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The Worst Celebrity Tax Problems

This article was written by 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 LohanThe 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

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Reflecting on My 2011 Goals

This article was written by in Planning. 13 comments.

A little less than a year ago, I mentioned that 2011 would be the year that everything changes. It’s a phrasing that I borrowed from Torchwood, but it was relevant for me as well as to the television program’s concept. I’ll have more to say about this year’s changes later.

At the time I created my goals for the year, it was difficult to predict how well my business, primarily the operation of Consumerism Commentary, would perform. I had just left my day job to work for myself full-time. It was a decision that I had been considering for several years, once I realized that running a website could be a profitable way to live. On reflection I should have made this change several years ago, as my business has long been able to sustain my finances. I first accepted this fact a few years ago when I moved the nicer apartment in which I live now. It’s not expensive, but it would have been unaffordable with just my day job income.

Even after this, it took several years for me to be comfortable with the idea of relying solely on that revenue. I knew I was in a risky business, and the ability to generate revenue from advertising was shown to be even riskier a few months later.

Without much warning, several other personal finance bloggers lost up to 80 percent of their revenue when the nature of the visitors to those websites changed. Some websites, on the other hand, were unharmed or even benefited, but the risk was never eliminated. When I created my goals and resolutions for 2011, I had risk in mind, but perhaps not as much risk as I should have. Nevertheless, looking back at the past year’s success, one might conclude I was much too conservative.

Income

At the end of last year, I remained conservative when planning for income changes in 2011. I would consider 2011 successful if I increased my income by $100,000 for the year. I exceeded this goal in 2011.

Net worth

I recognized net worth would be difficult to predict when I designed these goals last year. It would be far too dependent on my income, and to a lesser extent, the stock market. I ended the year with about $538,000 on my balance sheet. Calculated using the same method which includes the income generated by the business but does not include the value of the business, I was able increase this number beyond my goal. I will be more specific when I look at my end-of-year balance sheet. I far surpassed my conservative goal of increase my net worth by $275,000.

Investments

At the end of last year when I created these goals, I focused on retirement. As a business owner, it’s hard to know exactly what retirement may mean. When you work for a corporation, it’s easy to fall into the usual expectations for retirement, working for a set number of years until retirement age, leaving your work behind at that time to move to Florida and begin collecting benefits from the government and distributions from your retirement accounts. Working for myself, and particularly working in a business where the future could change at any moment, it’s harder to define what life would be like many years in advance.

Nevertheless, I set the conservative goal of saving 10 percent of my income for retirement. I was able to maximize my contribution to an Individual 401(k) throughout the year while investing regularly in a taxable investment account. Although, I spent only a small percentage of my income each month with no major purchases throughout the year, much of what I have saved is not necessarily designated for retirement, nor is it invested at all.

A couple weeks ago, I met with a Certified Financial Planner from Vanguard Flagship Services, and I have a strategy in place to invest for the medium and long term that’s appropriate for my particular financial situation.

Savings

As I mentioned above, having an aggressively increasing income paired with only modestly increasing expenses helped me build my net worth and my savings this year. With some aspects of my life in flux this year, I decided it was not yet a good time to settle down and purchase a house. This is a decision that is about more than finances. The decision to buy a house, for me, depends on long-term plans for family and career, and these are aspects of life I have not quite yet determined. When I renewed my lease on my apartment in central New Jersey this past summer, I paid for the option to break the lease without penalty at any time, thinking I might have other aspects of my life sorted out before it was again time to renew in 2012. There is still time left.

Savings goals other than a house still rely on other decisions in my life, including whether to have children.

Charity

Throughout the year, I’ve been contributing to my charitable gift fund, a donor-advised fund at Fidelity, that gives me the flexibility to grant gifts to non-profit organizations throughout the year. In the past, I’ve given to a program at my undergraduate university and the non-profit organization I used to work for. This year, I also added a local arts organization to my list.

Photography

As we get beyond the purely financial goals and resolutions, it’s easier to see where I’ve failed. I planned on finding ways to make photography a larger part of my life this year. I’ve enjoyed photography throughout my life, though it’s never been a core passion of mine. That has started to change over the past few years, and I’ve taken several classes to improve my craft. I wanted to dedicate some time every month to gaining more experience, particularly with portraiture. Unfortunately, the success of my business has come at the cost of not being able to dedicate as much time to this endeavor as I would have liked.

Professional photography is not the right choice for me. I would never want to photograph a wedding, and that seems to be the basic income-generating activity for most freelance photographers. I’d prefer to ignore the business aspect of photography completely and focus on creating images I would enjoy. While I didn’t have the time to dedicate to this in 2011, I’m looking at ways to restructure my life to make this more of a possibility in 2012.

Personal health

My health has been on my mind all year. Most likely a result of not having a large lunch in a corporate cafeteria almost every weekday, I’ve lost about five pounds this year. I’m not significantly overweight to start with, but I was definitely not at my ideal weight. I didn’t meet my goal of losing fifteen pounds, so I still have more to lose. The exercise I was getting one year ago was interrupted by a major snow storm from December into January, and it killed my momentum for some time. A few months ago, I joined a gym, and recently travel interrupted my progress.

