By Stefanos Gregoriou, The Sports Financial Literacy Academy
Let’s face it—pro athletes live a life most of us can’t imagine. Between constant travel, endorsement deals, and competing globally, their finances are anything but simple. And taxes? This is a whole different game. But here’s the good news; with the right strategies, athletes can score big tax savings.
Tax Obligations Across Borders
Ever filed taxes in three countries before breakfast? For international-playing athletes, this is 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 prevent double taxation.
- Tax Treaties: Bilateral tax treaties between countries can simplify compliance and reduce liabilities. Athletes must understand treaty provisions to avoid overpayment.
For example, a soccer player competing in Europe while maintaining U.S. citizenship must file taxes in both jurisdictions, potentially using foreign tax credits to offset liabilities.
Income Structuring for Tax Efficiency
Athletes aren’t just earning paychecks. There’s prize money, sponsorships, and appearance fees. How you handle these can make or break your tax bill:
- Prize Money and Appearance Fees: Individual athletes like tennis players or golfers can deduct expenses related to tournaments (e.g., 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.
Team players have fewer deductions on salaries but can still game the system with side gigs like local endorsements.
Deductions for Business Expenses
Athletes incur significant expenses related to their careers that may qualify as deductions:
- Agent 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 business expenses.
The ability to deduct these expenses depends on the athlete’s employment status (self-employed vs. employed) and local tax laws.
Tax Residency
Choosing a favorable tax domicile can significantly impact an athlete’s net income. For example:
- In the U.S., states like Florida and Nevada impose no state income taxes, making them attractive options for athletes seeking to minimize 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 critical:
- Tax-Efficient Investments: Municipal bonds or index funds offer reduced tax liabilities while providing steady returns.
- Retirement Accounts: Contributions to IRAs or equivalent plans in other countries can lower current tax bills while 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 while working with international tax advisors to navigate these challenges effectively.
Conclusion
Taxes for athletes aren’t about forms—they’re about strategy. Track every dollar, structure deals smartly, and pick your “home” base wisely. With smart planning—around residency, income structuring, deductions, and international obligations—athletes can keep more of what they earn and build a stable financial future.
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].