For Immediate Release
Contact: Gigi Thompson Jarvis
, 202.822.6232, x119
Tax Trials and Tribulations of the Rich and Famous
WASHINGTON, DC (February 8, 2012) What do Marion Barry, Rob Lowe, Wyclef Jean, Vera Wang and Lindsay Lohan have in common? IRS trouble! No matter how famous, talented or connected, whether actor, designer, politician or musician, in the eyes of the Internal Revenue Service they are simply “taxpayers.”
The average taxpayer who chooses a withholding status and then turns tax collection over to the HR department for payroll withdrawal often scratches his or her head at the very wealthy who can’t seem to get a handle on paying their taxes. Keep in mind that many of these famous tax delinquents are independent contractors or self-employed, making their taxes quite a bit more challenging – not to mention the difficulty of correctly reporting income earned in a variety of states. And while many in high income brackets employ a business manager, not all of those managers have tax expertise, especially when they are spouses or other family members.
“Independent contractors at substantial income levels should always have a competent tax advisor who not only keeps an eye on earnings to ensure that money is put aside for estimated quarterly tax payments, but can spot all the potential credits and deductions that are available to the self-employed,” said Karen Brosi, an enrolled agent in Palo Alto, CA. “For example, taxpayers without any expertise in the tax field often are unaware that they must pay a self-employment tax and miss important deductions such as bonus depreciation or the opportunity to make deductible retirement contributions right up to the deadline for filing the return. One of the advantages of consulting an enrolled agent in this kind of circumstance is that they are licensed to practice in all fifty states, and can help navigate multi-state tax issues.”
Planning out estimated tax payments is tricky even for those who do not land a six-figure book advance or sign onto a movie with a seven-figure pay day. To figure your estimated taxes, you must calculate your expected adjusted gross income, taxable income, taxes, deductions, and credits for the year. And if there are changes, such as unexpected job offers, surprise job losses or other events, you have to calculate again. Underpayment can result in substantial penalties.
Many celebs that are getting good tax advice form a corporation in order to shield themselves from personal liability (you know, when those pesky paparazzi get under the wheels!), and to protect personal assets from corporate creditors. In addition to lowering risk, there are numerous tax advantages to incorporation. But it’s probably safe to say that most celebrities prefer not to spend a lot of time thinking about taxes – not unlike the majority of the American public.
The National Association of Enrolled Agents strongly recommends that celebrities and non-celebrities alike contact a licensed tax practitioner, such as an enrolled agent, to ensure they don’t wind up paying more than they need to – or find themselves sharing a cell with Wesley Snipes!
About Enrolled Agents
Enrolled agents (EAs) are America’s tax experts. They are the only federally-licensed tax practitioners who specialize in taxation and also have unlimited rights to represent taxpayers before the IRS. While attorneys and certified public accountants are also licensed, only enrolled agents specialize exclusively in taxes. Enrolled agents are required to complete many hours of continuing education each year to ensure they are up-to-date on the constantly changing tax code and must abide by a code of ethics. To locate an enrolled agent in your area, go to the “Find an Enrolled Agent” directory at www.naea.org.