Marc Anthony, Xzibit and More: Advice for the Tax-Challenged Celebrity

He sings like an angel; doesn't pay taxes like a devil. Marc Anthony, Latin crooner extraordinaire and hubby to a very sparkly J.Lo just got served with a tax lien of $3.4 million (Radar). And not his first time. He'd previously been hit with a back-tax bill for his estates plus unpaid taxes over several years. The man can belt out salsa like nobody's business but seems to have a lot of trouble running his own personal business.
And as a year of celebrity tax-drama continues, there's Xzibit now crying foul after getting hit with a tax lien over $1 million, reportedly blaming the cancellation of his show. Sorry, Xzibit, that's one story you can't pimp.
Whether it's Nicholas Cage or Toni Braxton, or a dozen other celebrities lately (hello Wesley Snipes!) the idea that somehow you and me and every other hard-working American have to pay our share but they don't, rankles me to no end--and it should rankle you too. We can understand that they may not have to pay for their free gowns and vacations, their fame earning them the currency of free publicity for who they wear, consume, choose to vacation with or drive, but celebrity does not buy one out of helping support this country just as most of us do. (And really, with an average salary of around $50,000, I think the average American household can use the money more.)
Sure, I can understand not wanting to pay a dime more than you owe in taxes--and you shouldn't--but to bilk us, (the American public who use/enjoy tax-backed services) out of millions? As my mother would say to Señor Anthony, "Sinvergüenza!"
Here's the deal. FIRST: Stop thinking you can get away with it--and don't listen to anyone who tells you that you can. The IRS knows you almost as well as the public and your fans know you. They know and can estimate how much you owe based on record sales, tours, show episodes, reported movie salaries, etc. And like Richard Hatch who found out the hard way after the first season of Survivor, they too watch TV and know how much money you've won. And once you've gotten in trouble a first time, you can be sure they'll be watching you more closely, for decades.
SECOND: Get better advice--you are responsible no matter who does your taxes. Surely for some celebrities, especially those with instant, sudden fame and wealth, if they didn't watch their money closely before they had a lot of it, they may not know how to do so going forward. But ignorance isn't an excuse. As many of us regular folk know, even if an accountant does your taxes, once you sign, you are responsible. Nicholas Cage directly blamed his financial advisor but the great financial advisors I know meet with their high-net-worth clients as often as once a month to keep them informed (fully!) and treat them (clients) as the head of their 'team'--the team paid to take care of them.
THIRD: There are lessons to be learned here. We may not have their millions or their fame, but we may come into money at some point or end up freelancing, or getting paid under the table. Always set aside cash in a separate account to pay your taxes. If you get a check for $1,000 or $10,000 for a job well done, consider at most two-thirds of that yours. Put away at a minimum 20% of what you earn that hasn't been taxed, even 30% or more if you're in a higher tax bracket and haven't self-incorporated and if it's lotto winnings or a gift, sock away closer to 50%. That may not even cover your whole tax bill but it will ensure that you're not hit with a mega-bill with fees and penalties the next year, or even years later.
Also, get great advice--sound advice--from several sources and find an accountant you can trust. Not one who's claim to fame is making sure you pay almost nothing in taxes. Rather, one who does a great job in helping you pay only what you owe, maximizing your deductions and credits, and making sure that the tax-man doesn't show up with a bill that cramps your style, celebrity or not.