Professional athletes in the NBA, NFL, MLB, and NHL are generally known for making lucrative salaries that may reach up to eight figures. Professional swimmers may face a different financial reality that could require a unique take on professional athlete tax planning.
Understanding the Basics
Professional swimmers may receive stipends from national teams or Olympic committees. Top-tier swimmers like Michael Phelps may receive sponsorships, funding from individual donors, and prize money. If you have reached this level of skill or you have investors for other reasons you or a professional athlete accountant may need to handle each one of these funding sources differently when preparing their client’s taxes.
Funding from Olympic Committees or National Teams
Swimming can be expensive. Some estimate training costs for professionals to be around $100,000 a year. This would include travel, coaches, paying for pool time, club swim teams, and daily expenses, such as rent and food.
The US Olympic Committee helps the top swimmers in world Olympic events through the Athlete Partnership Agreement. Athletes get around $3,000 a month from the Olympic Committee. The funds’ swimmers receive from the USOC are taxable income. You or your A professional athlete CPA should receive a 1099 from the USOC that should be filed on time and accurately according to tax rules and regulations.
Swimmers’ Tax Deductions
Since the IRS considers the Olympic swimmer an independent contractor, swimmers may deduct ordinary and necessary expenses pertaining to the sport. These may include:
- Pool fees
- Travel for competitions and training
- Entry fees for competitions
- Clubhouse use
- Temporary housing
- Training equipment
In the past, agent/management fees were deductible. Now, the rules have changed slightly. Our team of experienced professional athlete financial advisers at Fusion CPA will be happy to walk you through these changes and see how they affect your tax situation.
Money Swimmers Make through Sponsorship
Michael Phelps is worth $60 million. Much of that money may have come through sponsorship. Swimmers may sign contracts with brands and promote their products for money and should meticulously record all sponsorship money they receive as part of their professional athlete bookkeeping. Any sponsorship money over $600 is taxable income. The manner in which the funds were distributed and the manner with which the funds were used will determine the tax category of the income. For example, a swimmer might record bonuses and initiative income as personal income. Sponsorship income in connection with performance or demonstration should be considered royalties. Other sponsored funds would be recorded as other income or miscellaneous income by your CPA.
How Changes to the Victory Tax Affect Professional Swimmers
The US Olympic Committee awards $10,000 for bronze medalists, $15,000 for silver, and $25,000 for gold. Most Olympic swimmers have an annual income after deductions that put them at or below the poverty line. Yet, before 2016 they had to pay standard tax rates on their Olympic bonus. For many Olympic swimmers, their Olympic winnings represent the most money they have ever made swimming.
In light of that, President Obama signed a bill into law stating that professional swimmers and other Olympic athletes whose total adjusted gross income is less than $1 million do not have to pay taxes on prize money received from the USOC nor the value of their metals they won swimming.
Financial Advice for Professional swimmers
Professional swimmers traditionally dedicate a good portion of their time and energy to training. A professional athlete/entertainment industry financial adviser may help you make sense of complicated tax laws related to your profession, whether you are earning money domestically or abroad. Here at Fusion CPA, our team of seasoned accountants may help you with your tax planning by explaining things like a state tax nexus, creating multi-state income tax minimization strategies and charitable contributions strategies, setting up a bill pay service, and showing you itemized deduction strategies specially crafted for professional swimmers.
Are you just starting your professional swimming career and want to set yourself up for a bright financial future? Or have you reached a point in your professional swimming career where you are thinking about retirement planning? If so, contact us – 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.