1) Hire the right accountant. Accountants have niches just like other professionals such as attorneys and doctors – if you were getting a divorce [god forbid], you would hire a family law attorney, not a tax attorney. Well, the same rule applies with your accountant. Your accountant should have experience working with clients in your particular industry -this will make sure that he or she understands and applies the correct tax laws.
2) Do some tax planning. No matter the size of your income, it never hurts to have your accountant look at your tax picture -BEFORE- yearend, estimate your income tax liability, and then suggest ways to mitigate the taxes. Once your tax liability is known, you can plan for how you will meet your obligation.
3) Always consult with your accountant before making large cash purchases. Sometimes life brings us a fabulous financial windfall… we sign a new contract, we get an unexpected bonus, we get $12 million for starring in a movie, or we win the “Showcase Showdown” on the Price is Right. Regardless of the windfall, before you spend all the money, you should check with your accountant to make sure that your windfall doesn’t include with it some income tax consequences.
4) Live within a budget. If you haven’t already, you should sit down with your accountant and figure out how much is available to spend. It’s just that simple. Don’t spend what you don’t have. Moreover, don’t spend what you “expect” to have before you have it.
5) Always, and I mean always, have money set aside for emergencies. How much to set aside is really relative to your income and your annual expenses. Generally, you should set aside enough money to pay at least 6 to 12 months of living expenses. Now – keep in mind – setting aside doesn’t mean investing it in some crazy volatile investment where you might lose it all. That would defeat the purpose of the emergency fund. No – put it somewhere safe like in a certificate of deposit. This will make sure that you have the cash available in the unlikely event that you do receive an unexpected tax bill or need to be represented before the IRS in the case of an audit.
6) Have a plan B. Planning for the possibility of a life-changing event is never fun. Nevertheless, people need to face that these things happen. Things such as the death of a spouse, the loss of a career, or a disabling illness will affect your ability to meet your financial obligations. Therefore, you should sit down with your accountant and your attorney to discuss your “what if” plans. A plan “B” can be as simple as having a life insurance policy or indicating who will raise your children in the event of your death.
7) Be involved. Okay so a celebrity [like Nick Cage] might not have the time to be completely “in the know” about every financial dealing. But frankly, that’s too bad. Ultimately, the taxpayer is responsible for what is reported on his or her tax return. Consider this, you are signing your return under penalty of perjury. Therefore, handing off all of your financial information – for someone else to deal with without any personal oversight is a risky endeavor that just might cost you 6.2 million dollars and a tax lien on your house. Ouch!