More

Jo Piazza
jo.piazza@gmail.com Become a fan of this reporter
GET UPDATES FROM Jo
 

Lindsay Lohan Tax Problem Common Among Celebrities

Lindsay Lohan Taxes

First Posted: 01/13/12 09:55 AM ET Updated: 01/13/12 09:55 AM ET

Amazing
 Inspiring
 Funny
 Scary
 Hot
 Crazy
 Important
 Weird

Many celebrities work on projects that give them million-dollar paychecks, so why can't they all hire good accountants? That's what many people were wondering this week when they learned Lindsay Lohan is the latest celebrity to run into some IRS trouble.

Lohan reportedly received notice from the IRS that she owes almost $94,000 in unpaid income taxes from 2009. According to TMZ, the actress was unaware of the issue until recently.

Hopefully Lohan will take some of her recent Playboy paycheck to make things right with Uncle Sam and remember to file her taxes properly this year by the April 15 deadline. But let's remember that the often-beleaguered actress doesn't exactly have too many role models to look up to these days; her father, Michael Lohan, owed the government over $12,000 in unpaid taxes in 2010.

Of course, Lohan is also not the only celebrity scofflaw out there. In fact, stories about famous folk avoiding their taxes and getting into trouble seem to hit the news all too often.

Other celebrities who have had recent run-ins with the IRS include rapper Method Man, who was arrested for failing to pay $33,000 in back taxes in 2009, and "Pan Am" actress Christina Ricci, who was hit with a federal income tax lien of nearly $180,000 on her 2008 earnings. "Baywatch" babe Pamela Anderson owed nearly half a million dollars to the IRS in 2010 and actor Nicholas Cage was reported to owe more than $6 million to the IRS at the end of 2009.

But the biggest celebrity tax offender of recent years was Wesley Snipes, who was actually sentenced to three years in prison for failing to pay over $17 million in taxes. He started serving his sentence in December 2010.

One reason for all the taxation trouble for these celebrities? They often work as independent contractors and it can sometimes be tricky to keep track of every income stream coming their way.

"Celebrities are contract brands, not employees," said Joshua S. Barger, vice president of tax services for Foundation Financial Group. (Barger has no connection to Lohan's financial situation.) "Since they have higher earnings, they may also have a greater risk of audit and additional taxable events as well as additional income and properties."

In some cases, a celebrity acts as a self-employed contractor for different companies and they then receive a 1099 tax form -- and they are supposed to be making quarterly estimated tax payments to the IRS. If a celebrity -- or anyone, for that matter -- doesn't comply with IRS guidelines, they could be subject to penalties and interest.

And even though their taxes may be more complicated than the typical W9 form that employees of other professions often receive, celebrities can often be negligent when it comes to handling their financial accounts. Busy stars often expect others -- like their assistants or managers -- to worry about making sure their affairs are in order.

"Celebrities get into tax trouble because all of their economic situations are handled by a business manager (who is usually an accountant) and the celebs pay no attention to the details. Costs, like taxes, usually do not interest them," explains New York CPA Howard S. Krant of Adeptus Partners, LLC. "Typically, their business managers get paid on a percentage of the celebrity's gross income. And, unless they are paying attention, they often don't care whether the celebrity spends every penny he or she makes and they do not put aside some of that celebrity's money to pay taxes, nor do they develop a tax plan to save the celebrity the most money."

It seems the key to fixing their finances is for a celebrity to hire a good business manager. That job should ideally go to someone outside of a star's inner circle -- not their father, their best friend or husband, as is often the case.

"A celebrity's business manager should probably be paid an hourly fee -- not a percentage of gross income," Krant says. "The business manager should be budgeting out and monitoring all of the celebrity's expenses (and taxes are an expense, like insurance). The business manager should develop tax strategies that will save the celebrity the most money -- but more importantly, they should be setting aside monies to pay those taxes as a part of their budgeting."

