Entertainers and athletes face many financial and accounting challenges and opportunities that are unique to their industries. Creating a business management, accounting, and tax plan—and reevaluating that plan regularly—is essential for maintaining financial health.
Because of their busy schedules, entertainers and athletes often disengage from their finances, relying 100 percent on their business managers and financial advisors to take care of all financial and investment needs. While this is not necessarily a bad thing, it is important for these individuals to stay engaged and remain familiar with their assets, expenses, and financial outlook.
High-profile earners can take an active role in their financial success by communicating clearly and frequently with their business management team and regularly reviewing their goals. The list below illustrates some suggestions for how entertainers and athletes can work with their team to keep a closer eye on their financial status.
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Financially savvy entertainers and athletes should have their business manager issue reports on a monthly basis. These reports ideally include updates on the subject’s overall financial status, including adjustments in income, investments, and assets, and track any changes to their business management plan. Monthly financial reports are an easy way for a high-level entertainer or athlete to monitor their financial status and goals.
Multistate and International Taxes
Often, high-profile athletes and entertainers generate income across multiple states and even in multiple countries. It’s important for these individuals and their financial advisors to make sure they are filing their taxes correctly.
Entertainers often use a business entity called a loan-out corporation to provide their personal services to third parties. Legally, an entertainer is classified as an employee of their loan-out corporation. The corporation then lends the services of the entertainer out to an employer, like a film studio or record company.
While this is a common practice, it’s important that individuals with these corporations make sure they are filing in the specific states and countries they have worked in to take advantage of any tax breaks and comply with all tax-filing requirements. For example, in the U.S., seven states do not levy income tax. By making sure taxes are filed in the correct state, individuals can stand to benefit.
In addition, entertainers or athletes who work internationally should be aware of certain residency rules. Non-U.S. residents are subject to U.S. tax on the services they performed while in the U.S., while U.S. residents, conversely, are taxed by the U.S. on their gross international income. Individuals who work internationally and frequently travel should communicate with their business manager to confirm whether they hold U.S. residency and make sure they are filing their taxes properly.
While it can be tempting to leave the drafting of new contracts to a business manager and lawyer, it’s in an entertainer or athlete’s best interest to get involved. By being on the same page before any services are rendered, the individual and their business manager will be better able to anticipate new tax-filing needs or other issues that may arise. Assisting their business manager with new contracts will also better enable the individual to understand their deals and add any elements they feel may have been missed.
It may seem like a no-brainer, but making sure insurance is in place, up-to-date, and properly covers all of an entertainer’s assets is essential. Note that beyond the basics of health, life, car, and home insurance, entertainers and athletes often own valuable assets like musical instruments, boats, planes, jewelry, designer clothing, and vacation properties that require their own insurance. In some cases, it may be necessary to insure the person (e.g., hands, arms, legs) depending on the type of entertainment or sport they engage in.
While it can seem morbid to discuss, it’s essential that individuals with a large net worth and diverse assets have a trust in place in the event of an accident. By drawing up a trust with their lawyer and business manager, entertainers and athletes can ensure that their loved ones and their legacies are protected in the event of catastrophic injury or death. The trust should be reviewed and updated frequently, especially when there are large changes in the value of an individual’s income or assets.
Entertainment and sports are two industries where a person’s income is often directly tied to their youth and ability. Planning early for retirement is crucial in these two businesses. High-profile athletes or entertainers should discuss their retirement goals with their business manager and inform them promptly of any changes to their plan. Updates on the retirement plan and growth in 401(k)s, IRAs, or any other retirement funds should be included in the business manager’s monthly reports.
Beyond monthly reports, frequent meetings with a business manager and financial advisor ensure that individuals are kept up-to-date on their financial health. These meetings are beneficial for both sides and enable a high-profile individual and their financial team to identify any changes that are needed to their established business management, accounting, and tax plans.
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Celebrities and their business managers can often both be presented with exciting investment opportunities. Coordination is key when it comes to these investments—not only should an entertainer seek the advice of their business manager, but they should also discuss how these opportunities would fit into their overall financial plan.
Before investing in a new opportunity, it is also important for entertainers to do their own due diligence and compare notes with their business managers. They don’t have to be experts, but it’s important to familiarize themselves with a potential investment’s business model, the size and trends of the market it is in, and how it ranks against its competition.
Sales of Assets
Entertainers and athletes regularly face a unique set of obstacles with the sale of their large assets. When a person’s net worth includes assets such as multiple homes, yachts, private airplanes, and priceless art, sales can get complicated. The owner should work to keep themselves apprised of the value of these assets and incorporate them into their overall financial plans. If they decide to sell any of these assets, having general knowledge of their worth and working closely with an astute business manager can help sales go smoothly.
Confidentiality is key when it comes to celebrity entertainers and famous athletes. By frequently touching base with their business manager, these individuals can ensure that they have a firm handle on their finances and be aware of any potential for leaks. A good business manager should use the utmost discretion when discussing or making changes to a notable figure’s financial plans.
While business managers make it their job to navigate the pitfalls of high-income finances, their clients should do their part to keep themselves informed and involved in their financial plans. By maintaining awareness of these suggested areas, a celebrity can be better informed of their overall financial health and needs. Armed with this knowledge, they can collaborate with their financial advisor and business manager to adjust their financial plans.
By becoming financially literate and being mindful of their fiscal health, entertainers and athletes can set themselves on the pathway to long-term success.