Secondhand smoke hazes ... I mean hazards

When we think of secondhand smoke, we naturally think about tobacco, right?

Well our legislators up in Sacramento are way ahead of the game. With marijuana now legal, secondhand smoke issues have gotten a whole lot foggier.

Long-term impacts are no longer the focus, rather the immediate implications of secondhand smoke can take a whole new turn.

Or that's the concern being addressed by legislation introduced in Sacramento last week. SB 625 is seeking to tighten the regulations on party busses … you know, those busses you can rent to take you to another party, an event, or just drive you and your closest 50 friends around for fun. Party bus amenities not only include stocked bars, but can also offer strobe lights, smoke machines, sound and video systems, and some even advertise power remote-controlled mirrors ... yes, we don't want to know.

Now that cannabis is legal, party busses are allowing passengers to partake in the various products offered by the cannabis industry. But after the initial smoke cleared, evidently there were issues that arose. If SB 625 is enacted, passengers will only be able to smoke or vape marijuana on a party bus if the driver's compartment of the vehicle is sealed off and separately ventilated from the passenger compartment.

I think this is a bill we can all get behind ... especially if we're driving behind the bus.

Photo credit: Kris Krüg

Your clients' document (dis)organization

Last week we ran a list of the ways clients organize their documents in an effort to "help" their tax preparer. We got a ton of reader responses that we'll share over the coming weeks, and they blow the original list out of the water!

  1. The client brought records in an accordion file. The documents were sorted based on the size of the document, not by date or category. Then the client got upset that I rearranged them by category and date.
  2. Once we asked a client for a copy of his QuickBooks file and he sent us a photocopy of the CD on which his file was saved. We have another client who would print out all 12 pages of his excel spreadsheet and tape them all together into a giant paper quilt and then fold it up and mail it to us.
  3. Early in my career, a client brought in a paper shopping bag filled with receipts and assorted documents. On the side of the bag with Magic Marker was written "TAX S**T"!
  4. One client obviously decided to take pictures of his documents during lunch. The first page was his W-2 and a complete sandwich. Every subsequent page had a bit taken out of the sandwich. He was not done — he had an apple. Remember those flip books that show a cartoon when you flip through it? You get the picture.

Reader response: On the TCJA versus 1986, and taking advice from Spidell

We received this story last week from a tax pro, sharing her experiences with tax reform over the 51 years she has been practicing.

I have been attending your seminars for more years than I can remember. They are the best seminars, hands down, and I always come away with new ideas and excellent training. For example: last year one of your instructors suggested that if we want to slow down and not work so hard we should double our fees. Maybe some of our clients would leave and we will not have to work as hard and we will still make the same amount of money. I took his advice and did just that. However, no one complained and no one left. I'm still working just as hard!

This year, I will be celebrating my 42nd anniversary of my 29th birthday and I'm thinking it might be time to retire (being as slowing down didn't work). I have been preparing income taxes for 51 years and have seen it all and lived through tax reform after tax reform. I have become proficient at reading a tax return upside down while going over it with my clients. All was well until this year. This new "post card" has no rhyme nor reason for what is on the next line and I find myself constantly having to turn the tax return right side up to see what is on the next line or even the bottom line when going over it with clients. For the first time in my life, I find I am asking myself, "Where did that number come from?" It is taking me even longer to prepare a return than ever before and even longer to explain it to clients. What are my options? What do you think ... retire or double my rates?

Tax Tip: Partners, members, and S corporation shareholders

We have received many questions about how the K-1 recipient of a passthrough entity can meet the safe harbor for IRC §199A. The answer is that they don't have to.

The safe harbor test, as laid out in Notice 2019-07, requires that the owner of the rental real estate meet the safe harbor requirements. For IRC §199A purposes, the owner can be an individual or a relevant passthrough entity (RPE). An RPE for IRC §199A purposes is a partnership, LLC taxed as a partnership, S corporation, or an estate or trust.

Therefore, if rental property is owned by an LLC taxed as a partnership, for example, then the safe harbor requirement is determined at the LLC level. If the LLC meets the requirements of the safe harbor, then the rental real estate is deemed to be a trade or business and the K-1 recipient is not required to attach a safe harbor statement on their personal return because it was already done by the RPE.

A few fun facts about this week's writers:

Sandy Weiner, J.D.Sandy Weiner, J.D., as California editor, loves all things California. Whether it's hiking at Big Sur or playing at the beach in San Diego where she lives, Sandy takes full advantage of all that California has to offer as a way to clear her head after trying to comprehend and explain California's Revenue & Taxation Code.

Lynn Freer, EALynn Freer, EA, is a French literature major, so of course her favorite vacation destination is France. Here she is dining on mussels and fish stew near Nice.

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