The Danger of Cash Requests Part II

However, cash requests are also made for a variety of benign reasons. The funniest ones I can remember had to do with the celebrities themselves or other people in their entourage. It ranges from this performer needing tens of thousands of dollars handy at all times, kept in a backpack by one of his boys, just so he knew he had it around. There is also this generous young man who had a habit of giving $5,000 in cash to some of his conquests, as a parting gift. All these quirks arise out of the knowledge that they can be accommodated. Some people collect expensive wines, others splurge on expensive suits, activities that do not necessarily create value but please whoever partakes in them. The hip-hop celebrities just do it with cash. It should be said that the same rules do not apply to the rich. Having this much money leaves room for fun. Unfortunately, these amounts add up and can wreak havoc on the finances of these celebrities intent on living the good life. We are talking hundred of thousands a year in cash, sometimes millions when it comes to the worst offenders. The problem lies in knowing one’s limitations, especially on such a slippery slope. This is where an advisor should ring the alarm when needed. All this money spent seems like a waste, and it is to a certain extent. What most outsiders do not know is that more often than not, the money for the cash request has to be disbursed from the celebrity’s business entity. In that case, taxes have to be deducted from or are due on the disbursement. At a 45% tax rate (for simplification), it means that the net to the client would represent 55% of the withdrawal. In other words, for $10,000 in cash given to the client, $18,180 has to be disbursed and $8,180k is paid or due to the IRS. It is worth repeating: for every dollar spent, $1.81 has to be taken out and 81 cents have to be paid to the government. This is my main reason for denouncing such practices. However, I can only assume that these practices are here to stay. Although they may provide an outlet for the perpetrators to let out some steam, I believe that cash requests are to be used with moderation. That way, more money can be appropriately invested or socked away to prepare for rainy days (no pun intended). The less cash a client sees, the less he/she is bound to spend. Some people can truly afford these eccentricities, but unfortunately many copycats try and follow at their own risk. These are the ones that get indicted for tax evasion down the road. I hope you celebrity hopefuls take note.