Getting exercise seems to be more successful with assistance and motivation from a partner, and that’s something I just don’t have right now. All of the above are clearly excuses. The only motivation that matters comes from myself, and if I’m serious about getting into shape and losing weight, I just need to do it.

From a financial perspective, it would be hard to call 2011 anything but a success, but with a broader view I haven’t done much to change my life for the better this year. If 2011 was the year for focusing on my business, 2012 will be the year to focus on myself. In a few days, I’ll post a year-end look at my finances which will include numbers and other details, and after that, I’ll present my goals and resolutions for 2012.

Did you reach your goals and complete your resolutions for the year?

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Binding Arbitration: Wells Fargo Taking Away Customers’ Rights

This article was written by in Banking, Featured. 32 comments.

If you enter into an agreement with a company, and that company does something to wrong you, most of the time you can avail yourself of the American judicial system to correct the problem. This happens frequently, with both individual lawsuits and class action lawsuits. For example, Bank of America is dealing with several lawsuits stemming from shady fee practices and other policies enacted by Countrywide Financial, a company Bank of America acquired.

In order for bank to protect themselves from problems and major expenses like these is to take away their customers’ rights to a trial with a jury or a judge. This is legal, and you don’t even need to sign these rights away. Companies can change these terms of your banking agreement, and your continued patronage implies that you agree and are willing to waive your rights for the benefit of remaining a customer.

Wells FargoI make it a point to thumb through the mailed statements because banks will occasionally update terms and change fees, and it’s easy to miss this information if I were to only check my account online or in my Quicken software. A few days ago, I received my statement from Wells Fargo in the mail, and discovered a notice informing me that by remaining a customer at Wells Fargo beyond February 15, 2012, I would never be able to be included in a class action lawsuit or sue the bank myself. Any disputes would go through a binding arbitration process.

Binding arbitration has its benefits. It is often less costly, and businesses can generally get a sense for the result before moving forward. The benefits, plainly one-sided, end there.

Binding arbitration is usually detrimental to consumers. The costs for an individual often outweigh the potential reward, and potential rewards are low because binding arbitration often favors the large company over the individual, unlike juries and most judges. It’s easy to see why arbitrators favor big businesses; arbitration is a business, and if they favor a large corporation, that corporation will likely bring more business to the arbitrator.

A consumer initiating arbitration through the American Arbitration Association, the administer Wells Fargo identifies in its new terms, would be subject to fees, such as:

  • $250 for telephone consultation if the claim is less than $75,000, higher otherwise
  • $750 for in-person consultation of the claim is less than $75,000, higher otherwise
  • Up to $125 in additional fees if the claim is less than $10,000, up to $375 if the claim is less than $75,000, higher otherwise

The business would be subject to fees higher than those listed above for the consumer, but the total expense for a corporation could still be considerably less than dealing with a lawsuit. Not every arbitration organization follows the same pattern for fees, though. In some cases, the consumer could spend more money initiating arbitration than filing his or her own suit.

Also a detriment to the consumer, arbitrators are not required to follow an established process. This uncertainty can limit the consumer’s ability to argue. For example, arbitration does not include a discovery process, making it difficult for consumers to present evidence to support their cases. Also, the consumer does not have the ability to choose the arbitrator. The business selects the arbitrator, so it’s clear that this could easily be a biased approach to settling a disagreement.

Binding arbitration is reviled so much that Congress has been inspired to take action to determine whether binding arbitration clauses can be considered legal — in cellular phone contracts, only. So far, this effort has failed to produce any results beneficial for the consumer.

Bank of America and other banks have been the subject of a class action lawsuit alleging they have forced customers into mandatory binding arbitration agreements. The Supreme Court has ruled 5 to 4 in favor of companies’ options to put binding arbitration into customer agreements.

What a consumer can do about binding arbitration clauses

I’ve been a customer of Wells Fargo or its predecessors for most of my life. I’ve had my primary checking and savings accounts at this bank. But with this change, I am not wasting any more time in moving my money out of this bank. It’s not that I anticipate having any problems that require a lawsuit or arbitration, and if I am included in any class action lawsuit, I don’t expect to gain much.

Businesses and employers force binding arbitration on customers when the customers or employees are in a weaker position than the larger entity. For example, with unemployment high, many Americans feel lucky to have jobs. They’re willing to waive rights in order to be employed, and most do. Most customers will be unaware that by continuing to hold their accounts they waive their rights. Others will be aware and not consider this to be an issue worthy of going through the process of closing their accounts. Very few will use this as an incentive to move money elsewhere.

