By Kristia Christou, The Sports Financial Literacy Academy
As an athlete, tax season can often feel like one of the most stressful times of the year. Between fluctuating income, sponsorship deals, endorsement contracts, travel expenses, and performance-related deductions, managing your taxes can be a complex task. However, once tax season is over, it’s a perfect opportunity to reflect, review, and learn from the past year. By doing so, you can create a better plan for the upcoming year, making the next tax season smoother and more efficient. Here’s how to use your post-tax season review to improve your tax and financial strategy for next year.
-
Assess Your Income Sources and Tax Bracket
Athletes often have multiple streams of income, including salary from teams or organizations, winnings from competitions, sponsorships, and personal brand income like endorsements. Reviewing how these sources of income affected your overall tax bracket is a great starting point. Therefore, have your sources of income up to date.
Understanding how your earnings impact your tax rate can help you make smarter decisions when negotiating contracts and sponsorship deals. Going forward, consider working with a tax advisor to explore tax-efficient strategies that might benefit you.
-
Review Deductible Expenses
Athletes often incur various deductible expenses related to their careers, such as training costs, travel for competitions, coaching fees, and equipment purchases. Post-tax season is a good time to review the deductions you claimed.
Take the time to ensure that you’ve tracked every deductible expense throughout the year. Using apps or software for expense tracking during the year can simplify this process when tax time comes. Consider creating a more detailed system to categorize expenses, making sure you don’t miss potential deductions. Remember, the more organized you are with your expenses, the easier it will be to maximize deductions and lower your taxable income.
-
Evaluate Your Retirement and Investment Contributions
Many athletes start thinking about retirement later in their careers. However, it’s important to plan ahead to ensure long-term financial security. In your post-tax season review, assess the contributions you made to retirement accounts or other investment vehicles
For some athletes, setting up a self-employed retirement plan, can be a powerful way to reduce taxable income while building long-term wealth. If you didn’t take full advantage of these opportunities, now is the time to create a plan for the following year. The earlier you start contributing, the better your financial future will be.
-
Organize and Streamline Your Tax and Financial Records
Tax season can often reveal how disorganized your tax and financial records might be, especially if you’re balancing multiple income sources, contracts, and sponsorships. Now that tax season is behind you, it’s the perfect time to get your finances organized for the next year.
-
Review Tax Withholding and Estimated Payments
If you received a large tax bill after filing your taxes, it’s a good idea to review your withholding and estimated tax payments. Many athletes have irregular income throughout the year, which can make withholding tricky.
This is a great time to recalibrate your withholding and ensure that you’re making the proper estimated tax payments to avoid a surprise bill in the future. Working with a tax advisor to estimate your taxes more accurately and adjust your withholding accordingly can help you avoid overpayment or underpayment.
-
Post-Tax Season Follow-Up
Carefully review your tax return for any errors or missed deductions to ensure accuracy and avoid penalties. Use this as an opportunity to adjust tax strategies for the next year, maximizing savings and simplifying future filings. Additionally, maintain organized financial records to streamline the filing process and protect against potential discrepancies or tax audits.
-
Understand the Impact of Changing Regulations
Tax laws and regulations frequently change, which can impact athletes in different ways. Did any new laws or tax reforms affect your taxes this past year? For example, tax changes related to deductions for home offices, business expenses, or tax incentives for athletes could have affected you.
Stay informed about tax law changes and how they might impact your situation in the future.
-
Set Financial and Tax Goals for the Next Year
Once you’ve reviewed your taxes from the past year, it’s time to set financial goals for the next year. Perhaps you want to explore more tax-efficient investment strategies. Setting clear, achievable financial goals will help you stay on track throughout the year and make next year’s tax filing process much smoother.
The most important action you can take though is to speak with a CPA or tax advisor to create a strategy for meeting these goals!
The Money Smart Athlete® Blog is established and run by the Sports Financial Literacy Academy® (SFLA). Through its education programs, the SFLA has the vision to financially educate and empower athletes of all ages to become better people, not just better athletes. For more information on our courses, our SFLA Trainer Program®, and how they can benefit you and your clients, please get in touch with us at [email protected]