Okay, one more tax related post and then I’ll shut up. Promise.
Huffington Post, Forbes.com, and others reported earlier this year that actor Nicholas Cage is being accused by the IRS of improperly using his production company, Saturn, to write off $3.3 million in personal expenses. This supposedly included limos, meals, gifts, and personal jet travel. A spokesman for Cage says the items were needed for security. Cage has filed a U.S. Tax Court lawsuit disputing $814,000 in taxes and penalties and his company, Saturn, is refusing to pay the IRS $988,000.
Cage is being hit from both sides. The IRS is at once denying Saturn a deduction for the disputed expenses and taxing Cage personally for the perks as salary and constructive dividends.
Are We Greedy or Stupid?
What’s up with high dollar stars and sketchy tax returns? It’s not like they’re not targets for investigation. I have no idea what Cage is worth, I suspect it’s plenty. With his income, $3 million ought to be a drop in the bucket. Why bring down the wrath of the IRS? I love Nicholas Cage so I’m giving him the benefit of the doubt that he’s not a greedy bastard.
I hate to say it, but My Beloved Cage may well be stupid. And he’s not alone. When you have money and you don’t necessarily have the skills to care for that money you need to pay someone who does. If you don’t pay for good counsel, you’re stupid. In my opinion, Cage has gotten some very bad tax advice. Pay for experts.
Aggressive Tax Avoidance Strategy
On the other hand, a lot of reputable advisors will push the limit. It’s an intentional strategy complete with a big ole spreadsheet to quantify the risks and rewards of taking an aggressive position against the tax authorities. If you go this route, make sure you’re doing it on purpose. Factor in legal fees, potential losses, and damage to your company’s image.
Cage will probably survive the publicity. He’ll may even be lauded for going up against the big bad tax-man. Rebellious individuality is part of his persona. But you’re not an edgy movie megastar. Tread carefully and carry a big check – to pay the IRS or your advisor, depending on which way you play it.