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What Johnny Depp's Tax Troubles Can Teach Us About Managing Our Finances

by
Bob Mason
on
7/4/2018
What Johnny Depp's Tax Troubles Can Teach Us About Managing Our Finances

If you've been paying attention to celebrity gossip lately, you've probably heard that Johnny Depp is suing his former managers over debilitating tax bills. Per his recent tax court filing, mismanagement of his finances has led to more than $6 million in penalties and interest alone owed to the IRS (totally independent of whatever he's paid and owed in federal income taxes). While he's settled up with the IRS since, he had to sell off major assets that led to a lawsuit exceeding $25 million, since he lost several million over the accused management's self-dealing and gross negligence.

There's actually a lot that the average person can learn from this, even though, just to be clear, the average American definitely isn't likely to have a financial situation similar to Johnny Depp's. So you may think there's not much for someone with a typical income and net worth to learn from his tax problems, because it sure would be nice to have $6 million in income, let alone owe that much. But there's actually some actionable takeaways that the everyday American on the street can learn from the “Pirates of the Caribbean” star to make sure nothing goes wrong with their taxes.

  1. Stay on top of your estimated tax payments and be as timely as possible: You are ultimately responsible.

According to Depp's tax attorney, Depp racked up $5,704,581 in penalties and interest due to “a history of untimely compliance with his federal tax payment obligations” with respect to the 2000–2014 tax years. You would not think he was a cash-strapped man; the money was coming in, but his managers are accused of not making those payments on time for well over a decade.

It true, he's well within his rights to sue his manager for loss of income and assets related to the neglectful way his finances were managed. But even if you have professional management, you are still ultimately held responsible for making sure your taxes are being paid, period, let alone, on time. Even if your earnings aren't anywhere near what Depp makes in a given year, it's very easy to fall behind on your estimated tax payments and not get them in on time because you simply don't have the funds, or you've having troubling calculating them correctly. This can easily lead to a snowball of tax debt plus interest and penalties for

lateness.

  1. If you'd like to settle with the IRS, be aware of what they constitute as luxurious as far as your net worth and living expenses are concerned.

Depp settled this matter with the IRS and is now focusing on suing his manager. However, if you'd like to settle with the IRS, you should bear in mind that some pretty harsh standards are used to judge whether or not you can pay your full balance. Depp's former manager alleges in a countersuit that he has an incredibly lavish lifestyle and was not suffering any hardship that hobbled his ability to pay his tax penalties: He spends $75 million in maintaining 14 residences around the world, $30,000 a month on imported fine wine, and even blew ~$3 million on a cannon meant to blast noted author Hunter S. Thompson's ashes over Aspen, Colorado, among many other totally outlandish luxuries.

This sounds like cartoonish levels of extravagance to a majority of people, but he still got the IRS to settle with him!

It's unfortunately harsher for the average Joe or Jane Q. Public. When you file an offer in compromise to settle back taxes you can't pay, you need to have substantive proof of your current income, expenses, assets, debts and what you reasonably foresee in the future. Johnny Depp giving up a yacht or cutting back on expensive wine is hardly something people will cry over, but the IRS could get grabby with your retirement account, your home or car, which will be a lot more devastating. Then, when your monthly expenses are considered in the settlement process, only the barest necessities, such as rent or mortgage, transportation, food and child support, get factored in. This makes the settling process more difficult and time-consuming, especially if you don't have an entire management team taking care of the process for you.

  1. Always thoroughly vet your tax preparers and tax advisers.

Financial mismanagement isn't reserved just for rich celebrities. Everyday people also get fleeced by advisers they thought they could trust, even if they don't have nearly as much to take as someone like Depp and his compatriots. While you're ultimately responsible for what goes on your tax return and for making your payments, there is still a pretty generous extent the IRS allows as far as relying on professional advice is concerned.

TaxBuzz's tax professionals are thoroughly vetted with up-to-date licensure. Whenever you're in doubt of a tax professional's standing, you can also always check the IRS database for disciplined tax professionals who've committed violations in the last 25 years since online reviews aren't going to tell you this. Not every violation or incident of malfeasance is going to become known like Johnny Depp's taxes, which most people view with lurid amusement, or particularly newsworthy cases of bad behavior from financial professionals likely to get a reaction.

While the average person will feel a harder pinch than having to sell a yacht to pay off past-due taxes, there's much we can learn from the neglectful way Johnny Depp's finances were managed.

Bob Mason, CPA writes for TaxBuzz, a tax news and advice website. Reach his office at [email protected].

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Bob Mason

Bob Mason

Bob Mason is the founder of Coast Financial Services Inc. servicing both the Santa Cruz, and San Jose areas. Bob Mason is a skilled financial professional who is fully equipped to assist any of your accounting needs. Founding his firm in Santa Cruz, Bob understands the importance of small businesses and how they form the backbone of the area. Coast Financial Services, Inc. has been dedicated to the growth and profitability of businesses in Santa Cruz for 17 years. To learn more about Bob Mason and the rest of his team, visit their website.

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