We all wish we could follow in the successful footsteps of our favorite celebrities. But sometimes, you can learn from their mistakes as well.
For whatever reason, celebrities often end up crossing paths with the IRS. You might assume that most of the problems stars have with the tax man don't really apply to average everyday folks. But though the dollar amounts might be smaller, many ordinary people get snared by the same traps that catch Hollywood's best and brightest.
Let's take a look at some common mistakes and what you can do to avoid them.
Celebrity Tax Blunders: What You Can Learn from How Fame Mishandles Fortune
Many celebrities have gotten smacked down for failing to paying taxes. Wesley Snipes actually landed in prison for his $17 million unpaid tax bill, while Nicolas Cage owed a seven-figure amount to the IRS. A host of others, including Lindsay Lohan, Pamela Anderson, and Christina Ricci, have faced liens or tax bills for more modest -- yet still sizable -- sums.
The two main reasons for us ordinary folks getting stuck with a big tax bill are that your paycheck withholding needs changing or that you have outside income that comes without having taxes withheld. In either case, even if you can't afford to pay when the bill comes due, ignoring the problem will eventually land you in an even bigger heap of trouble. Instead, take advantage of IRS programs that let you make affordable installment payments over time.
Part of what put Wesley Snipes behind bars was his conviction on three counts of failing to file tax returns by their filing date. In part, he relied on a bogus theory that all income taxes are unconstitutional as justification for his actions.
But a much more common problem many people run into is that they can't afford to pay their tax bill right away. The mistake they often make is to assume that they shouldn't file a return at all if they can't pay. In reality, the penalties for not filing your taxes are much more severe than if you file but can't payyour taxes all at once. So even if you don't have the money to send with your return, go ahead and file. It'll save you a ton of money -- and possibly jail time -- in the long run.
AccountingWEB recently took a look at some of the great swag that celebrities received at the Academy Awards. With sponsors handing out goodies including everything from jewelry to exotic safaris, the gift packages added up to as much as $75,000 in value. But the recipients have to report it all as taxable income.
You may never be so lucky, but even more modest prizes often get reported to the IRS. If you get a Form 1099 reporting the value of something you received as a prize or award, notincluding it on your tax form could trigger a red flag at the IRS.
One allegation that Nicolas Cage raised regarding his tax problems was that his business manager mishandled his funds and caused big losses that destroyed his finances. Similarly, Martin Scorsese and Al Pacino both blamed convicted adviser Kenneth Starr for their tax woes. Starr went to prison for fraud and theft from clients.
Still, no matter where you go or how much you spend for tax preparation, youbear final responsibility for making sure your tax returns are accurate. Reputable accountants will reimburse you for any penalties and interest that result from mistakes they make, but don't count on them. Instead, make sure you understand the positions your tax pro takes so that you can defend them if a question arises.
As you look at the hijinks of your favorite celebrities, be sure not to make the same tax mistakes they made. With a little common sense and some planning, you can learn from celebrity mishaps the easy way.
Selling your kid's old bicycle is not likely to cause any tax consequences, but when you sell crafts, vintage or specialty items on websites like Etsy, you must report and pay taxes on your net income. You will also likely need to pay self-employment tax on your profits, and in some locations, you may also be responsible for charging and collecting sales tax.
If you use vehicles in your small business, how and when you deduct for the business use of those vehicles can have significant tax implications. It pays to learn the nuances of mileage deductions, buying versus leasing and depreciation of vehicles. Special rules for business vehicles can deliver healthy tax savings.
Congress has passed the largest piece of tax reform legislation in more than three decades. The bill will affect the taxes of most taxpayers, but one key point to keep in mind is that for most people, the bill won't affect your taxes for 2017 (the one you file in 2018).
Every April, many taxpayers wait until the last minute to file their federal income tax returns. Despite this tendency, there are many reasons to file your taxes early. If you will receive a refund, you may want to submit your return as quickly as possible. Additionally, there are benefits to filing early for those taxpayers who have a balance due.