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Pro Athlete Tax Returns Illustrate Complexities of U.S. Tax Code

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07-09-2013, 09:20 PM
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kdb209
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Pro Athlete Tax Returns Illustrate Complexities of U.S. Tax Code

This Forbes piece (from last April 15th) came up in yet another Player income tax thread on the main board - and I don't recall it being posted here, so ...

Pro Athlete Tax Returns Illustrate Complexities of U.S. Tax Code

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Athletes file taxes not only in their home state but also in every state—and some cities—in which they play. Not every state uses the same calculation to determine what portion of an athlete’s income to tax, and some use different calculations based on the sport. For example, Pennsylvania taxes baseball, basketball and hockey players on the ratio games in the state over total games played, including pre- and postseason, but they tax football players based on days worked in the state over total days worked. Michigan uses the same method but excludes the preseason. Most other states use the days worked method.

Reciprocity agreements can save an athlete thousands if their tax professional knows what to look for. For example, a Pennsylvania resident whose tax rate is 3.07% is exempt from paying taxes on money earned in New Jersey (8.97% tax rate), West Virginia (6.5%), Ohio (5.925%), Maryland (5.75%), Virginia (5.75%) and Indiana (3.4%). Because players come from all over and move around so much an athlete’s team will often times report income and withhold taxes in every state he plays, regardless of whether a reciprocity agreement with his home state is in place.

Taxpayers generally receive credits for taxes paid in other states. Usually, credits are taken on a taxpayer’s home-state return. But residents of Arizona, Indiana, Oregon and Virginia must take credits for taxes paid to California on their California return. Most of time, states will not give credits for taxes paid to cities. However, New Jersey gives people who work in Philadelphia and pay its 3.4985% nonresident wage tax a credit on their New Jersey return.

Unlike most of us, athletes can receive millions in signing bonuses. These bonuses are exempt from most states’ taxes if they are paid separately from salary, non-refundable and also not contingent upon playing for the team. So if Mario Williams’ contract was written properly, the Texas resident would not have to pay a dime in taxes to New York (or any other state) on the $19 million signing bonus he received when he signed with the Bills last summer, a tax savings of $1.676 million. It is a safe bet that Buffalo’s payroll department allocated the bonus to New York and the other states in which the Bills played. It is up to his tax advisor to catch it and make the necessary adjustment.

Finally, athletes get docked with hidden taxes in various jurisdictions. Tennessee hits basketball and hockey players with a $2,500 per game tax (max 3 games per year). Pittsburgh gets athletes for 3% of their wages for games played there. Although deductible on Schedule A of the federal return, neither of these taxes shows up on the player’s W-2. The tax preparer needs to have the player’s year-end paystub, where those and other deductions are often found. Many teams also mistakenly withhold Pittsburgh’s 1% wage tax. This tax is only imposed on Pittsburgh residents, so a refund request must be filed with the city to reclaim that money.

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07-09-2013, 09:25 PM
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Time for a flat tax rate...




(...runs away, quickly)

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07-09-2013, 09:35 PM
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I'm not going to cry over their lost wages, but players do get an awful lot of money taken off their paychecks.

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07-09-2013, 09:36 PM
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The "owners" of the countries would never go for a flat tax. They like paying no taxes. R.I.P George Carlin.

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07-09-2013, 09:49 PM
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And thank god.. Keeps CPAs like my girlfriend employed and billing some long, expensive hours

I know my company for a while (we sell workforce management solutions) was talking with an NHL team about getting their organization on our system.. The systems payroll piece can automatically calculate taxes for different jurisdictions so it would really simplify the process for them.. I think the big issue was that we didn't have the tax laws for Canada updated so I think it's fizzled out.. I found it interesting how the salary data I saw for some players did not match Capgeek and the sales rep working with them didn't know why that would be.. We figure they maybe just gave us false numbers which is funny because of how public that info is these days

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07-10-2013, 07:04 AM
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Originally Posted by Colin226 View Post
And thank god.. Keeps CPAs like my girlfriend employed and billing some long, expensive hours

I know my company for a while (we sell workforce management solutions) was talking with an NHL team about getting their organization on our system.. The systems payroll piece can automatically calculate taxes for different jurisdictions so it would really simplify the process for them.. I think the big issue was that we didn't have the tax laws for Canada updated so I think it's fizzled out.. I found it interesting how the salary data I saw for some players did not match Capgeek and the sales rep working with them didn't know why that would be.. We figure they maybe just gave us false numbers which is funny because of how public that info is these days
Escrow?

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07-10-2013, 08:51 AM
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Escrow?
Good point. Could have been that!

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07-14-2013, 01:59 PM
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I'm not going to cry over their lost wages, but players do get an awful lot of money taken off their paychecks.

I went to uni with a former player (he went back after he career was over) and during one of the accounting/taxes areas of on of the courses he gave up his tax details and just how much money he took home after his $500k salary per year over a four year contract. This was before many of the local governments started to tax the individuals. Also, he got fined by the NHL a few times, but still paid the taxes on the money, even though he did not actual get the money.

