Will Smith is a name that needs no introduction in the world of entertainment. Aside from last year’s Oscars drama, the actor, rapper, and producer has been a prominent figure in Hollywood for over three decades now. However, in 2014, news broke out that the IRS had accused him of owing them a few million dollars in unpaid taxes. This led to widespread speculation and controversy about Smith’s financial situation.
While it may be easy to paint Will Smith as just another wealthy celebrity trying to evade taxes or take advantage of loopholes in the system, the truth is much more complicated than that. Here is what really transpired, and why Smith had gotten himself into an astounding amount of debt.
What Is Will Smith’s Net Worth?
According to Celebrity Net Worth, Smith’s net worth is estimated to be around $350 million. This makes him one of the richest actors in Hollywood, and one of the richest people in the entire world. His wealth comes primarily from his acting career, but he has other business ventures that are worth examining.
Smith started his acting career in the 1990s with his breakout role on The Fresh Prince of Bel-Air. Since then, he’s starred in the Bad Boys franchise, Independence Day, and the Pursuit of Happiness, the latter of which he starred in with his son.
Smith’s acting career and how important it has been for his net worth is common knowledge, or at least it should be. According to Entrepreneur’s Handbook, Smith’s movies have grossed a whopping $7.5 billion. It’s only fair he gets a decent portion of that.
His success at the box office has earned him the bulk of his millions of dollars, despite missing out on films such as The Matrix. In addition to his entertainment career, Will Smith is also an entrepreneur. According to Crunchbase, Smith co-founded Overbrook Entertainment with James Lassiter and produced several films including Hitch and The Karate Kid. He has also invested in companies like Airbnb and Julep Beauty.
How Much Money Did Will Smith Owe To The IRS?
In the early 90s, Smith was at the peak of his career. He had just begun starring in The Fresh Prince of Bel-Air and had released several successful albums as a rapper. His net worth was estimated to be around $6 million at the time per Forbes. It’s crazy to think that one of Smith’s ex-girlfriends is the reason he even ended up on the sitcom.
However, despite his success, Smith found himself in financial trouble due to poor management of his finances. Smith admitted in his autobiography that in 1990, he received a notice from the IRS stating that he owed them $2.8 million in back taxes.
It turned out that Smith’s financial troubles were caused by overspending and poor investments. He had spent millions on extravagant purchases like cars, jewelry, and homes without considering their long-term value or potential resale value.
This battle with the IRS came as a surprise to Smith’s family and financial team, but Smith himself wasn’t too surprised by what transpired. He immediately went to work getting himself out of the mess.
In Smith’s case, it is unclear exactly how long the investigation lasted or what specific methods were used by investigators. However, given that he eventually agreed to pay back taxes owed plus interest and penalties rather than face criminal charges for tax fraud suggests that there was some evidence indicating he had not fully reported all his income during certain years.
Initially, Smith admitted to borrowing money to help pay off the first rounds of debt. He then learned about investing strategies from experts like Warren Buffett and started making smarter investment decisions based on sound financial principles, using money from Fresh Prince of Bel-Air and other acting gigs to pay the IRS off.
Smith’s efforts paid off, and he was able to settle his IRS debt in full by 1999. He also made significant progress towards rebuilding his financial stability and went on to become one of the highest-paid actors in Hollywood, without any debt holding him back. It is crazy to think that Smith was able to go from nearly $3 million in debt to having a net worth north of $300 million.
Why Did Will Smith Really Owe The IRS $2.8 Million?
It’s worth taking a deeper examination into why Smith went into debt.
The main cause of Smith’s debt was his failure to pay taxes. He failed to pay them on time and admitted in his autobiography to not paying them at all for several years. This led to hefty fines and penalties from the IRS.
It is not uncommon for people who come into sudden wealth to struggle with managing their finances effectively, and this appears to have been the case for Smith.
In addition to that, it is important to note that celebrities and high-net-worth individuals like Smith often have complicated financial structures in place to manage their wealth.
These structures can include offshore accounts, trusts, and investments in various industries. While these structures are legal and commonly used by people with significant assets, they can also be susceptible to scrutiny from tax authorities like the IRS. Because of this, the IRS responded to Smith’s debt situation much faster than they would the average person.
Since this IRS mess, Smith has rebounded in many ways. For one, he’s made hundreds of millions, but he’s also now married to Jada Pinkett-Smith. The couple shares two of the most famous kids on the planet, which has made for some interesting entertainment and tabloid features.
Smith is seemingly happy with his marriage to Pinkett-Smith, even after the fiasco that was the 2022 Oscars. Pinkett-Smith may have made her husband apologize, but things are fine between them now. According to Cosmopolitan, the cancelation of Pinkett-Smith’s Red Table Talk show has had no effect on their happiness with each other.
