This past tax season was an especially demanding one as it was the first one under the new sweeping tax legislation, the “Tax Cuts and Jobs Act of 2017,” which passed 12/22/2017—professional athletes and coaches felt its impact deeply.
For those athletes and coaches we represent, there were two key impacts:
- Federal refunds were significantly lower and/or taxes were owed where typically refunds were the norm. This was because temporary raises were disguised as teams were withholding less federally on each game check. (While net-pay may have been a little heavier, ultimately, this created those challenges.)
- The new tax law also eliminated most state and local tax deductions. The jock tax requires each athlete to pay income tax to each state a game is played in, however, under the new tax law; an itemized deduction of up to only $10,000 per player could be taken on their tax return. Moreover, certain deductions, such as agent’s fees, union dues, tax preparation, investment advisory, massage therapy, among other expenses, were also eliminated which increased the overall tax liability on a player’s tax return.
What should players and coaches do to conquer these challenges for the upcoming season?
- Choose the highest tax withholding possible. When filling out the W-4 form, “Employees Withholding Allowance Certificate, “ simply claim Single with 0 dependents.
- Have a CPA perform a tax projection in order to determine if the player and/or coach are accurate with their withholdings—which will determine any potential liabilities during the next tax filing season. Planning for that potential shortfall will provide peace of mind, allowing the player and coach to focus on what they do best— play the game!
Categories:
Tax Planning & Compliance
