As 2018 ushers in changes to the United States tax code, many Tri-City business leaders are trying to wrap their head around what it means and how it will affect their companies.

The bill was signed by President Trump just before Christmas and is the first major change to the tax code since former President Reagan signed the Tax Reform Act of 1986.

Opponents believe the Republican-backed bill benefits the wealthiest Americans while hurting the middle class and adding $1.5 trillion to the deficit. Proponents believe it will spur job growth and allow people to keep more of the money they earn.

The bill will lower the corporate tax rate from 35 percent to 21 percent and eliminates the alternative minimum tax. The finalized bill also affects pass-through businesses that are typically sole proprietorships, joint ventures, limited liability companies and   S corporations. Rather than being taxed as corporations, these businesses are counted in the owners’ personal tax returns and gives those filers a 20 percent deduction for the first $315,000 of joint income.

While several business owners are optimistic about the changes ahead, Carl Adrian, president and CEO of the Tri-City Development Council, or TRIDEC, said it’s too early to know what impact the bill will have on the community.

“What we’re hearing right now is a lot of partisan rhetoric. Without really seeing what’s in (the bill), I don’t know that anybody is going to see dramatic impact for quite some time,” Adrian said. “I suspect in two or three years we’ll say, ‘Oh yeah, that makes sense.’ But trying to see into a crystal ball right now is like shooting in the dark.”

Paul Guppy, vice president of research for the Washington Policy Center, an independent nonprofit research and educational organization based in Seattle, has been following what the critics say closely.

“They’ll say most of the benefits go to the rich, and in proportion that’s true because wealthy people in business pay most of the taxes, but that doesn’t mean it doesn’t benefit everyone—and that’s the one thing that upsets us about opposition to the biggest tax relief package in over 30 years,” Guppy said. “We know there’s been a lot of debate, and we know it’s complicated, but overall, we’re encouraged about what it will do for our country and Washington state.”

Sun Pacific Energy Vice President Chris Eerkes also is optimistic. The act extended and modified the bonus depreciation, allowing businesses to immediately deduct 100 percent of the cost of eligible property in the year it is placed in service. Eerkes said this change will benefit Sun Pacific Energy multiple ways, allowing the company to invest more in its employees as well as expand.

“If I go out and build a store or buy equipment, I’ll be able to eat up that depreciation—basically expensing those profits quicker—which will allow us to grow,” he said. “In our company, we more than doubled our profit sharing program for our employees because of this. We’re able to expense and take those profits and pass those along to the employees.”

A doctor with clinics in Prosser and Kennewick hopes the tax reform helps her business to get ahead.

Dr. Wali Martin opened Martin Medical in Prosser four years ago. Her second location at 35 S. Louisiana St., suite 120 in Kennewick, opened shortly after but she has yet to draw a salary from either location.

“I have not paid myself yet because it’s about volume, and I don’t have volume. In medicine, you see patients and you don’t get paid for three months. I work at PMH (Medical Center in Prosser) as an (emergency room) doctor to pay the bills. The income I get from patient insurances pays for the practices themselves. This tax change might allow me to get ahead,” she said. “It makes me hopeful that all businesses in towns like Prosser can be more successful because they bring more home to feed their families.”

While there are some major components to the act that business owners like, many popular itemized deductions have been limited or eliminated altogether. For example, the mortgage-interest rate deduction has changed from $1 million to $750,000 of mortgage value.

Michelle Pfister, a realtor with RE/MAX Professionals in Kennewick, fields a lot of questions from buyers and sellers alike about what the benefit of moving will be for them.

“I get asked about deductions on mortgage interest, home equity, property taxes and home improvement. All of those aspects are changing and will really affect what we as homeowners can deduct for changes or improvements on our homes,” Pfister said. “Currently, you could deduct reasonable moving expenses if you met certain requirements, but that deduction has been eliminated.”

A few real-estate related provisions were scrapped from the bill in the final hours, such as the changes proposed to capital gains on the sale of a primary residence. But the Historic Rehabilitation Tax Credit, which offered a 25 percent tax credit to anyone who refurbished a certified historical site, as well as a 10 percent credit for work done on a building constructed before 1936, will no longer be available.

“This credit helped investors who fix up decrepit parts of cities and towns,” said Pfister, adding that the domestic production activity deduction also was  nice for rehabbers, developers and builders to claim to further reduce their tax liability. “Builders and developers will work this loss into their pricing per home to compensate. It doesn’t help that so much building and construction material was lost internationally with fires and hurricane damage causing huge demand for rehab materials to be sent to those areas in need.”

Of course, how the tax bill impacts individuals and businesses is subject to circumstance, where you live and tax breaks a payer ordinarily takes.

Darren Szendre, a certified public accountant with Tri Cities Tax, has more than 17 years of experience in providing tax consulting, compliance, accounting and business advice.

“The research and development credit will have a big impact on businesses and individuals as (alternative minimum tax) is gone for corporations and the AMT exemption has been increased for individuals. Mortgage interest is still deductible but with lower caps on the loan amount. The personal exemptions are eliminated but the standard deduction has been almost doubled,” said Szendre, adding that it’s important to talk to a CPA as taxpayers begin to navigate through the law.

Eerkes has been in touch with Sun Pacific Energy’s tax accountant and said business owners aren’t alone in their confusion.

“I’ll ask a question, and (our accountant) will say, ‘I’m working on that same issue for 500 clients,’ ” Eerkes said. “I don’t understand all the details, but I’m optimistic. I think it will be a good deal for small businesses and the community as a whole.”