It’s tax time, and though taxes aren’t especially sexy, they’re absolutely important, especially to people in the football business and the players that rely on them. With major changes approved by Congress, it’s important to have someone who knows the tax code inside and out. With that in mind, I decided to turn today’s post over to Tim Johnson of the Irvine, Calif., office of JLK Rosenberger. Not only is Tim my CPA, but he was a lineman at Cal Lutheran during his college days. He has dozens of active NFL players as his clients, plus he knows a little about the game himself.
So how was the end of the year with all of the new tax law changes for you?
“Well, it was interesting, to say the least. We had to keep up with the multiple proposals, counter-proposals, and then the final law. Then, and even more important, figure out what it all meant for our player clients since there were some use-it-or-lose-it-type items, so it was a hectic year-end for sure. Christmas is always a fun time of the year for a tax guy as the phone and laptop are never too far away.”
With tax day about a month away, what are players currently concerned about that is different from the past?
“They are aware of the tax law changes, but most do not know how it will impact them quite yet. So, we are talking more about those changes impacting 2018 and forward whereas, historically, it was always talking about last year’s taxes. Now, we are still talking about 2017 and trying to get every deduction out there, but we are educating our guys, their advisors, and their families about the changes so they know how they can plan and be prepared.”
What are some of the major changes that will benefit players?
“We do have more favorable tax rates. You hear about that in the news. The top marginal federal tax bracket is dropping by 2.6% (down to 37%) and that top rate impacts taxable income over $500,000. So, the tax rate structure is generally favorable. Additionally, the dreaded Alternative Minimum Tax, or AMT, is now changed to where it will impact very few people. It is not eliminated, but it might as well be, for most. Often players may not have even known what the impact of AMT was, but if you were in a non-bonus year making annual minimum and played in a high-tax state like California, New Jersey, New York, Minnesota or Maryland, you very possibly were impacted.”
We know this is not all good news. So what’s the catch?
“Yeah, it is not all rosy. The two biggest downsides I see impacting players are the limitations on state and local taxes and the elimination of player-type expenses. State and local taxes including property taxes are limited to only $10,000 per year, which guys who work in a taxable state will hit no problem, and those who own a home will also hit that limit pretty quickly for the most part. So we are highly limited in the taxes we have been able to deduct. Additionally, player-type expenses such as agent fees associated with on-the-field contracts, union dues, training expenses, therapy, gear purchases, player fines and the like, as well as investment management fees, are no longer deductible.”
So, agent fees are no longer deductible. Is that as big of a deal as it sounds?
“Yes, it is a big deal. It’s tempered a bit when you dig into the numbers due to agent fees and other player-type expenses not being deductible for AMT and the overall phase-out of itemized deductions. Still, for the most part, it is a big deal. I think it will impact not only the player’s taxes but also eventually how agents are charging for their services.”
“What else are you looking at strategy-wise?
“So many of our players are charitably minded, whether that is a church or another charity. One of my favored strategies for the right guy is donation of appreciated stock using a “ditch and stack” strategy. Essentially, we “stack” controllable expenses, now mainly charitable contributions, in one year and we “ditch,” or forego them, in the other year. This allows us to take a larger itemized deduction in one year and then the standard deduction in the other.”
Is it too late to start working with you for 2017 taxes? How does someone contact you?
“Not too late at al. Now is actually when we get really running on 2017 taxes, but the earlier, the better. Folks can email me at email@example.com or just follow me on Twitter @CPA4Athletes.”