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07-14-2013, 02:04 PM
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When I looked at tax codes around the US and Canada for fugu, you notice a lot of states have tax treaties with other states or provinces. I used oveckin's salary to go through the tax codes of each state and province and it came to about 42-46% iirc.

When I'm not on mobile, ill try to find the spreadsheet

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07-14-2013, 03:35 PM
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Originally Posted by Fugu View Post
Time for a flat tax rate...




(...runs away, quickly)
Flat Tax rate is typically a platform of parties that protect the rich and vilify the poor. For good reasons

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07-14-2013, 05:34 PM
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Flat Tax rate is typically a platform of parties that protect the rich and vilify the poor. For good reasons
I think probably the fairest and simplest way to tax is a combo system of low flat tax that everyone pays and a fair tax on things you buy. The rich buy more and more expensive items and therefore would pay more taxes. The poor buy only what they need, or what they can afford, so wind up paying less tax. If we had a simple system like this, the Gov would also save money by not needing a big dept of rev.

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07-14-2013, 05:43 PM
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Why do the players have to file their taxes in every city they play in? Shouldn't they just be taxed in their base city?

If I'm a businessman that is sent from New York to Chicago I still only pay New York taxes on my check for the time I was in Chicago. Why are athletes different?

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07-14-2013, 05:52 PM
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I think probably the fairest and simplest way to tax is a combo system of low flat tax that everyone pays and a fair tax on things you buy.
The simplest and fairest is "No income tax, just a consumption tax"

You can eliminate all kinds of wasteful government spending (like welfare and billions of dollars worth of special programs; maybe even social security).

The biggest problem would be the "appearance of inflation" when milk remains $1.50 a gallon, but a pack of cigarettes is now $35 (which also might SAVE LIVES).

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07-14-2013, 05:53 PM
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Why do the players have to file their taxes in every city they play in? Shouldn't they just be taxed in their base city?

If I'm a businessman that is sent from New York to Chicago I still only pay New York taxes on my check for the time I was in Chicago. Why are athletes different?
Because governments realized it was an easy way to collect money?

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07-14-2013, 06:29 PM
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Quote:
Originally Posted by hockeysmitten View Post
I think probably the fairest and simplest way to tax is a combo system of low flat tax that everyone pays and a fair tax on things you buy. The rich buy more and more expensive items and therefore would pay more taxes. The poor buy only what they need, or what they can afford, so wind up paying less tax. If we had a simple system like this, the Gov would also save money by not needing a big dept of rev.
The poor spend every penny they get -- and are taxed on 100 percent of income.
The rich save money, invest, etc

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07-14-2013, 07:25 PM
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Originally Posted by RedWingsNow View Post
Flat Tax rate is typically a platform of parties that protect the rich and vilify the poor. For good reasons

Well, there should be some protection in place for the poorest. The rich are doing extremely well under the current system, even if tiered...

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07-14-2013, 07:28 PM
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Well, there should be some protection in place for the poorest. The rich are doing extremely well under the current system, even if tiered...
A flat-tax is probably the worst thing imaginable for the poor. It should be marginal, tiered and very very high for the ultra-super-duper-rich (>10mil income per year). France has it right in theory and it's time for the rest of the world to catch up.

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07-14-2013, 07:38 PM
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Why do the players have to file their taxes in every city they play in? Shouldn't they just be taxed in their base city?

If I'm a businessman that is sent from New York to Chicago I still only pay New York taxes on my check for the time I was in Chicago. Why are athletes different?
Income is taxed where it is earned. Otherwise people's "base city" would always be in the Cayman Islands or Vanuatu.

In your businessman example, it's unclear whether you actually 'earned' something in Chicago, but if you did, you should pay Illinois taxes on that. Ask musicians or any other touring artists how complicated filing their taxes is.

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07-14-2013, 07:46 PM
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Originally Posted by WhiskeySeven View Post
A flat-tax is probably the worst thing imaginable for the poor. It should be marginal, tiered and very very high for the ultra-super-duper-rich (>10mil income per year). France has it right in theory and it's time for the rest of the world to catch up.

I know what you mean, but any system that starts allowing exemptions or qualifiers for anything above what we'd all call a poverty level is too easily exploited to favor those who can afford the best accountants. I get the sentiment that 15% of an average income is more of a bit than 15% of Bill Gates' income, for example, but as Buffett pointed out, the rich don't come close to paying something fair or reasonable if that's the measuring stick. There's also a case to be made for taxing fairly (not punitively), which a super high tax on the very wealthy would seem to be. I don't taxes should be some social equalizer, but I would like to see legal evasion removed. Hard to do it without some type of flat approach.

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07-14-2013, 08:57 PM
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Income is taxed where it is earned. Otherwise people's "base city" would always be in the Cayman Islands or Vanuatu.

