Maximizing Deductions: Tax Benefits Unique to Athletes

By Stefanos Gregoriou, The Sports Financial Literacy Academy, Nicosia, Cyprus

Professional athletes live a life most of us cannot imagine. Between constant travel, endorsement deals, and competing globally, their finances are anything but simple.

And taxes? This is a whole different ball game. With the right strategies, athletes can score big tax savings.

Tax Obligations Across Borders

Have you ever filed taxes in three countries before breakfast? For international-playing athletes, this is a reality. Most countries tax you if you live there or earn money there. The kicker? You might owe taxes both at home and abroad.

• Residency Rules: Athletes are taxed in their country of residence, but income earned abroad may also be taxed by the host country. Many countries allow tax credits for foreign taxes paid, helping to prevent double taxation.
• Tax Treaties: Bilateral tax treaties between countries can simplify compliance and reduce liabilities. Athletes must understand treaty provisions to avoid any overpayments of tax.

For example, a soccer player competing in Europe, whilst maintaining U.S. citizenship, must file tax returns in both jurisdictions, potentially using foreign tax credits to offset liabilities.

Income Structuring for Tax Efficiency

Athletes do not just earn pay checks. There is also prize money, sponsorships, and appearance fees. How these are handled can make or break your tax bill:

• Prize Money and Appearance Fees: Individual athletes, such as tennis players or golfers, can deduct expenses related to tournaments, for example, travel and equipment, since they are often self-employed.
• Endorsements: Sponsorship deals are frequently routed through athlete-owned corporations to optimize taxation. However, these arrangements must have commercial substance to withstand scrutiny from tax authorities.

Although team players have fewer deductions on salaries, they can still game the system with side gigs, such as local endorsements.

Deductions for Business Expenses

Athletes incur significant expenses related to their careers that may qualify as deductions:

• Agents Fees: These are often substantial and deductible in most jurisdictions.
• Training Costs: Expenses for personal trainers, gym memberships, and specialized equipment may be deductible.
• Travel Expenses: Athletes traveling for competitions or promotional appearances can claim deductions for unreimbursed travel costs.
• Nutrition and Supplements: These are often considered necessary for peak performance and may qualify as tax deductible business expenses.

The ability to deduct these expenses depends upon the athlete’s employment status, self-employed versus employed, and local tax laws.

Tax Residence

Choosing a favorable tax domicile can significantly impact an athlete’s net income.

For example:

• In the U.S., states like Florida and Nevada do not impose any state income taxes, making them attractive options for athletes seeking to minimize their tax liabilities.
• Globally, some athletes relocate to low-tax jurisdictions, like Monaco or Dubai, for similar benefits. However, changing residency requires careful planning to ensure compliance with local laws.

Retirement

Athletes typically earn high incomes over relatively short careers. Proactive retirement planning is, therefore, critical:

• Tax-Efficient Investments: Municipal bonds or index funds offer reduced tax liabilities whilst providing steady returns.
• Retirement Accounts: Contributions to US IRAs (Individual Retirement Accounts with tax advantages), or equivalent plans in other countries, can lower current tax bills whilst securing future financial stability.

International Compliance Challenges

Competing across borders introduces complexities, such as withholding taxes and compliance with local laws. Athletes must maintain detailed records of earnings and expenses whilst working with international tax advisors to navigate these challenges effectively.

Conclusions

Taxes for athletes are not about forms: they are about strategy.

This means, athletes should track every dollar, structure deals smartly, and choose their “home” base wisely. 

With smart planning around residency, income structuring, deductions, and international obligations, based on expert professional advice, athletes will be able to keep more of what they earn and build a stable financial future for themselves.

For more information, log onto: ‘www.moneysmartathlete.com’