Search: athletes

The Worst Celebrity Tax Problems

This article was written by Flexo in Taxes. 10 comments.

It’s with a tinge of schadenfreude that people are fascinated with the failures and foibles of famous celebrities. Every year, the IRS chases people who evade or underpay federal income tax, and actors and popular figures in the media, who often don’t manage their own finances, make the news.

The latest is Lindsay Lohan. You may remember her from such films as Mean Girls, Freaky Friday, and Herbie Fully Loaded. TMZ has discovered that the IRS has obtained against Lindsay for almost $100,000, representing tax she didn’t pay for her income in 2009. Like many busy people, Lindsay employs an accountant to handle her finances, and she says the oversight will be handled immediately.

Lindsay Lohan The sum Lindsay owes is small compared to the problems other celebrities have had with the IRS.

Wesley Snipes failed to pay up to $17 million to the IRS for his income taxes, not including penalties and interest. After his trial and a failed appeal, he was sentenced to prison for three years.

Nicolas Cage also blamed his accountant for his failure to pay a $14 million tax bill in 2010; even more recently, Nic failed to pay over $600,000 for a gift tax.

Pamela Anderson owed $2 million to the IRS and to the state of California.

Annie Leibovitz isn’t a movie star, but she is at the top of the list of famous modern photographers. She owed $2.1 million in back taxes, and pledged to sell her ownership of her photography to pay the bills.

Martha Stewart owed $220,000 to New York for taxes, but she believed she didn’t need to pay this tax because she didn’t spend time in that state.

Celebrities often have tax situations that differ from people who aren’t performers or professional athletes. They need to handle state tax returns for every state in which they’ve earned income each year, just like all taxpayers, but in any given year, performers may have earned income in a large number of states. Celebrities will almost always be too busy to handle their own tax returns, so they trust accountants to handle the paperwork and the payments.

On the other hand, it’s safe to say that some famous individual who owe the government money for failure to pay their tax bills are aware of the situation and are trying to skirt the law as much as possible, until they are forced to pay.

Photo: Rafael Amado Deras
TMZ via Don’t Mess With Taxes, New York Times, UPI, Back Taxes Help

{ 10 comments }

When People Get Rich Quickly: Lessons from Michael Vick’s Bankruptcy

This article was written by Flexo in Wealth and Affluence. 16 comments.

A typical professional athlete may be a prime example of the situation in which an individual might find himself suddenly wealthy. The idea that a person could consider himself middle class or lower one day and wealthy the next is a recipe for financial disaster. It’s easy to look at athletes because their trials and tribulations are often front page news. Michael Vick had some problems with the law, but now he’s dealing with financial fall-out. He has declared bankruptcy, and for the first time, the public is getting to see the choices he made with his money.

Vick listened to the wrong people and was perhaps a little gullible and trusting. His seemingly unlimited income gave him the opportunity to spend with zeal. He paid $223,000 a year for dubious financial advice, $78,000 a year for allowances for his family members, and an extra sum of $209,000 for his mother. His obligations included various house payments for his family in addition to the allowances, salaries for his entourage, $10,000 per month on jewelry for a period of 20 months, payments for his own houses (four), boats (five), cars (eight), and horses (unknown).

Gold Bars Money And then he wasted his money on failed business ventures for which his friends and advisers convinced him to part with more of his money, like a rental car franchise, janitorial operations, a restaurant, and of course the issue that eventually landed him in jail, the dog fighting ring.

The result of all his money missteps was bankruptcy, with a variety of companies staking claim to his future earnings. At least in Vick’s case, he is getting a second chance. With his new contract, and with a new approach to managing his money, he should be able to meet all his financial obligations.

The thought of having a sudden influx of cash, particularly if it puts you in a significantly different financial situation that those who are closest to you, is frightening. Suddenly, friends and strangers might approach you with investment ideas or pleas for help. Many suddenly wealthy individuals are grateful for their situation and want to help others, but responding to these requests can be a quick road to losing everything.

Ron Lieber, columnist for the New York Times, offers a three-pronged approach for people, not just professional athletes, whose financial situation changes significantly, quickly: slow, small, and scrutiny.

Slow

Don’t make decisions right away, and keep the money invested safely in cash or bonds from the outset. Don’t give in to the immediate pressure you may receive from friends, family, and strangers looking for investment capital or financial help, even though you may strongly desire to help those closest to you. Decisions made quickly could end up hurting your financial security later, so slow down your approach and resist the temptation to immediately go after investments that promise to pay off handsomely. It’s true that the wealthier you are, the more access you have to potentially lucrative, but complicated, investments, but keeping money invested safely for a while helps you wait until you can make more rational decisions.

