There were many deductions professional athletes were able to take under the old tax law, however, under the new law, deductions taken in previous years are no longer available. Some examples of expenses that are no longer deductible include contract negotiation (agent) fees, union dues, club house manager dues and tips, equipment, duplicate living expenses, travel, rideshare fees and taxis, vehicle shipping, training, rehabilitation, car rentals, etc. These expenses are no longer deductible for federal purposes because the new tax act did away with all of the 2% miscellaneous itemized deductions, which include unreimbursed employee business expenses.(1) This significant change has severely impacted the taxes of professional athletes.
Under the old law, expenses could be bundled in one year (especially agent fees), thereby reducing the impact of the 2% adjusted gross income “haircut” given to these types of expenses. As long as the taxpayer didn’t fall into Alternative Minimum Tax (AMT), writing off 2 years of agent fees in one year was an extremely lucrative tax benefit, especially to athletes with long-term deals. Some states, such as California, still afford these types of deductions, but the tax benefit still doesn’t compare to that of previous years.
Schedule A – State and Local Tax Deduction
Under the old law, taxpayers could write off 100% of state tax expenses as long as they didn’t fall into AMT. Under the new law, the SALT (state and local taxes) deduction is capped at a mere $10,000. The SALT deduction also includes…Continue here »
(1) Publication 529 (2018), Miscellaneous Deductions – IRS
KROST Quarterly is a digital publication that highlights some of the hot topics in the accounting and finance industry. Volume 2, Issue 4 highlights some of the hot topics in sports & entertainment including tax issues for athletes, Loan-Out Corporations, Qualified Business Income Deduction, and more.
About the Author
Brad Pauley, CPA, Director
Tax, Sports & Entertainment
Brad Pauley is a Tax Director at KROST. Brad has over 20 years of experience providing tax advice, projection, and compliance services to clients in a variety of different businesses and industries. His areas of focus include high net worth individuals and their closely held businesses, including athletes, entertainers, service professionals, and owners/operators of real estate including like-kind exchanges. » Full Bio