Nintendo’s mega-hit Super Smash Brothers turned 21 in 2020. Many argue that Super Smash Brothers had an e-sports following well before e-sports was a word. Now, Super Smash Brothers is the game of choice for many e-sports tournaments. Players can garner tens of thousands of dollars in prizes. Since you may play tournaments around the world, you may have questions about how the money you may earn as a player will affect your professional MOBA Super Smash Bros esports athlete tax planning, accounting, and bookkeeping.
How Does Living Abroad Mitigate US Tax for E-sports Athletes?
If you are an American citizen who has lived abroad for one year, there are two methods your MOBA Super Smash Bros esports athlete CPA may use to mitigate your taxes. There is the “Foreign Earned Income Exclusion” and the “Foreign Tax Credit.” It’s important to note that neither of these methods excludes your MOBA Super Smash Bros esports athlete accountant from filing your income if it is over the filing threshold.
The Foreign Earned Income Exclusion may allow you to exclude up to $105,900 from your taxes. Let’s say that according to your MOBA Super Smash Bros esports athlete bookkeeping, you earn $112,000 playing in tournaments and live outside of the United States. You may be allowed to subtract $105,900, leaving you with $6,100 in income that’s taxed by the United States.
However, the $6,100 will be taxed at the tax rate applied to the $112,000. This is thanks to the “stacking rule.” However, if you are factoring in other US-sourced income, such as capital gains, dividends, interest, or pensions in your MOBA Super Smash Bros esports athlete tax planning, you are responsible to pay full US tax on this income.
The Foreign Earned Income Exclusion does not get you out of paying self-employment tax on foreign income if you are an independent contractor, freelancer, or sole proprietor working abroad. Fusion CPA has a team of MOBA professional esports athlete accountants well-versed in tax regulations pertaining to income earned overseas or earned from overseas entities. We can help you stay compliant with all tax laws.
How to Determine If You Are an Employee or Independent Contractor
Being classified as an employee or independent contractor will impact the way your CPA prepares your taxes. If you are a contractor, you will receive a 1099 for tournaments you take part in, advertising you do, or endorsements you receive. As a contractor, you may record expenses in your Super Smash Bros esports bookkeeping and then deduct these from your federal and state taxes.
As an employee, you would receive a W-2 form from the league, team, or company that employs you. While you may deduct some of your unreimbursed work-related earnings on your state taxes, reforms to US tax laws prevent you from deducting unreimbursed work-related earnings from your federal taxes from 2018 going forward.
Getting Financial Advisers
Since the money you may make as an e-sports professional can be earned anywhere in the world, understanding your tax obligation and complying with it can be challenging. Fortunately, here at Fusion CPA our financial advisers can help you make sense of the tax laws that pertain to you. We want to help you minimize your tax liability and take advantage of every deduction and credit available to you. The sole purpose of our professional athlete business advisory service is to help you create a financial plan based on your overall goals and then guide you along a strategic path. Our team is here to help you create systems to measure the metrics and KPI needed to achieve those goals, helping you stay on course. Could you benefit from business advisory that may help position you to manage your finances better and implement internal controls to ensure tax compliance? If so, we are here to help. You can learn more about our services by clicking the button below to schedule a complimentary discovery call today!
This blog article is not intended to be the rendering of legal, accounting, tax advice or other professional services. Articles are based on current or proposed tax rules at the time they are written and older posts are not updated for tax rule changes. We expressly disclaim all liability in regard to actions taken or not taken based on the contents of this blog as well as the use or interpretation of this information. Information provided on this website is not all-inclusive and such information should not be relied upon as being all-inclusive.