Small

The good-hearted among us will want to use newly-acquired wealth, particularly if there is more money available that any one family could use in a lifetime, to make grand gestures with large amounts of money, making the world a better place. The adviser quoted in Lieber’s article points out that many athletes invest in a city only to find out they would be traded to another city the next year. Keeping gestures small would make more sense.

Additionally, if we’ve seen anything from celebrities in Hollywood, there’s often a temptation to use wealth to buy a massive house. Many people, even the wealthy, aren’t prepared for the expenses involved with maintaining a house, particularly if that house is large. There’s always a chance that it proves to be a good investment, if another celebrity makes the risky decision to buy the mansion at a higher price down the road, but there are never any guarantees. In the case of athletes, many become wealthy at a very young age — and they may have never even lived on their own before. The article suggests buying a small home to start, perhaps even a condo.

Scrutiny

Shady advisers appear out of the woodwork when there’s money to be made. The article says it’s a good idea to have an adviser, but be very selective. I’ve written a series about selecting and working with financial planners, and weather you’re suddenly wealthy or looking to build wealth over time, the same concepts apply. The most important factor is finding a fee-only financial planner to serve as a fiduciary, which means they are bound to advise in your best interests only. Even this doesn’t prevent an adviser from taking advantage of a client, though.

I would also argue that a good, solid education about basic money management can go a long way in reducing the need for outside “expert” opinions about how to hold or invest your money.

An athlete signing a professional contract, a lucky individual who wins the lottery, or an entrepreneur selling his company to Apple all might have to deal with a sudden influx of wealth. Keep cool and don’t make any sudden moves. Wait before offering any financial help or investment capital to friends, family, and advisers. From a practical point of view, these are likely to be good priorities:

Pay any taxes due.
Put aside a year’s worth of expenses in a liquid investment like a money market account or a high-yield savings account.
Pay off any debt.
Update or create a will.
Determine how your wealth can help you reach your non-financial life goals and plan accordingly.

ESPN, New York Times

{ 16 comments }

Sensuous Value is the Worst Kind

This article was written by The Weakonomist in People. 12 comments.

This is an article by The Weakonomist, an anonymous blogger responsible for everything at Weakonomics.com. As a banking insider he’s witnessed the economic implosion from inside the bubble. You can usually find him at the corner of Wall Street and Main Street throwing rocks at traffic.

If I presented a monkey with two choices: a grape or a piece of paper that could be exchanged for a dozen grapes, what will he choose? Before the question is even asked, he will take the single grape. Stupid monkey.

We’re all stupid monkeys. Sure as an individual you’re smart, but as a population we’re terribly stupid. And much of that goes back to our monkey brains. We see value in the single grape but not the paper. And this isn’t a matter of instant gratification. Your senses are playing tricks on you. As a collective people, we place too much value on the things we can see, touch, taste, smell, and hear.

The best examples of sensuous value come from people that come into wealth quickly. Think of celebrities, rappers, and athletes. According to Sports Illustrated, an estimated 60% of former NBA players are broke within 5 years of retirement and 78% of NFL players have similar issues within 2. Now part of that may be due to poor spending habits and not just investments, but the two are really one in the same.

Bad investing and poor spending both focus on the material. You want to take cash and turn it into something you can really own. It might be cars, jewelry, houses, friend’s businesses, vacations, or restaurants. They can all be consumed in some form or another. You can brag about the company you’re invested in, sample Beluga caviar while cruising the Mediterranean, or take a hot date to your restaurant in your Maserati. The only thing that differentiates bad investing with bad spending is the expectation of a return. But if the return was unrealistic, then the only difference really is a tax write-off.

But why do we put our money into such ridiculous things? It’s because we put more value on something that appeases our senses. Our senses are really a low level genetic trait, we know this because just about every type of animal shares the same basic senses. And their lives are spent acting on these senses, because that’s how they survive. But the presence of opposable thumbs isn’t the only differentiator between us and other animals. We can think critically, and we can see value in things that go beyond our senses. Here’s an example:

Apple has assets of about $85 billion. If they used those assets to pay off all their liabilities (like bills, taxes, debt if they had it) they would still have $55 billion in value left over. This is a rough example of Apple’s book value. It’s the value of all the stuff the company owns. And yet, the company is actually worth more than $300 billion. What accounts for the difference is what separates us from other animals.

