Football season has officially started so to get you in the spirit of the game Segal Cohen & Landis is reviewing how your favorite football stars are defeating the IRS. According to Kurt Badenhausen and Sean Packard at Forbes football players have the easiest tax returns among the four major sports. This is based off the fact that they play the fewest games and therefore have the fewest number of returns. (typically filling in 10-15 states and cities). However, this does not mean that their tax planning is a walk in the park.
NFL general managers are constantly trying to restructure player contracts in order to serve the needs of players and teams while remaining under the salary cap. This often means lots of signing bonuses. So what do all these crazy bonuses and restructuring mean for the CPAs handling the returns?
Take the case of Tony Romo, as part of his contract extension Mr. Romo’s agent and the Cowboys reshuffled his compensation agreement to pay him a signing bonus of $10 million plus a base salary of $1.5 million instead of the $11.5 base he was due this season. Either way Romo is walking away with $11.5 million so why does it matter if the base is $1.5 million with a $10 million bonus or $11.5?
It turns out that it makes a huge difference in taxes. Signing bonuses are generally taxable only in a player’s home state, provided contract language meets certain criteria. So Romo will only be taxed based on his $1.5 million of income instead of $11.5 million. Since Romo lives in tax-free Texas all the contract restructuring will save Romo nearly $300,000 in state taxes and another $213,000 savings in California alone where Romo will also be filing Taxes since their training camp is in California.
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