Paul L. Caron
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Friday, December 21, 2018

Why Pro Athletes May Lose A Fortune Because Of The New Tax Law

MarketWatch, Why Pro Athletes May Lose a Fortune Because of the New Tax Law:

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. ...

What about the argument that superstars like LeBron James make tens of millions of dollars a year but also live in high-tax states like California? “LeBron made a business decision when he went to the Lakers,” Goldstein says, referring to the additional endorsement and entertainment-related money he can make by being in Los Angeles. He adds that losing 50% to taxes (37% federal and 13% state) of, say, $10 million, is still $5 million.

https://taxprof.typepad.com/taxprof_blog/2018/12/why-pro-athletes-may-lose-a-fortune-because-of-the-new-tax-law.html

Celebrity Tax Lore, Tax | Permalink

Comments

Before the new law, such rich fat cats were usually subject to the AMT and those same deductions were not allowed. So tell us if the lower rates will benefit these "poor" victims of tax reform. I suspect these people have lower taxes under the new tax laws. Again, please tell us which system produces a lower tax.

Posted by: STEPHEN KARPA | Dec 21, 2018 3:44:38 AM

@Stephen -- Not really true re the AMT. For people earning predominantly ordinary income (as most athletes do), AMT historically hit the moderately plump cats at salaries of $200K-$750K, but at professional athlete levels, which are north of $1M, the blended tax rate (at least 34%) exceeded the AMT rate (28%) by enough to outweigh the disallowed deductions. Obviously a different story for fat cats who were earning mostly investment income taxed at 20%.

Posted by: Matt | Dec 21, 2018 8:36:33 AM

Cry me a river. Aren't these part of the 1% that we keep hearing about? Why shouldn't they pay their "fair share?"

Posted by: ruralcounsel | Dec 21, 2018 11:22:33 AM

AMT is the higher of "regular" tax or an "alternative" tax. people making over $500K -- even with high state income taxes -- usually pay more in regular tax, so AMT does not come into the picture. so they were getting a benefit from state tax deductions -- and maybe even a bigger number, the fees they pay agents, etc.

Posted by: Joel Garfield | Dec 21, 2018 1:21:29 PM

Wait, a tax reform law changes the amount people pay in tax? Weird...

Posted by: brad | Dec 23, 2018 5:47:35 PM