- Days left
Recent news that celebrity Nicolas Cage (real name Nicolas Coppola) cut a deal with the Internal Revenue Service to pay $666,000 plus interest has taxpayers scratching their heads. The IRS initially determined that Cage improperly deducted $3.3 million in personal expenses from 2002 to 2004.

The laundry list of things deducted by Cage included limo rides, meals, gifts, and travel in his jet. The result: $1.8 million in taxes and penalties plus interest, although some experts say the real figure was about $1 million. The issue is finally settled, and the $666,000 settlement includes $99,000 for an accuracy related penalty, but no penalties related to fraud.

Do you think this is a case of a taxpayer successfully challenging assertions made by the IRS or an example of a wealthy taxpayer getting a better deal than the average American could? It's difficult to say without knowing the details of the case, but I will say this: Often the IRS makes huge assessments against taxpayers to "persuade" them to respond to contentious issues. This could be a case in which the IRS slapped a big number onto Cage in the hope of "encouraging" him to cooperate in sorting out the issues.

Do you think that Cage purposely deducted things he knew weren't really deductible in order to cheat the tax man? I wouldn't necessarily say that's the case either. Taxpayers often choose to deduct items that fall into a "gray area," in which certain items may or may not be deductible depending on how the IRS interprets the tax code and the actual expenses. The taxpayer hopes that the IRS doesn't audit his return, or that if he is audited, the issues are decided in his favor. So rolling the dice on some deductions isn't all that uncommon, and that may be what Cage and his accountant did in his case.

Tracy L. Coenen, CPA, MBA, CFE performs fraud examinations and financial investigations for her company Sequence Inc. Forensic Accounting, and is the author of Essentials of Corporate Fraud.

Increase your money and finance knowledge from home

Introduction to Retirement Funds

Target date funds help you maintain a long term portfolio.

View Course »

How Financial Planners go Grocery Shopping

Learn to shop smart and save.

View Course »

TurboTax Articles

Top 6 Tax Tips for Sharing Economy Freelancers

It's never been easier to earn a few extra dollars: Whether you drive for a ride-share company like Uber, rent out a room through a rental service such as Airbnb, or work for a company like TaskRabbit that outsources small jobs, errands and tasks?being a freelancer in the sharing economy means you may have one or more micro-enterprises or small businesses going on. And, just as your full-time job does, these endeavors often result in tax obligations people often overlook.

Claiming Property Taxes on Your Tax Return

If you pay taxes on your personal property and owned real estate, they may be deductible from your federal income tax bill. Most state and local tax authorities calculate property taxes based on the value of the homes located within their areas, and some agencies also tax personal property. If you pay either type of property tax, claiming the tax deduction is a simple matter of itemizing your personal deductions on Schedule A of Form 1040.

Side-Giggers: Tax Tips for Side Jobs

Having a side gig can help you make ends meet or build your rainy day fund. Income from freelance work, running your own small business or working at a second job brings in extra income without requiring you to quit your day job. But, like your main source of income, a second job or side gig must be reported on Form 1040 at tax time.

Tax Aspects of Home Ownership: Selling a Home

Though most home-sale profit is now tax-free, there are still steps you can take to maximize the tax benefits of selling your home. Learn how to figure your gain, factoring in your basis, home improvements and more.

Add a Comment

*0 / 3000 Character Maximum