The most common financial mistake we see Major League players make is not taking advantage of all the tax savings strategies available to them. This results in a player paying more taxes than necessary and missing out on years of future growth of the tax savings amount.
There are 3 critical planning opportunities you will want to make sure you take advantage of this off-season.
One of the most important ways to save on taxes is to properly track your business expenses. Your accountant’s ability to prepare your returns is only as good as your records. When you miss a business expense, you are forcing yourself to pay more in taxes.
Most common missed deductions
- Review a copy of your last paystub. There are deductible tax items included on your paystub that are not included on your W-2.
- Game tickets you leave for individuals are taxable at face value and reported on W-2. Tickets left for your agent and financial advisor are deductible.
- Spring training housing is considered temporary and deductible.
- If you spent time between the majors and minors your temporary living expenses (rent, travel, etc.) may be deductible.
Review our list of what is tax deductible to ensure you are maximizing every deduction.
Earning endorsement income (card deals, appearances, equipment deals, etc.) is not only great because it’s extra income, but also because it provides you with the opportunity to pay less tax today and maximize your tax-deferred investment growth, ultimately helping you accomplish your financial goals more effectively.
Endorsement income is classified as self-employment income. This provides you with an opportunity to set up additional tax-advantaged retirement plans that will lower the amount of taxes you pay today and offer you tax-deferred investment growth for years to come.
It is important to coordinate a meeting with your Wealth Manager to discuss the benefit of contributing to a qualified retirement plan (Individual 401K or SEP IRA).
3. Prepare a duty-days schedule
As a professional athlete you are subject to income tax in the states in which you play. If this was not bad enough, many municipalities also have an Income Tax and filing requirements. For every dollar you earn, ‘duty days’ are assigned for the proportion of official days you are in various states (or cities).
Unfortunately, the Form W-2 you receive during tax time does not always reflect the proper allocation of days which can result in you paying more tax than you actually owe.
It is critical for your CPA to prepare a duty-days schedule that includes all official team events (spring training, instructional league, off-season camps) and any time spent on the disabled list.
What Should You do?
Unfortunately, if you choose to wait until after the year to address your tax and financial planning needs many of the tax savings strategies will no longer be available. The #1 most important action step you can take TODAY is to have your Certified Public Accountant (CPA) prepare a tax projection before year-end.