Taxes, like death, really are a great equalizer -- they are the one of the few things celebrities can't easily wriggle their way out of by signing a few autographs or making a call to their lawyers.

"Ultimately, celebrities, just like everyone else, are responsible for their financial condition and for keeping up with the Tax Man," says Nick Rizzi, founder and CEO of Smart Tax. "Unfortunately, if celebrities are in tax trouble because of errors, there is no easier way than just taking on the mistakes head-on and being made accountable."

Check out photos of Lindsay Lohan below.

Launch Slideshow
 HIDE THUMBNAILS
1 of 34
PLAY ALL
ADVERTISEMENT

Related on HuffPost:

FOLLOW HUFFPOST CELEBRITY

Many celebrities work on projects that give them million-dollar paychecks, so why can't they all hire good accountants? That's what many people were wondering this week when they learned Lindsay Lohan...
Many celebrities work on projects that give them million-dollar paychecks, so why can't they all hire good accountants? That's what many people were wondering this week when they learned Lindsay Lohan...
Related News On Huffington Post:
 

More in Celebrity...


 
 
  • Comments
  • 9
  • Pending Comments
  • 0
  • View FAQ
Post Comment Preview Comment
To reply to a Comment: Click "Reply" at the bottom of the comment; after being approved your comment will appear directly underneath the comment you replied to.
View All
Favorites
Recency  | 
Popularity
cincypix
85 Fans
09:56 AM on 01/18/2012
Many people fail to keep financial records of any sort, not just celebrities. Not keeping records hurts beyond taxes, especially if you go (or get taken) to court over a dispute.

Lilo's not having an effective financial rep in her camp's hurting her. But what got Wesley in the big house is that he fell in with bad advisors. They told him the umpteen mil he made in 1999-2004 was tax free, & got all of two previous years tax (illegally) refunded. Look up "Snipes 861 argument" for some real laughs :(
Permalink  |
photo
HUFFPOST SUPER USER
repugnicansfearme
Here endeth the lesson.
630 Fans
09:16 AM on 01/14/2012
I don't know, GREED??????
Permalink  |
Seastink
82 Fans
03:40 PM on 01/13/2012
Because in the real world they're not very bright.
Permalink  |
photo
joemastrianocpa
0 Fans
03:17 PM on 01/13/2012
We like to help people with IRS problem. All you need to do is gather all your tax information and file you back taxes. Google Killer IRS for help.
Permalink  |
photo
HUFFPOST SUPER USER
repugnicansfearme
Here endeth the lesson.
630 Fans
09:17 AM on 01/14/2012
I like the big guy with the red beard "If the IRS is scaring you, CALL US"- hey, why not just pay your taxes?
Permalink  |
HUFFPOST SUPER USER
vaf112675
Read my comments. You'll know me by them.
190 Fans
03:15 PM on 01/13/2012
Dear celebrities:

Find yourself a respectable CPA firm to handle your taxes.

CPA's can be held accountable if they screw up your finances. Your manager will be long gone by the time the IRS is at your door.
Permalink  |
HUFFPOST SUPER USER
vaf112675
Read my comments. You'll know me by them.
190 Fans
03:11 PM on 01/13/2012
Celebrities rely too much on the people who run their careers (agents, lawyers, etc.).

They think these people are helping them and will make sure that all the necessary paperwork gets done.

Sadly what celebrities don't realize is that a lot of these talent agents and legal eagles only care about making themselves rich from their associations with said celebrities. So when tax season comes they only do their taxes and conveniently forget about filing their client’s papers.
Permalink  |
photo
FlaviaDeLuce
books rule
398 Fans
 
01:31 PM on 01/13/2012
Celebrities are human, they can find April 15ht on their calendar just like everyone else..... it's not that complicated
Permalink  |
mwnyy
50 Fans
10:53 AM on 01/13/2012
Because they think they are above the law and shouldn't have to pay taxes like the real workers out there. Yet some cry poor, like Lilo who couldn't afford counceling but buy purses worth thousands of $$$. Go figure
Permalink  |