Because of changes to the tax law that went into effect this year, professional athletes might need to put their CPAs on speed dial.
That’s because players in sports leagues like the NBA, NFL, MLB, WNBA and NHL have traditionally been able to deduct tens or hundreds of thousands of dollars for things that they no longer can.
“One of my players makes $2 million a year, and it will cost him $80,000 more now because he can’t deduct state taxes [over $10,000], agent fees, workout clothes, meals and entertainment, and his cellphone,” says Steven Goldstein, a CPA with Grassi and Co. in New York who works with over a dozen professional athletes and celebrities.
And players who make tens of millions of dollars a year will potentially pay hundreds of thousands more a year in taxes.
The reason athletes are taking this hit is because individuals can no longer deduct more than $10,000 for state and local taxes (SALT) or declare miscellaneous itemized deductions for work-related expenses and investment fees. And these changes, especially the latter, will cost pro athletes more than most people.
Of course, the median household income in the U.S.[1] is about $63,000, so why should most people care about these tax hits that still leave the majority of pro athletes incredibly well paid? In reality, not all of them make millions of dollars a year. As Goldstein points out, a third of NFL players make the league minimum, which this year is $480,000, and the average NFL career is only about three years. Plus many pros are in the minor leagues, where they can make less than minimum wage[2]. But admittedly the tax hits mentioned in this article are largely an issue for “the 1%.”
Some pro athletes try to move to these tax-friendly states
Residents in all but seven states pay income tax; the highest rate is in California, where it’s over 13%.The so-called “Jock Tax” essentially means athletes pay different amounts of taxes in different states. If an athlete lives in Florida, where there is no state income tax, he pays none for his home games. But if that same athlete plays a game in New York, he pays New York’s income tax rate on the amount he made for that game.
Some athletes try to play for a team in one of the no-income-tax states, so that they pay no state income tax for their home games, and their endorsement earnings. And other players choose to live in one of these states, even if they play for a team in another state. Washington, Texas, Nevada, Florida, Alaska, Wyoming, and South Dakota charge no personal income tax — and only the first four of these have teams in the major sports leagues. Also, Washington, D.C., isn’t allowed to charge income tax to non-residents, and both New Hampshire and Tennessee charge no tax on income,...