What are Taxes?
“In this world nothing can be said to be certain, except death and taxes.”
— Benjamin Franklin
Governments receive money in three ways—they print it, they borrow it, or they tax its citizens (you).
Taxes are what citizens of a country pay to the government. In turn, the government takes those taxes and uses them to build roads, bridges, provide food stamp programs, housing, healthcare, defense (Army, Navy, Marines, etc.) and other services. In the United States the Internal Revenue Service (IRS) is responsible for collecting taxes.
Types of Taxes
The 3,000 athletes that make up the NFL, NBA, and MLB pay about $3 billion in federal taxes.
— David Carter
Executive Director USC Sports Business
Institute
In America there are a number of different taxes that citizens must pay. Although there are several more, below are the most common taxes:
Filing Taxes Every Year
Actor Wesley Snipes was sentenced to three years in prison when he was found guilty on three counts of failing to file a federal income tax return. He owed the government $17 million in back taxes and penalties.
Every year all citizens must report the amount of money they made on or before April 15th on a tax return (W2). Although it is not a requirement, most of the time a certified public account (CPA), should complete a tax return.
The two most important tax forms are the:
Tax Troubles
After his famed boxing career it was determined that former World Champion boxer Joe Louis owed the IRS over $1,000,000 (in the 1950’s)
There are very few people who get away with not paying taxes. Some do it intentionally, others are financially ignorant or are scammed by trusted advisors. In the eyes of the government none of that matters. If you make $100,000 in a year don’t assume that you can spend the total amount. You will have to pay taxes.
The penalty for not paying income taxes can range from jail and fines to payment of the back taxes with interest. So it’s a good idea to, one, hire a good accountant, and two, get in the habit of paying taxes.
Paying Taxes in Every State
“The tax returns for most people are relatively simple as compared to an athlete’s because they only have to know the rules for one state.”
— Forbes Magazine K. Sean Packard
Athletes and entertainers have to pay taxes in the states that they perform in. Accountants called this the “jock tax.” Tax rates are calculated differently in every state and from sport to sport. For example, basketball and hockey players are taxed on the ratio of games played in a state over the total games played. Football players are taxed on the number of days worked in a state over the total days worked. Although Tennessee doesn’t have a state income tax on wages they do charge athletes a $2,500 per game tax (3 games max). The city of Pittsburgh charges athletes a 3% tax for games played in the city. As a professional athlete taxes can become quite complicated once you consider the various taxes in different states. This is another reason to hire a competent accountant and/or tax advisor.
Paying Taxes Overseas
“The United States is the only nation . . . . that taxes citizens wherever they reside, including an estimated 7 million expatriates.”
— Boston Globe
April 30, 2013
American athletes who play overseas must pay US taxes on their income as well as in the country in which they play. Taxes vary from country to country. In 2011 golfer Phil Mickleson won $2.1 million in golf tournaments in the United Kingdom (UK). Because of UK tax laws and US federal and state taxes, tax experts projected that he brought home less than $900,000 after taxes.
The same rules apply to foreign athletes. They have to pay taxes in the US and in their country. In the 2014, it was revealed that Kenyan runners take home about 15% of their earned income. Approximately 30 to 35% goes to the country they compete in, 15% to their agent, 10% to the manager, and 30% to the Kenyan government. Geesh!!
The Athlete's Handbook: Life Skills Coaching Tips for the Game of Life | Copyright 2018 David Hollaway | All rights reserved | Press Kit | Academy | Contact