A large number of professional gamers are experiencing fame and fortune on par with famous professional athletes, actors, and actresses. Professional gamers usually compete in tournaments viewed live by thousands of people, with millions more watching from home.
The highest-paid professional gamers are earning salaries into the millions from tournament winnings, endorsements, and streaming revenue. Professional gamers represent a relatively new industry. Therefore, there are several tax planning questions they might have.
Do Professional Gamers Have To Pay Taxes?
Yes. Gamers who are US residents usually pay the same taxes all US residents pay. This includes federal tax and possibly state tax. Gamers must pay taxes on their worldwide income. Paying federal and state taxes is usually pretty straightforward. However, professional gamers may face unique tax planning and bookkeeping challenges because of their industry. Professional gamers may compete in tournaments, make appearances, or receive revenue for work done in multiple states. Each state may require a professional gamer to file a state tax return and pay taxes on the money that they earned while they were in said state.
Professional gamers are not the first to face this challenge. Pro athletes may also incur tax liability when they play away games in different states. For this reason, the tax that professional gamers may have to pay when they are away from their home state is referred to as “Jock Tax.”
We at Fusion CPA are experienced in helping professional gamers with their bookkeeping and tax planning. Our team may help you identify ways to structure your business to minimize tax liability, allowing you to hold on to more of your earnings.
Tax Planning Strategies for Professional Gamers
A professional gamers tax planning strategy will usually vary based on whether they earn their money as an independent contractor or if they work as an employee for a team. As an independent contractor, a professional gamer is responsible for paying all applicable taxes levied on them by the appropriate government body.
Conversely, if a professional gamer is an employee, then it is their employer who may deduct federal and state taxes from their income. In fact, most major player contracts usually include language about tax planning, obliging the team to withhold state and federal taxes out of the player's salary.
Some changes to tax laws may affect the employee-related deductions that professional gamers can include in their tax planning. For example, unreimbursed work expenses are no longer allowed for employees. A professional gamer may need to legally connect their expenses to the income they earn outside of their team employment, such as from streaming revenue, prize money, and endorsements.
How Professional Gamers Benefit from Solid Financial Advice
There are multiple news reports of professional gamers who were surprised by the amount of taxes they had to pay on their winnings. Some of this tax liability may have been eliminated if proper tax planning steps were taken in advance. For this reason, and many others, Fusion CPA is here to help you structure your business based on the amount of income you make and how you earn your gaming income. Our goal is to help you minimize tax liability, improve your bookkeeping, keep a firm grip on your cash flow management, and create strategies that can help your finances grow in the future. Let’s talk - 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.