3 ways Olympic athletes’ taxes are different than yours
NS more than 600 athletes Team America converging in Tokyo for the Olympic Games is, by definition, separate and separate from the rest of the US population.
They have a unique combination of skill, power and speed that allows them to compete with the elite on the top global stage with millions of viewers (although not from the stands due to pandemic-related restrictions).
And when they return home and receive taxes around 2021 months from now, these athletes may also find their tax situation different – thanks to the interplay of tax provisions. specific to the Olympics and changing payees in the sports industry.
Following the Olympic Games approach, here’s a look at how the taxman can and can’t, too, go for gold.
No more ‘winning tax’
The International Olympic Committee awards the iconic gold, silver and bronze medals, but it does not distribute cash prizes to the winning athletes. However, Olympic committees in the US and other countries give money to medal winners from their own countries.
United States Olympic & Paralympic Committee (USOPC) Award $37,500 for the athlete who won gold, $22,500 for silver and $15,000 15.000 for the bronze medal. A USOPC spokesman said the pay scale is the same for the Olympic and Paralympic Games and there is no maximum payout.
That means, for example, a dominant swimmer winning three events would go home with three gold medals, plus $112,500 ($37,500 X 3).
Normally, prize money for sporting events will be subject to income tax, in a similar manner Lottery winnings are taxable.
But the legislators decided it was a bad look for Uncle Sam tax about victory after athletes bring home fame and prestige. Critics such as Senator John Thune, a Republican from South Dakota, and Senator Chuck Schumer, a Democrat from New York, mocked the so-called “Tax wins.”
A few months after the 2016 Olympics in Rio de Janeiro, then-President Barack Obama signed U.S. Appreciation for Olympic Athletes and the Paralympian Athletes Act, which indicates a person’s taxable income will not include any bonuses for participation in the Olympic or Paralympic Games. Taxable income is also not included in the value of any medals, the law said.
The exemption applies to anyone earning less than $1 million – leaving superstar athletes undisputed about tax breaks – and it is retroactive, meaning it applies to people won 2016 below the income threshold.
“The tax code is full of exemptions, of which this is one of them,” said Tim Johnson, partner at JLK Rosenberger, who leads the accounting firm’s sports operations.
Johnson handles the tax issues of more than 100 athletes, primarily in the National Football League and Major League Baseball, and he has also worked with an Olympic athlete in the past. Even for athletes, the income tax exclusion on Olympic-related bonuses is a difference, he noted.
Team USA in 2020 includes some big stars who will most likely have to pay taxes on their feat if they win.
The US Olympic basketball team includes Brooklyn Nets Forward Kevin Durant, who makes $75 million in combined on- and off-court earnings, according to Forbes. Portland Trail Blazers point guard Damian Lillard is another member of the team. According to the Forbes list, he earned a total of $40.5 million.
A USOPC spokesperson said each sport determines its own eligibility rules when it comes to amateur or professional status.
Justin Linscott, principal at Holbrook & Manter, explains that amateur and professional status makes no difference to the IRS, explaining that, where he leads the sports and entertainment sectors have a high net worth. . He noted that the amount in question is still potentially taxable income, depending on the facts and circumstances.
No cross-border taxes (at least for the Olympic Games)
The pandemic has forced millions of people to work remotely. In the process, these workers may have learned a hard lesson this past tax season about different rules quy when state and city income tax obligations begin.
In general, most states levy income taxes on residents and non-residents who are earning within state borders. But states have all kinds of timelines for when to start taxes and various “reciprocal” transactions with neighboring states.
The combination of rules is too complicated, say critics. But this is something professional athletes with a lot of road games have had to contend with for years as their tax pros prepare their returns.
Johnson and Linscott say a sizable task in a professional athlete’s tax liability is figuring out what state income tax they owe, for all the travel involved.
But Olympic athletes won’t face international cross-border tax issues when they arrive in Tokyo.
Yoshihisa Kita, First Finance Minister of the Embassy of Japan in the United States, is provided by law as special treatment in tax rates awarding prizes to exempted non-resident athletes participating in the Tokyo Olympic/Paralympic Games. tax of Japan,” Yoshihisa Kita, First Finance Minister of the Japanese Embassy in the US, told MarketWatch.
That’s consistent with other types of international aesthetic events, Linscott says.
“Generally speaking, the host countries make it easy for individual players,” said Linscott. They don’t want to offer a disadvantageous tax to travel abroad to compete, he added.
Linscott’s company has handled tax issues primarily for NFL and NBA players, as well as Olympic athletes as recently as 2016. When NFL players have exhibition games in London, they do not have to file a UK tax return, he noted.
Some athletes may have a way to deduct work expenses (and many more may do so in 2024).
As workers tried to see if they could get rid of the spare screen or comfortable chair they bought in 2020 for the temporary home office of the flu pandemic, they may have been disappointed when know that there are There are no tax deductions for those expenses.
That’s because the Tax Cuts and Jobs Act of 2017 ended the deduction of unreimbursed employment expenses for employees through 2025.
For the same reason, athletes can’t deduct business expenses from their paychecks, Johnson noted. But they may get some deductions for reporting probate transaction amounts, he added.
Athletes can receive money through an organization such as a limited liability company or as a sole proprietorship. Because they are leading their probate agreement business, they – like other taxpayers with a self-employment source of income – can deduct business expenses that the IRS deems appropriate. “Normal and necessary.”
Some examples might include the cost of travel to get to the set for an ad, the fee paid to an agent and even the cost of a cell phone to speak to an agent, Johnson said.
Now, let’s say an athlete with a low reputation comes to Tokyo, becomes a medal-winning sensation in their sport and the games are hailed into endorsement deals in 2021. Will they be able to? What could be the pre-success cost from that year compared to the money from newcomers who didn’t trade?
If Johnson is doing the person’s taxes, that’s something he wants to discuss to see if there’s a connection.
A variety of state laws, along with a Judgment of the Supreme Court of the United States and rule change by the National Association of College Athletes all of which make it possible for college athletes to monetize their name, image, and likability.
Some of the players are cashed out, But the sea change only begins when the Tokyo games begin. By the 2024 Paris Olympic Games, young athletes will have many years to make deals and come to the matches with high income and good skill.
Linscott and Johnson agree that Team USA members attending the 2024 game could have more complicated tax situations as a result.
If the Olympic athletes’ next case “was a successful franchise and exceeded the winning tax limit, then they would have to pay tax on the full value of their prize money,” Johnson said.
https://www.marketwatch.com/story/3-ways-olympic-athletes-taxes-are-different-than-yours-11626904525?rss=1&siteid=rss | 3 ways Olympic athletes’ taxes are different than yours