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With NFL Season Kickoff, Players Look to Cut Tax

By Teresa Ambord

 

NFL players make a lot of money, that is no secret. Even those at the bottom of the salary list are well paid, but then there are those at the other end, like Drew Brees. He is currently averaging $20 million a year, plus whatever endorsement income he may make and his prorated signing bonus. 

 

Nobody’s going to feel sorry for athletes with earnings like that, but big bucks come with big taxes, and big out-of-pocket expenses. 

 

Most professional athletes are employees of the team for which they play. So just like any other employee, players can deduct unreimbursed business expenses as itemized deductions, subject to the 2 percent of AGI threshold. On a salary of $2 million, for example, business expenses have to exceed $40,000 before there would be a tax benefit from the deduction.

 

What costs are deductible? Here is a partial list: 

  • Agent fees, which are generally a percentage of a player’s salary. The maximum an agent can charge in the NFL on a contract is 3 percent. For other income, such as endorsement income, it is customary for the agent to charge a higher percentage. Agent fees are deductible, regardless of the type of income on which they are based. 
  • Fines. “I am often asked if player fines are deductible,” said CPA Robert A. Raiola. “Fines which do not violate public law can generally be deducted. For example, if an athlete incurs a speeding ticket on the way to a game, that is not deductible. If he is fined by the team for being late to practice, that is deductible because it violates the team’s policy, not public law.” As the head of the Sports & Entertainment Group for the New Jersey–based accounting firm of Fazio, Mannuzza, Roche, Tankel, LaPilusa, LLC, Raiola is intimately familiar with the ins and outs of sports accounting. “It is a common misconception that these fines are deductible because some leagues, including the NFL, donate those funds to charity. They might, but the fines are deductible to the athletes, regardless of what the league does with the funds.”
  • Ground transportation, such as business-related taxi fares, parking fees, and tolls. This includes travel to meet with agents, scouts, trainers, etc. Transportation fees related to the player’s commute, such as to the stadium or practice facility, are not deductible. 
  • Athletic equipment related to the player’s business are considered tools of the trade.
  • Costs of overall development and maintenance for the athlete, such as training classes and general workout equipment (for example weight machines and dumbbells).
  • Massages that are therapeutic in nature may be deductible. 
  • Rent for temporary housing. This may be deductible if it is for a short-term, definite time period (such as spring training for baseball players). Housing costs that are for an indefinite period of time are generally not deductible. 
  • Rookie expense. Rookie expenses, such as buying a meal for his entire position group, are a kind of friendly hazing. This is considered a normal business expense in the NFL, and generally it is deductible, subject to the standard 50 percent meals and entertainment limit. 

What expenses are not deductible? 

  • Clothes that are not for football-related workouts. In fact, many NFL players have contracts with companies that provide them with shoes and clothes, and the value of those items is taxable income reported on a Form 1099 by the companies. Players can deduct the portion of the clothing used for playing their sport, but they cannot deduct clothing suitable for street wear. 
  • Personal items, such as electronics, watches, and jewelry. 
  • Temporary living expense, again, is not deductible if it is for an indefinite period. 
  • Cell phones are only partially deductible.
  • Gifts are not deductible, unless they are related to the business of football, and even then they are limited to minimal amounts.

In general, NFL players and other pro athletes may have a few deductible items related to the nature of their profession that most of us do not qualify for. But overall, the same rules apply to athletes. An accountant with specific knowledge of tax-related issues pertaining to football players or any athletes is a valuable resource for any player in tackling Uncle Sam.

(http://www.accountingweb.com/article/nfl-season-kickoff-players-look-cut-tax/222411?source=aa)

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January 8, 2016

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