Last time on Celebrity Tax Lives...
We Discussed "Big Bad Advisors", "Every day is awesome", and "Records are for losers."
And now the conclusion...
7. A Mean Girls Tax System
Celebrities get their money in weird ways and from weird places. Self-employed individuals need to pay "estimated taxes" throughout the year or face a penalty. Entertainers have no real way to estimate their earnings through the year, between one or two movies, a club appearance and autograph signings, the money can be earned at any moment. Such erratic pay structures can lead to honest forgetfulness. Such as payments for a club appearances; cash or checks are exchanged and the star can cash it without reporting it (as an honest mistake, they forget) the IRS however does not forget. That club reports a deductible expense payment to a celebrity on a Form 1099. As such, the IRS can sniff it out and assess it against the entertainer pretty easily, with penalties and interest, even for an honest mistake. Another example is that most entertainers are super mobile, in that their craft is performed in many difference states and jurisdictions. Whether an actor shoots "on location", or a football player sits on the bench at an away game, each and every state and jurisdiction that they earned that money wants a cut. On a movie shoot spanning the country or even the globe, a movie star must assess the earnings attributable to each jurisdiction or face penalties and harsh collection practices for that areas pound of flesh. The same is true for any normal traveling consultant who might be peddling their knowledge in multiple jurisdictions, so keep it in mind next time you get the opportunity to DJ at your friend's pool party out of state
8. Leeches, Parasites and Gift Horses
Entourages, friends, families and groupies: When you get famous enough everyone wants a piece. A quick loan, a job or "incredible" investment pitches become common place. Here is the rub though, a loan can have interest income, cousin Sal acting as your driver requires a W-2 and a Workers Compensation policy, and that house you bought for your mistress may require a Gift Tax Return. The IRS is demanding and demands the same of regular people, most often people make this mistake with Nannies and cleaning help, they too require a W2 and a Workers Compensation policy, and troubles can abound for those that do not follow the rules. The same is true for gifts received by the entertainer. Now, many things are true gifts from fans or admirers, but a new Aston Martin for showing up to a party is not and the IRS will want its due payment. Even those famous "gift" baskets at awards shows are not so cut and dry.
Stay tuned for Episode Three!
Benjamin Goldburd is an Associate at Goldburd McCone LLP a boutique tax law firm in New York City.
For more information on these and other tax issues feel free to contact our offices at 212-302-9400, or on the web at www.goldburdmccone.com