There are several tax deductions and issues which are unique to professional athletes. Understanding the laws and how they pertain to your situation can save tax dollars and enable you to maintain the proper documentation to qualify for the deductions.
For more information on the services we provide to professional athletes, contact us today.
According to tax law, a tax payer who travels for business purposes can deduct “ordinary and necessary” travel expenses including meals, tips, local travel (such as taxi fare, rental cars, and other modes of transportation), as well as other miscellaneous expenses. Taxpayers have the option of either documenting their actual expenses or deducting a per diem amount per tax law. You should discuss your specific situation with your tax preparer to figure out which method is most advantageous for you.
Temporary living expenses may be deductible under certain circumstances. Law provides for deduction of these expenses if the stay in a location is temporary in nature (generally less than one year) and at the convenience of your employer. A lot of times minor league players fall into this category. In most cases, the living expenses of a player competing at the major league level will not be deductible given the indefinite nature of the stay. Each situation should be examined independently to determine if eligible for the deduction.
Clubhouse dues are deductible as ordinary and necessary business expenses. It is best to pay these dues by check so there is acceptable documentation to support the payment was made. If you cannot pay by check, ask for a receipt from the clubhouse manager to save for your records.
Most or all of the conditioning and training expenses incurred by professional athletes are deductible as a miscellaneous itemized deduction.
Most or all equipment purchased by a professional athlete used in competition or training is either wholly deductible or able to be deducted by taking a depreciation deduction over a number of years.
Union dues paid to the Major League Baseball Player’s Association are deductible as a miscellaneous itemized deduction.
Fees paid to an agent or manager are tax deductible for a professional athlete.
Charitable planning can play a significant role in the career and life of a professional athlete. If a plan is structured properly, the athlete can marry the goals of supporting causes that are meaningful to his family and him both during his playing days and long after he has retired. All of this can be achieved while maximizing his charitable income deductions during his high income/high tax bracket years. Philanthropic athletes who don’t consider a formalized plan to integrate their desire to help others with a well thought out tax strategy would be doing themselves a grave disservice.
Professional athletes, especially those competing at the major league level, may be required to file tax returns and pay taxes in many different states and cities in which they’ve rendered services. It would not be unusual for a major league player to file 12 – 15 state and city income tax returns in addition to his federal tax return. The laws are complex in this area so the importance of retaining a qualified tax preparer that understand the unique rules as they apply to the professional athlete should not be downplayed.
It is also important to note that a taxpayer cannot take a credit on his resident state tax return for taxes paid to cities. However, a full or partial credit on the taxpayer’s resident state return for the taxes paid elsewhere is allowed. Also, all taxes paid to both the states and cities are deductible on your federal income tax return.
Most states use a “Duty Days” formula to calculate the amount of income a player earns which would be subject to tax. Sometimes it gets complicated if players are not on the big league roster the entire year or if a player is on the disabled list and doesn’t travel with the team during one year. Our family office is set up in such a way that we are able to track our client’s playing transactions immediately. We know when our clients have been sent down to the minors, have been put on the disabled list, or are no longer traveling with the team. This information is automatically populated into their tax file.
Understanding the Jock Tax mentioned above, choosing a state of residency that fits into your life situation while minimizing your tax burden can be a critical component in your financial planning process. It is important that each athlete understand and quantify the impact of their decision on where to establish and maintain residency during their playing career. The athlete should take the steps necessary to ensure the residency is clearly documented such as obtaining living quarters, getting a driver’s license, registering to vote, establishing a banking relationship, and registering and insuring vehicles in that state.
Geier Asset Management has a sister company, Winpoint, that provides financial management services tailored to fit the unique needs of the professional athlete.
For more information on the services we provide to professional athletes—including wealth management, investment advisory, tax planning and preparation, family office, accounting, and business advisory—visit Winpoint or contact us today.