- 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

Intro to Retirement

Get started early planning for your long term future.

View Course »

Advice for Recent College Grads

Prepare yourself for the "real world".

View Course »

TurboTax Articles

When the IRS Classifies Your Business as a Hobby

If your business claims a net loss for too many years, or fails to meet other requirements, the IRS may classify it as a hobby, which would prevent you from claiming a loss related to the business. If the IRS classifies your business as a hobby, you'll have to prove that you had a valid profit motive if you want to claim those deductions.

What is IRS Form 8917?

If you, your spouse or dependents attended post-secondary school, you may be able to deduct a portion of the tuition and fees by reporting it on IRS Form 8717.

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