- Days left

The Price of Sports Glory: Absurdly Complicated Taxes

×
Eli ManningStar athletes are expected to put up big numbers on the field or in the arena -- and at tax time, as well.

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."

And since the U.S., unlike most countries, taxes all personal income, it actually makes sense for some international competitors to live outside America.

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.

NEXT:

Increase your money and finance knowledge from home

How to Avoid Financial Scams

Avoid getting duped by financial scams.

View Course »

How Financial Planners go Grocery Shopping

Learn to shop smart and save.

View Course »

TurboTax Articles

Video: Who Qualifies for an Affordable Care Act Exemption (Obamacare)?

The Affordable Care Act requires all Americans to have health insurance or pay a tax penalty. But, who qualifies for an Affordable Care Act exemption? Find out more about who qualifies for an exemption from the Affordable Care Act tax penalty, how to claim an exemption on your tax return and how the Affordable Care Act may affect your taxes with this video from TurboTax.

Video: How to Claim the Affordable Care Act Premium Tax Credit (Obamacare)

The Affordable Care Act Premium Tax Credit is a new refundable tax credit that can lower your monthly health insurance premiums. If you qualify for the tax credit, you can claim the Premium Tax Credit throughout the year to lower your monthly health insurance premiums, or claim the credit with your tax return to either lower your overall tax bill or increase your tax refund.

Deducting Summer Camps and Daycare with the Child and Dependent Care Credit

If you paid a daycare center, babysitter, summer camp, or other care provider to care for a qualifying child under age 13 or a disabled dependent of any age, you may qualify for a tax credit of up to up to 35 percent of qualifying expenses of $3,000 for one child or dependent, or up to $6,000 for two or more children or dependents.

What Is Schedule H: Household Employment Taxes

If you hire people to do work around your house on a regular basis, they might be considered household employees. Being an employer comes with some responsibilities for paying and reporting employment taxes, which includes filing a Schedule H with your federal tax return. But even if you have household employees, filing Schedule H is required only if the total wages you pay them is more than certain threshold amounts specified by federal tax law.

Add a Comment

*0 / 3000 Character Maximum

2 Comments

Filter by:
alancranford

ilm9p - get over the hate. While athletes are hit the hardest in this area (not all are "multi-millionaire" BTW), this impacts people in many other fields. I have an independent consulting practice. Although I live in NC I've had to file state tax returns in CA, AL, KY and MI to name a few (and am lucky that my major client is in Texas but that gets taxed by NC like I earned it there so no escaping taxes for me just because I performed the services in a state with no state income tax). This is common practice for people in my industry and it adds a lot of complexity to filing taxes. Also, the lack of state income taxes and fact that the rate they pay on investment income, marketing income, etc is based on their primary residence also explains why so many athletes have primary homes in states like TX, FL and NV which have no state income tax. Then they are only taxed on their "game checks" in states with income tax and for players lucky enough to play on teams in TX, FL, TN, etc which have no state income tax they avoid the state tax on around half their game checks. This is a MAJOR consideration! I've known people in other fields who have the flexibity to work out of different locations to move soley due to tax rates.

Yes this impacts people with higher incomes more but NO ONE wants to just give away their money (and they shouldn't) so making these decisions is very smart money management!

March 21 2012 at 6:31 PM Report abuse -1 rate up rate down Reply
ilm9p

Yeah, how my heart bleeds for these multi-millionaires.

March 21 2012 at 2:47 PM Report abuse +3 rate up rate down Reply