Our Favorite Athletes are Part of the 1% and try to Minimize the Taxes they pay just like those on Wall Street

Posted by PITHOCRATES - March 25th, 2012

Week in Review

Don’t think high taxes influences behavior?  Of course, no one cares about the evil 1%.  Those greedy Wall Street types that don’t pay their fair share of taxes.  But you know who else is in that greedy 1%?  Your favorite athletes.  And guess what?  They want to hold on to their earnings just like those greedy Wall Street types (see Professional Athletes’ Big-League Tax Bills by Jay MacDonald posted 3/15/2012 on Yahoo! Finance).

Behind every sports star who’s hauling down the big bucks is a keen-eyed certified public accountant quick-stepping through a maze of state and local income taxes imposed on nonresident athletes, commonly known as the “jock tax.”

Professional sports players get taxed by pretty much every city and state in which they play, says Ryan Losi, CPA and executive vice president of Piascik & Associates, a Glen Allen, Va., accounting firm that represents more than 70 professional athletes.

“NFL players typically file in 10 to 12 jurisdictions. NBA is somewhere between 16 and 20. MLB is somewhere between 20 and 26, and the NHL is between 14 and 16,” says Losi.

Professional sports players are great big cash piñatas to these city and states that chronically over spend.  They all want a piece of these guys.  To make sure they pay their ‘fair share’ of taxes.  While they can before some career-ending injury puts an end to this gravy train.  But because these players could lose millions in future career earnings because of a career-ending injury, they want to keep their money.  For they may never be able to get another job.  Sure, some may move into the front office.  Some may move on to coaching.  But few will earn the kind of money they did during their short careers.  So they want to keep as much as they earn.  To take care of their wife and kids.  And have enough for their retirements.  Which can be rather long for these worn out and injured bodies.  So they just don’t sit by passively while every taxing authority is shaking them down for everything they’re worth.

The lion’s share of most players’ income, their salary, is taxed in the city and state where the team is based. But income from other sources, including endorsements, personal appearances, dividends and interest income, is taxed in their state of residence.

This is the reason New York Giants quarterback and Super Bowl MVP Eli Manning lives in Hoboken, N.J., instead of in the Big Apple. It’s simple arithmetic, says Raiola.

“If he were a resident of New York, he’d pay 8.97 percent New York state tax and another 3.78 percent New York City tax on top of that, not only on his wage income but also his endorsements and investment interest,” he says. “In New Jersey, he only pays 8.97 percent…”

Taxes — or the lack of them — may also have had something to do with NBA all-star and 2010 free agent LeBron James’ choice to play for the Miami Heat instead of the New York Knicks. Losi points to Florida’s lack of a state income tax.

“That may have been one of the factors that led LeBron to choose Florida versus New York,” says Losi. “Ten percent of his first contract was going to be the difference. For him, it was an extra 5 (percent to) 9 percent difference in tax. That’s real money.”

New York City may be the greatest city in the world but the rich pay an enormous amount of taxes to live there.  So many chose not to.  In fact, a lot of athletes chose where they live and raise their families based on their total tax burden.

Professional golfers, tennis players and other athletes who compete on the world stage often leave a third or more of their earnings in the local coffers.

“Whenever they play in foreign countries, they have to pay taxes in that jurisdiction, and the tax liability is much bigger than the 5 (percent) to 10 percent state tax. It’s usually in the 30 (percent) to 40 percent bracket,” says Losi. “Usually it’s withheld in their prize money, and they can file a nonresident return if they think they might have a refund coming.”

Because the United States is one of the few countries that taxes all personal income regardless of source, some pro sports stars who compete internationally actually have a financial disincentive to make their home in America.

“If they’re (not U.S. citizens or green card holders) and they’re not planning to stay here more than 183 days out of the year, from a tax perspective it absolutely makes sense to not live in the U.S.,” says Losi. “All the foreign golfers who come here to play, if they want all of their foreign prize money and endorsement money to be taxed, all they have to do is hang out here for 183 days.”

Being an athlete competing at the level that makes them millionaires is not an easy life.  While others look forward to weekends, holidays and vacations to kick back and relax and recharge their batteries with copious amounts of alcohol and enormous quantities of fattening foods these athletes don’t.  They often work on weekends and holidays.  And when they’re not working they’re practicing.  Where their practice is often more intense than their competition.  This is their life.  This is how they become elite athletes.  And their reward?  To be whacked open like a cash piñatas by the taxing authorities so the politicians they serve can take their money and spend it to buy votes for the next election.  And forcing them to choose where to live based on who will penalized them the least for being really good at something.

This is not a meritocracy.  Where we reward people for achievement.  This is out of control government spending to maintain a privileged class.  Politicians.  And government workers.  Who live and feed off of taxes.  To fund their class warfare that makes these privileged few secure in their class.

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