
2. This puts me in a HUGE conflict of interest.  If my clients think I am playing cop, they won’t want to do business with me. I am the taxpayer’s advocate, not the government’s.  Next it will be the Justice Department wanting more cooperation from criminal defense lawyers at curtailing crime. 
3. Me and my fellow CPAs, for the most part, do not want to be a tool of Big Brother.  

Don’t get me wrong, I hate the fact that there is a tax gap.  I do not aid and abet my clients in cheating the government.  I think tax cheats out to go to jail and serve significant time.  I hate that certain segments of the population feel like they shouldn’t have to pay taxes, but the other guy should.   Polls, anonymous ones of course,  show that the same people that would never steal a grapefruit from a fruit stand actually boast about how they cheat on their taxes.  But the minute they force me to get involved in correcting that, I am out of here.  It will be like working for the IRS, but without the job stability and the government pension. 

Of course, this may be what the IRS really wants “Hey taxpayer, let US, the friendly folks at the IRS, prepare your return.  We will do a really good job on you, oops,  I mean we will do a really good job.”

Musings About Asset Protection for California Real Estate Investors

I visited with a client of mine yesterday.  He’s about one year into “asset protection mode.”  He has several problem properties teetering on the edge, where the personal guarantees could bankrupt him.   Creditors are circling, but have not yet pounced.  It’s a Kabuki dance, will they or won’t they.  This client wants to be sure if they do pounce, they can’t wipe him out, like they did in the 90’s.

Since I am not an attorney, I can only assume the following that he told me is correct, but I cannot be sure.  This is what I learned.

1.   Get your money out of California bank accounts!  A creditor can walk into a judge the day you default and get a pre-judgment lien on your bank accounts.  Day 1.  A California judge cannot give a creditor such a lien on an account in Wyoming.

2.  Hold your properties in an LLC, preferably an LLC with members not involved in the day-to-day workings of your real estate enterprise. It is much harder for a creditor to get a hold on your assets in an LLC (vs. a corporation or no entity at all).

3.  Be out-of-town on the day of default (so you can’t be served).

4.  Begin squirreling away money into bank accounts that won’t honor a California judgment.  Many foreign jurisdictions, including plenty of ones where it is safe to keep your money,  will not do so.  I knew better than to ask where he was putting his.

5. Pay your federal taxes, file your returns, report your foreign bank accounts and keep on VERY good terms with the IRS.  Chances are, with all the real estate losses floating around, the IRS is not very high on any real estate investor’s creditor list.  The IRS has a worldwide power to collect, unlike the State of CA, and most people are unwilling to stomach the measures necessary to defy that power.

On that cheery note, if you have potential net worth-ending creditor problems and you have not done any bona fide asset protection, you are  a year behind the smart ones who learned their lessons in the 90’s.

Don’t Let The Tax Man Drive The Bus

I have said this to my clients many times.  Don’t let the tax man drive the bus.   What this means is don’t let the tax implications be the driving force for ANY financial decision.  “But Bob” you say “You’re a tax guy.  How can you say that?”  Sure I am a tax guy, but before I got my MS in Tax I got my degree in finance and was a few classes short of another degree in economics. 

People want to pay less tax, for sure.  But the answer to the question of “Hey Bob, should I buy a new truck?” is ALWAYS, do you need a new truck.   The main deciding factor in any business decision should ALWAYS be determined by the underlying economics, not the tax effect.  If you don’t need a new truck, don’t just do it because you get a tax break.  Don’t spend a dollar to save forty cents.  Now if you are thinking you MIGHT need that new truck, that is the perfect time to call, and we’ll go through the economics first, come up with an answer and maybe, just maybe, we’ll let the tax rules affect the answer.

And “Don’t Let The Tax Man Drive The Bus” is the foremost thing I would tell the tax policy makers in Washington.  In general, as of this minute, my business clients are not enticed in the new tax breaks for hiring new employees or for investing in new equipment.  They will tell you as far as their little corner of the economy is concerned, these moves will not stimulate job or business growth, because they do not make decisions about the economics of their business based merely on tax incentives.  To do so would allow the tax man to get be hind the wheel of the bus.