CSI actor files for bankruptcy: what can we learn?

Gary DourdanR4351/DPA/Press Association Images

Former CSI actor Gary Dourdan has reportedly filed for bankruptcy. The TMZ website says he filed at the end of August.

So what happened, and what can we learn from the stars who go bankrupt?
%VIRTUAL-SkimlinksPromo%

Dourdan

Dourdan, who played analyst Warrick Brown in the series, got into trouble paying his mortgage. He now owes a small fortune to a series of banks, and is embroiled in a lawsuit against Union Bank.

He has an income of $14,883 a month, but says the vast majority of that is eaten up by bills - leaving him with $321 a month.

It's hard to see just how he managed to rack up serious debts, but clearly looking at the size of his monthly bills, there is a distinct sense that he has the financial commitments that matched the income he was on before - and he has failed to downsize as his income fell.

It's the first rule of staying on the right side of debt:

1) When your circumstances change you need to react fast - or you'll end up creating problems for yourself.

And there are no shortage of celebrities in financial trouble to teach us the rest of the five rules of debt management.

2) Stay on top of your finances

This was what shot Miquita Oliver in the foot. The TV presenter was declared bankrupt earlier this year at the age of 27, after being unable to pay a tax bill of £174,000.

We can all be surprised by a bill out of the blue if we don't pay attention. So it's essential that we all know what is due and when, so that the gas bill doesn't leave us in a hole on the second day of the month.



3) Understand the risks you are taking

When Westlife star Shane Feelan went bankrupt this summer, it was because of the collapse of his property portfolio. Whether he understood it or not, there was a huge amount of risk tied up in it - including an entire estate of 90 houses.

4) Only risk what you can afford to lose

Shami Ahmed, the man behind Joe Bloggs jeans was declared bankrupt almost three years ago, after losing millions spread betting. It's a strange form of betting, and the losses can be far more than the sums you put in, so it's only for those who have money to risk and the strength to get out before it is too late.


5 PHOTOS
Learn from these celeb tax mistakes
See Gallery
CSI actor files for bankruptcy: what can we learn?

Many celebrities have gotten smacked down for failing to paying taxes. Wesley Snipes actually landed in prison for his $17 million unpaid tax bill, while Nicolas Cage owed a seven-figure amount to the IRS. A host of others, including Lindsay Lohan, Pamela Anderson, and Christina Ricci, have faced liens or tax bills for more modest -- yet still sizable -- sums.

The two main reasons for us ordinary folks getting stuck with a big tax bill are that your paycheck withholding needs changing or that you have outside income that comes without having taxes withheld. In either case, even if you can't afford to pay when the bill comes due, ignoring the problem will eventually land you in an even bigger heap of trouble. Instead, take advantage of IRS programs that let you make affordable installment payments over time.

Part of what put Wesley Snipes behind bars was his conviction on three counts of failing to file tax returns by their filing date. In part, he relied on a bogus theory that all income taxes are unconstitutional as justification for his actions.

But a much more common problem many people run into is that they can't afford to pay their tax bill right away. The mistake they often make is to assume that they shouldn't file a return at all if they can't pay.

In reality, the penalties for not filing your taxes are much more severe than if you file but can't pay your taxes all at once. So even if you don't have the money to send with your return, go ahead and file. It'll save you a ton of money -- and possibly jail time -- in the long run.

AccountingWEB recently took a look at some of the great swag that celebrities received at the Academy Awards. With sponsors handing out goodies including everything from jewelry to exotic safaris, the gift packages added up to as much as $75,000 in value. But the recipients have to report it all as taxable income.

You may never be so lucky, but even more modest prizes often get reported to the IRS. If you get a Form 1099 reporting the value of something you received as a prize or award, not including it on your tax form could trigger a red flag at the IRS.

One allegation that Nicolas Cage raised regarding his tax problems was that his business manager mishandled his funds and caused big losses that destroyed his finances. Similarly, Martin Scorsese and Al Pacino both blamed convicted adviser Kenneth Starr for their tax woes. Starr went to prison for fraud and theft from clients.

Still, no matter where you go or how much you spend for tax preparation, you bear final responsibility for making sure your tax returns are accurate. Reputable accountants will reimburse you for any penalties and interest that result from mistakes they make, but don't count on them.

Instead, make sure you understand the positions your tax pro takes so that you can defend them if a question arises.

As you look at the hijinks of your favorite celebrities, be sure not to make the same tax mistakes they made. With a little common sense and some planning, you can learn from celebrity mishaps the easy way.

HIDE CAPTION
SHOW CAPTION
of
SEE ALL
BACK TO SLIDE

More stories

Read Full Story

FROM OUR PARTNERS