In your businessman example, it's unclear whether you actually 'earned' something in Chicago, but if you did, you should pay Illinois taxes on that. Ask musicians or any other touring artists how complicated filing their taxes is.
Yeah, but that's a difference that still doesn't "make sense."

If I have a corporate job in LA, and I travel for business to Chicago, I pay California taxes because my company is paying me in California for a California job.

What's the difference between an LA Kings player? He earns all his income as an employee of the LA Kings. His road trip to Chicago shouldn't be different than the business trip to Chicago for the corporate guy.

Do the NON-ATHLETES of the LA Kings franchise pay taxes in the other cities when they go on the road? The trainers, broadcasters, etc? I'm guessing they do not.

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07-14-2013, 09:42 PM
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Yeah, but that's a difference that still doesn't "make sense."

If I have a corporate job in LA, and I travel for business to Chicago, I pay California taxes because my company is paying me in California for a California job.

(...)

Do the NON-ATHLETES of the LA Kings franchise pay taxes in the other cities when they go on the road? The trainers, broadcasters, etc? I'm guessing they do not.
If you live in CA but work in Chicago for 3 months, you would need to file an IL return unless CA and IL have a reciprocal agreement. Obviously, if you don't, and you don't get caught, it may look like you didn't need to file. It's a fairly basic tax principle that allows states (and countries, and in some places cities) to tax the income earned by people who performed work in their state, regardless of where those people reside or where their employers are headquartered.

If non-athletes follow the team on the road, they earn taxable income in multiple places. That applies to musicians, sound engineers, Cirque du Soleil acrobats, traveling salespeople, and so on. Of course, it's more cost-effective for a state/city to go after pro athletes than trainers or guys who go to Chicago for a 3-day trade show.

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07-14-2013, 09:52 PM
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If you live in CA but work in Chicago for 3 months, you would need to file an IL return unless CA and IL have a reciprocal agreement. Obviously, if you don't, and you don't get caught, it may look like you didn't need to file. It's a fairly basic tax principle that allows states (and countries, and in some places cities) to tax the income earned by people who performed work in their state, regardless of where those people reside or where their employers are headquartered.

If non-athletes follow the team on the road, they earn taxable income in multiple places. That applies to musicians, sound engineers, Cirque du Soleil acrobats, traveling salespeople, and so on. Of course, it's more cost-effective for a state/city to go after pro athletes than trainers or guys who go to Chicago for a 3-day trade show.
I get the principle involved. I just don't see how a Kings road game in Chicago is "earning income" in Illinois. The Kings are paying their employee to go to California and do something. The Kings income is generated in California through their home games. The ticket sales of the Kings at Blackhawks game isn't going into the paychecks of the Kings players. The Kings are paying him out of their revenues from the home games.

If the NHL employed all the players, and all 30 teams in the league shared all their revenues, so that the gate reciepts in Chicago actually DID pay the Kings players salaries, then yeah, totally makes sense they gotta file in all the states.

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07-15-2013, 11:38 AM
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Originally Posted by WhiskeySeven View Post
A flat-tax is probably the worst thing imaginable for the poor. It should be marginal, tiered and very very high for the ultra-super-duper-rich (>10mil income per year). France has it right in theory and it's time for the rest of the world to catch up.
So why is it 'fair' that someone who earns 10m in income is taxed at 40% (4m) while someone who earns 50k is taxed at 25% (12.5k)? Even if they're taxed at the same rate, the guy making 10m is still paying a lot more money into the system.

The thing is there's so many loopholes that the guys making 10m are not actually paying 40% (or whatever the real number is). Remove ALL the loopholes, and adopt a flat rate tax for those over x%.

Everyone would be better off. The rich would likely pay about as much as they do now - or even more, as their team of accountants is no longer finding every loophole in the system to get them out of paying taxes. The average Joe can now understand the system, and saves money on an accountant, and the Gov't now needs less bodies in the accounting/revenue office.

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07-15-2013, 11:41 AM
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The "owners" of the countries would never go for a flat tax. They like paying no taxes. R.I.P George Carlin.
I would like to see the context Carlin said this in. He was a pretty astute guy, but it's obvious that the people he is talking about would in most cases benefit from a flat tax, which is why Steve Forbes was so in favor of it.

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So why is it 'fair' that someone who earns 10m in income is taxed at 40% (4m) while someone who earns 50k is taxed at 25% (12.5k)? Even if they're taxed at the same rate, the guy making 10m is still paying a lot more money into the system.
I will never for the life of me understand why regular working schlubs so adamantly defend the wealthy. It's not like they aren't already gaming the system at the expense of the rest of us.

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07-15-2013, 11:51 AM
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Steve Forbes owns a large publishing empire that can afford an army of lawyers/accountants. I don't think he has a problem working any tax system so it's both petty and cynical to say he's just advocating a national policy for small personal gain.

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