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A Conversation With … Erica Smith

Partner, BKD LLP

Posted online

What’s your area of focus at BKD?
I’m a tax partner and I have been at BKD for 16 years. I help head up our construction real estate team. A majority of what I do is working with construction contractors and real estate developers. Along with that, too, I work with other small businesses, retail and manufacturing.

In 2017, there was an overhaul of America’s tax system through the Tax Cuts and Jobs Act. What are some of the biggest challenges and opportunities this has posed for businesses?
They talked a lot about tax simplification for a lot of Americans, and generally that was true. If you’re an American worker and an employee who’s just getting W2, your return did get a little bit simpler. But for everyone else, every business owner, everyone who owns a rental property, invests in rental properties, their returns got more difficult. There’s just a lot more regulation. There’s new deductions, which is good, but with that comes new rules. For small businesses, pass-through entities, partnerships, S corporations, they receive the qualified business income deduction. If you qualify, 20% of your taxable income is tax free. The idea is that if you’re spurring economic growth through your business that you should qualify.

For your real estate and developer clients, “opportunity zones” are a new tax savings and investment tool. Have your clients taken advantage of the three zones in Springfield?
It’s certainly a very tax-advantage vehicle, if you can make it work. To get the most bang for your buck with those, you’re going to have to be invested in it for 10 years. The governor of each state designated the “opportunity zones” based on applications that were submitted by various municipalities. Springfield applied for certain tracts. There are some along the downtown area, along the northeast side of town and then around the Bass Pro [Shops] area. As an investor, if you have gain from another project, then you can reinvest that gain in a business that operates in that zone. If you hold that investment for seven years, until 2026, you can defer the gain, and then if you hold it for 10 years, you don’t recognize any gain on the future appreciation of that business. The first early adopters were real estate related clients. Multifamily housing works really well in these areas, because typically there’s a shortage of housing. What I think we’ll see in the future is – really kind of what the law intended – to get real operating businesses in those zones, to bring workers to those areas that are kind of blighted now or not having a lot of development.

How would you characterize the temperature of your industry?
With the accounting profession, right now that culture is disruption and change. We’re starting to move into what is automation. (Mark Cuban) from “Shark Tank” famously gave a speech and said that CPAs would be irrelevant in 20 years. There’s a lot of talk about where do you fit in a world of automation. At the end of the day, most of what we do is very personal to our clients. At BKD, our main clients are medium and large family-owned businesses and a lot of that not only is just running their business but also family dynamics and emotion. Those are things that a machine is never going to be able to read and give you any answer.

Erica Smith can be reached at esmith@bkd.com.

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