Professional athletes in the NBA, NFL, MLB, and NHL are generally known for making lucrative salaries that may reach up to eight figures. To protect their wealth and ensure compliance with IRS tax requirements, it would be advisable for high net worth professional athletes to consult with tax experts that understand the tax laws that may affect professional athletes, including the impact of multi-state or residency tax filing for athletes.
Remuneration for professional swimmers – understanding the basics
Professional swimmers may receive stipends from national teams or Olympic committees. Top-tier swimmers may receive also 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 your tax submissions to the IRS.
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 living expenses, such as proper nutrition for professional athletes.
Some professional swimmers may get financial aid from The US Olympic Committee or other swimming committees, these funds are taxable income. You or your professional athlete CPA should receive a 1099 from the US Olympic Committee (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
Income and expense records are essential for professional athletes to report and pay quarterly estimated taxes. Omitting expense deductibles on estimated tax forms each quarter is common among independent contractors, which can easily result in overpayments. Although it is possible to recoup the payment in excess when filing your federal income tax return, you should reserve that cash for other use.
Sponsorship earnings and taxes
Michael Phelps is worth $100 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. Sponsorship money is considered taxable income and should be submitted as such, in line with the IRS thresholds for sponsorships.
When it comes to prize money, The US Olympic Committee awards bronze, silver and gold medalists with monetary awards for their accolades. Before 2016 they had to pay standard tax rates on their Olympic bonus, but in 2016 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.
Sponsorships, prize money and total gross income should be discussed with your CPA and be recorded in your books and tax submissions accordingly.
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? 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.
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.