According to certified public accountant Ryan Losi, who spoke with Yahoo! Finance, "Professional sports players get taxed by pretty much every city and state in which they play." (The Virginia-based accounting at which Losi is executive vice president, Piascik & Associates, represents more than 70 professional athletes.)
As a result, Losi says, "NFL players typically file in 10 to 12 jurisdictions. NBA is somewhere between 16 and 20. MLB is somewhere between 20 and 26, and the NHL is between 14 and 16."
Salaries are taxed, logically enough, in the city and state that host the team. But athletes profit in all sorts of other ways -- endorsement deals, personal appearance fees, dividends and interest income. Such earnings are taxed by the states in which the players live.
These rules can help determine where an athlete hangs his hat after taking off his helmet. Eli Manning, for instance -- New York Giants quarterback and two-time Super Bowl MVP -- lives across the Hudson from Manhattan, in Hoboken, N.J. "If he were a resident of New York, he'd pay 8.97 percent New York state tax and another 3.78 percent New York City tax on top of that, not only on his wage income but also his endorsements and investment interest," says Robert Raiola, CPA and sports entertainment group manager for a Jersey-based firm that represents more than 100 professional athletes. "In New Jersey, he only pays 8.97 percent."
In fact, Losi speculates that tax considerations might have motivated LeBron James to move to Miami instead of New York in 2010: Florida is one of nine states that do not have state income tax. "For him," Losi says, "it was an extra 5 [percent to] 9 percent difference in tax. That's real money."
The Tax Man Is Everywhere
Athletes who play all over the world -- like golfers and tennis players -- can be compelled to give up a third or more of their winnings to the local taxman. "Whenever they play in foreign countries, they have to pay taxes in that jurisdiction, and the tax liability is much bigger than the 5 [percent] to 10 percent state tax. It's usually in the 30 [percent] to 40 percent bracket," explains Losi. "Usually it's withheld in their prize money, and they can file a nonresident return if they think they might have a refund coming."
But it's certainly not all bad news for sports stars on the tax front. Athletes can deduct preseason training expenses like hotel, apartment or home rental, meals, transportation to training locations, and car rentals. They can also deduct the cost of fines imposed by their team or league; the latter usually go to charity. Also deductible is an agent's fee. But the value of gift bags and other freebies received at events like awards ceremonies must be claimed as income.