We can see beyond the simple value of something. We can understand that value can be created (and destroyed). Value doesn’t have to be material. Value can be something you can’t touch. Value can be an idea. Think of all the value in the Internet. There are trillions of dollars of value in the Internet, and yet you can’t touch it, see it, or smell it. All you can do is interact with it.

But even though we understand this value, we often reject it. When we’re worried about inflation, we buy gold. We believe that because it can be seen, touched, and not created that it must carry more value than a currency. Classic monkey thinking.

Thinking like a monkey isn’t necessarily bad. In fact it should be embraced quite frequently (it’s that gut instinct). But when it comes to what you should be doing with your money, you’re better off finding sensible, not sensuous, value.

{ 12 comments }

The Quest For a Balanced Life

This article was written by Flexo in Best Of, Career and Work. 10 comments.

A person feels most at peace with his or herself when the major aspects of life are balanced. We look at workaholics and overachievers and wonder about all the interesting or wonderful parts of life they may be missing.

My first boss was a workaholic and overachiever, and he had trouble understanding that not everyone was like him with the same goals and priorities. On occasion, he would work in the office until three o’clock in the morning, fall asleep at his desk, and wake up at six o’clock to continue. I convinced myself of the importance of sleep for maintaining a healthy and long life at that time, and it may be needless to say he and I had a number of philosophical differences.

He was the executive director of an understaffed non-profit organization that had a tiny operating budget and a grand mission, so his work was never done. When you run the only company in the world that does all that this organization does and you manage a product that is considered one of the best of its kind in the world, you can’t get to that point by trying to achieve balance in your own life.

In the office where I work now, we talk about “work/life balance.” This is the idea that the life someone has outside the office is important, and work should not always prevent emphasizing things that make a person more than just an employee. Most people do not want to be fully defined by their job.

The goal of balance between work and “life” is more achievable when there is little pressure to be the best in the world. At the non-profit organization, which I can’t describe in more detail without identifying myself, work was life. That’s just the way it had to be in order to operate on the level that was expected of us as employees and as an organization. And it works when you have the right team.

Business owners are often in a similar situation, especially when first getting their business off the ground. For them, there may be no such thing as work/life balance. Often, new business owners spend as much effort and time as possible working on their project in order to make it viable. In order to do this, they must make sacrifices in other aspects of life.

Olympic athletes don’t have a balanced life. CEOs of global corporations know that they make sacrifices in order to achieve their goals. The most successful musicians and bands don’t rest until they’ve perfected their instruments of choice. Scientists who make paradigm-shifting discoveries don’t clock out at five o’clock and go home to their families.

Over time, our goals may change; someone who started their adult life looking for balance may feel the need to achieve something great while another individual who came out of the gate with a clear mission to succeed may find other aspects of life more important. It’s always important to pay attention to your inner desires and follow the path that works best for you at that particular time.

The good news is that not everyone has lofty goals and expectations. For most people, striving for balance is a reasonable and admirable approach. Nevertheless, balance is not the path to world-class achievements.

{ 10 comments }

Earning What You Have: The Mindset I Hope I Never Lose

by Smithee

I think I come from a moderately humble background. My parents are both college graduates, which is a statistical leg up by itself, but my father had to work two jobs until I was 15, and I’m the youngest of my siblings. Mom also started working part-time when I was about 10, and then full-time ... Continue reading this article…

15 comments Read the full article →

Criminal Charges: Volume XVII

by Flexo

About the author: This guest article is presented by Jeremy M. Simon, who writes for Taking Charge. Jeremy’s articles focus on payment card and debt trends impacting consumers. Thanksgiving is nearly here, and credit card misdeeds show no sign of letting up, meaning yet another well-stuffed edition of Criminal Charges, my weekly roundup of news ... Continue reading this article…

4 comments Read the full article →

Foundations of the Rich and Athletic: What 10 Athletes Do With Their $30,000,000+ Annual Income

by Flexo

When you’re a world class professional athlete, you’re in high demand. When you’re the best, or nearly the best, at your particular skill in the developed world, the payoff can be huge. For example, right now, there is no one on this planet who can compare skills with Tiger Woods. Yes, every person in this ... Continue reading this article…

14 comments Read the full article →

Unrespected Careers: Real Estate Brokers, Bankers, Accountants, etc.

by Flexo

A co-worker of mine has had an awful time dealing with her real estate agent. It’s not my story to tell, so I won’t, but her experience is helping to turn me off from dealing with real estate agents at any point in the future. They’re not all the same; many of my close friends ... Continue reading this article…

12 comments Read the full article →