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Monday, November 28, 2022
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How many times have you found yourself being jealous of professional athletes with their massive salaries? You find yourself comparing your life with theirs, as if the Cavaliers were deciding to draft you or Lebron. You think to yourself, “I’m the same age as this guy and he makes $20 million a year more than me. What does he have that I don’t, besides height, training, ability and skills? It’s inside that counts, right?”

These athletes really seem like they have it made. I mean just look at some of these staggering salaries. Just this past year, Kobe Bryant earned $378,789 for every game he played. Philip Rivers made just under $1.3 million for each touchdown pass he threw. And Alex Rodriguez made over $93,000 for each at bat he took in 2016. But A-Rod’s deal gets even better. The Yankees are paying him $21 million next year to not play. That means he and I will have the same exact statistics in 2017, just very different salaries.

But being an athlete isn’t always what it’s cracked up to be, especially when it comes to taxes. With the Olympics just wrapping up last week, you may have seen a number of articles on the tax implications of American Olympians. See, the United States Olympic Committee pays our medal winners a cash prize—$25,000 for gold, $15,000 for silver and $10,000 for bronze. This is taxable income just like any other prize you receive, whether it’s the lotto or the Nobel Peace Prize.

For athletes in the highest tax bracket, such as Michael Phelps, who clears over $10 million in annual earnings, they must pay 39.6 percent in federal taxes on that prize money. That means Michael Phelps will come home to a tax bill of over $53,000. Ryan Lochte’s bill will come out to $9,900, and this is in addition to what he already paid the gas station attendant.

But not only that, the Olympians have to pay tax on the medal itself. Lucky for them, the gold medals haven’t actually been made out of solid gold since 1912. In fact, a gold medal is only worth about $600, the silver about $300 and the bronze is basically worthless.

But Olympians aren’t the only ones being hit hard by Uncle Sam. Take this year’s Super Bowl participants, for example. Each Denver Broncos player received a $102,000 bonus for being a Super Bowl winner. The Carolina Panthers players received $51,000. But many players actually paid a bigger tax bill than the bonus they received. How is that possible, you may ask? That’s because the Super Bowl was played in California this year, and California is not an athlete-friendly state. Not only does the state tax the income earned in the Super Bowl, but also the income for the entire year proportional to the time spent working in California. This includes all of those days leading up to the Super Bowl, which adds another seven to nine days.

This is how Cam Newton, Carolina’s star quarterback, ends up with a $137,000 tax bill on a $51,000 bonus in a losing effort. Oh, and by the way, those Super Bowl rings that are valued at tens of thousands of dollars are taxable income also.

But don’t feel too bad for the athletes. There are times when they come out on top.

You ever wonder why baseball’s Spring Training is held in Florida and Arizona? I assume because it’s warm there. But here’s another theory—to save a lot of money on taxes. Unlike California, these states are very friendly to jocks. Florida has no state income tax, and Arizona does not allocate income earned in the state until the regular season starts. That means those two months that players spend in Spring Training are not subject to state taxes.

Baseball players spend about 20 percent of their time in Spring Training. So let’s take Yankees’ pitcher CC Sabathia as an example, who makes $25 million a season. If Spring Training were held in New York, then $5 million of that income would be allocated just to Spring Training time. In New York, the highest tax rate is 8.82%, so that would come out to a $441,000 tax bill. But luckily for CC, the Yankees hold their Spring Training in Florida. So that $441,000 state tax bill becomes zero.

Daniel Magence, CPA, Esq. is a principal at Pristine CPA Solutions, LLC (www.pristinecpa.com). Pristine CPA Solutions offers tax and accounting services to individuals and businesses of all sizes, whether it’s tax returns, bookkeeping, payroll services or personal income budgeting. He can be reached at [email protected] or 201-326-6908 if you have any questions or comments, or are interested in using Pristine CPA’s services. Feel free to contact us for a free consultation.

 

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