Banking institutions are everywhere, however, and customers have choices. For example, I could move all of my money held at Wells Fargo to Chase Bank. At one point, Chase included binding arbitration in its customer contracts for credit cards but has recently abandoned this approach. There is always a danger that the terms will change, particularly as more big banks want to protect the revenue they earn from fees. With a Chase branch within walking distance to me, this move makes sense, but it still isn’t a perfect solution.

I would prefer to switch to a credit union, but I’ve researched my options many times, and there are no credit unions convenient for me. Additionally, one of the largest and most popular credit unions, USAA, is as bad as Wells Fargo when it comes to members’ rights: USAA requires customers to waive their rights to a trial by judge or jury, just like the bank I intend to leave.

I’ll be moving my money out of this bank as soon as possible.

If you decide to move your business to a company that does not limit your rights, be sure to let the company know exactly why it is lowing your business. Unfair fee practices and binding arbitration could be only two of many reasons you’d be better off being a customer elsewhere.

Read the entire Wells Fargo notice below. Read the full article →

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Your Relationship With Money

This article was written by in People. 25 comments.

Have you ever had a boyfriend, girlfriend, husband, or wife you want to see again the moment he or she is out of your sight? Has love ever felt like a drug, something you need every minute, and you need more each time? Have you ever failed to understand why you constantly desire a lover who treats you poorly? Perhaps you long for the guy or girl you knew twenty years ago, a fleeting infatuation. Like love, it’s possible for any one person to have a differently relationship with money than the next individual. Love may be a mystery, but money is usually concrete.

What role does money play in your life? I’ve seen everything.

1. Money is the goal itself. Working in the financial industry, this attitude comes as no surprise to me. When the ultimate goal is to accumulate an impressive bank account balance or net worth, the unconditional love of money helps people rationalize their behavior; the end, being wealthy, often justifies the means with this attitude. Never mind the good that can be done with this money; often, those who are obsessed use the wealth they accumulate to buy items that exist primarily to show that wealth off, not items that increase happiness. The philosophy is that displaying wealth to the world increases the chances of attracting more wealth. Even if there is some truth to that, there are other costs, as well.

I may be critical of those who place their faith in money alone, but I’m not anti-wealthy.

2. Money is evil. At the other extreme, you might find people who turn away from wealth at all time. They may have had a bad experience with money in the past. Perhaps they watch the news and take to heart the latest scandals and scams, and assume that money always makes people to awful things to one another. Nations war and people die over money. Bad behavior is often rewarded in the marketplace. How can money be a positive force when it encourages people to make bad decisions? People who think money is evil may not trust the banks to hold onto savings accounts.

This approach is dangerous because it helps those who hold this philosophy to avoid financial freedom, the ability to live mostly on one’s own terms.

3. Money is a tool. This is my camp. Money didn’t exist forever, and happiness itself is a modern concept as well. Money only increases happiness to a point, so why accumulate more money than you need to achieve maximum happiness? There are good reasons. If you set relevant life goals, like helping eliminate hunger in your country, providing all opportunities possible for your children, or encouraging education in the arts, money is one of the strongest tools for reaching your goals. These goals don’t stop at a certain dollar amount. More can always be done.

When I hear someone say their life goal is to have a nest egg of $1 million when they retire, the question I think of is, “Then what?” I understand that decades of hard work can make someone long for retirement and an end to the rate race, but it’s the financial freedom that should be important, not a monetary target. Targets are useful when deciding how to allocate and invest your wealth as it grows, but money is not the purpose intrinsically.

Squirreler shared his thoughts about the role of money in his life, putting money on an equal ground with health and relationships. Health and relationships contribute to happiness. Wealth contributes as well, but only insofar as it fosters health, relationships, and other things like experiences, self-worth, and independence. Therefore, I would not put wealth in a symbiotic equilibrium with anything else. It’s another layer that helps amplify everything else; people who have a positive outlook on life while improve with wealth, while people who take a destructive approach to living will only become more dangerous.

Wealth makes life easier and helps you reach real goals, but money is neither inherently good nor inherently bad.

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My New Gym Membership: Good Idea or Foolish Move?

by Flexo

After years of failed self-improvement in a number of aspects of life that most people tend to consider important, like organization, time management, and self-motivation, I’ve come to accept some of my flaws while taking advantage of my strengths. I haven’t completely given up on the strive to improve facets about myself that could lead ... Continue reading this article…

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Is Following Your Passion a Luxury?

by Flexo

The concept of turning your passion into a vocation, making a living doing something you love, easily generates two opposing viewpoints. I wouldn’t say I’ve had a privileged upbringing, but it depends on the perspective. I had the freedom to explore a variety to activities to help nurture my mind, soul and body. As a ... Continue reading this article…

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

by Flexo

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 ... Continue reading this article…

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Verizon Wireless Roaming Charges Class Action Lawsuit

by Flexo

I received a notice in the mail stating that I could receive benefits from Verizon Wireless as a result of a class action settlement. The lawsuit alleges that the mobile phone company failed to provide free roaming as part of Verizon’s “America’s Choice II” calling plan. The plan documentation stipulated that there would be no ... Continue reading this article…

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