Professional athletes are used to facing challenges on the field or court, but every year, they face-off with a tax season that’s a bit more complex than the average taxpayer’s. If you don’t know the rules, it can get messy. Let’s break it down with five tax tips professional athletes need to know to stay on track this season. (This tax season, that is.)
Athletes juggle multiple income streams, busy travel schedules, and numerous endorsement deals. Keeping track of receipts, cash flow, and all your financial records is essential. Some athletes receive W-2s, while others, such as professional golfers, are 1099 independent contractors. This requires even more attentiveness to tracking income and expenses. The more organized you are, the easier it’ll be come tax time—and that could save you time, stress, and money.
If you’re playing in different states or countries, you may have to pay taxes in each one. Even certain cities, too. Yep, the states where you earn the income—not just where you live—can take a cut. This is called the Jock Tax, and it can catch you off guard if you’re not properly prepared. This is when working with an accountant familiar with the Jock Tax and various state tax laws is crucial. And remember, the Jock Tax applies to athletes no matter how much you’re earning—so even if you’re in the big leagues, you could face a big tax bill!
It’s not just your team salary that’s taxable. Sponsorships, performance bonuses, sign-on incentives, prize money—each type of income for professional athletes is subject to tax. Your accountant can guide you through the specific tax rules and deductions for all your earnings.
Your domicile is where you legally call home—and where you may get tax benefits. States like Florida and Washington have no state income tax, so choosing the right domicile (if you have the flexibility) could mean paying less overall—especially when combined with the Jock Tax. However, it’s not as easy as just changing your driver’s license. A proactive approach is absolutely necessary when establishing your legal home.
Tax laws are complicated, and as a pro athlete, there’s a lot at stake. Make sure you have an advisor who understands the unique challenges you face and can keep you on the right path.
Want more insights or need expert help? Contact an Alloy Silverstein advisor today. Don’t let tax season be a game you’re not prepared for!
Manager & Director of Cloud Services
Chris provides accounting, tax planning, and consulting services to professional athletes, family entertainment centers, and other businesses in the amusement and hospitality industry. He also aids clients in implementing cloud accounting solutions.
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