Managing tax implications for professional athletes
Professional athletes can have unique income and expense circumstances to consider when tax filing season comes. These typically high-income individuals must be extremely mindful of the tax implications associated with their careers. Doing so will not only help them maximize their earnings but also minimize their tax liabilities, ensuring they make the most of their hard-earned income.
One area professional athletes should examine is unreimbursed business expenses, like hotel rooms, union dues, food, agent commissions, and professional development fees. Beginning in 2026, the former tax rules (before the 2018 Tax Cuts and Jobs Act) will go back into effect allowing professional athletes to deduct unreimbursed business expenses on the Schedule A, so long as expenses exceed 2% of Adjusted Gross Income (AGI).
Another common mistake professional athletes make when securing their tax situation is not properly domiciling themselves in the eyes of the IRS. A domicile is the place one treats as their permanent home, and many high income earners can save significantly in taxes by choosing to reside in a state that does not have an income tax, such as Florida, Texas or Washington. However, if the majority of your income is earned outside the state of residence, and if tax withholdings are not properly managed according to that state’s income tax laws, a very large underpayment penalty can surprise professional athletes at tax time.
Given the complexities of their tax situations, professional athletes can greatly benefit from partnering with tax professionals who are experienced in representing workers in similar high-income, highly variable professions. Contact ShindelRock for experienced tax advisors who are well-versed in the complexities of managing professional athletes’ tax obligations.