As you gear up for another year of pushing your physical limits, it’s essential not to overlook the game of taxes. Just like you strategize on the field, a well-thought-out tax plan can significantly impact your financial status. As a young adult, there were so many things I didn’t know about taxes. I’ll also admit- there are still a lot of things I don’t know about taxes, but I’ve made efforts to teach myself and work with a tax professional to help with questions I have. There is never a wrong time to learn about taxes, but the new year can serve as a great time to learn. Below are a few tax-related tips for athletes, covering deductions, credits, and strategies to minimize your tax liability in the new year.
Tax Tips for Athletes in the New Year
Understand Eligible Deductions. As an athlete, various expenses related to your training and career may be deductible. Keep meticulous records of expenses like training equipment, travel for competitions, coaching fees, and even certain medical expenses. Consult with a tax professional to ensure you’re taking advantage of every eligible deduction.
After school, Kurt tore his ACL… twice! After a successful second surgery, he wasn’t aware that he was paying more for PT and other medical-related treatments. A tax professional caught the charges and helped him recoup those funds. Make sure you don’t overpay, and ensure you are taking advantage of deductions that can result from your hard work.
Take Advantage of the Qualified Business Income Deduction. Do you own your own business? If you operate your NIL or side hustle as an official business, you may be eligible for the Qualified Business Income (QBI) deduction. This deduction allows eligible athletes to deduct up to 20% of their qualified business income, potentially leading to significant tax savings. Ensure your business structure aligns with the requirements to benefit from this deduction.
Explore Retirement Account Contributions. Contributions to retirement accounts not only secure your financial future but can also offer tax benefits. As an athlete, explore options like a SEP IRA or Solo 401(k) to maximize your retirement savings while potentially reducing your taxable income. We speak with our financial advisor often, and he helps us understand the tax benefits associated with our 401(k)’s. Doing this helps us maximize our contributions while making sure we’re making financially responsible decisions in the short term.
Leverage Tax Credits. Certain tax credits can directly reduce your tax liability. For instance, you may be able to apply for a Child and Dependent Care Credit if you have dependents and require childcare services during training or competitions. Investigate credits relevant to your situation and ensure you’re claiming them appropriately.
Stay Informed on State Tax Regulations. Athletes often compete across state lines, which can complicate your state tax obligations. Be aware of the tax regulations in each state where you earn income. This includes understanding whether a state has income tax, reciprocity agreements, or specific rules regarding non-resident athletes.
Consider Income Averaging. Income fluctuations are common in the athletic world. Income averaging, if allowed in your jurisdiction, could help smooth out your tax liability by spreading income over multiple years. This strategy can be particularly beneficial during peak earning years.
Seek Professional Advice. Navigating the complexities of tax law can be challenging. Consider partnering with a tax professional who specializes in working with athletes. They can provide personalized advice based on your unique circumstances, ensuring you optimize your tax strategy.
Working with a tax professional and a financial advisor has made such a difference for us. While it does cost money, it’s well worth the investment in my opinion, especially when you can find a good professional who is in your corner and can help you navigate the ins and outs of taxes. Below are a few other benefits to working with a tax professional:
Benefits of Working with A Tax Professional
- Expertise and Knowledge. Tax advisors are trained professionals with in-depth knowledge of tax laws and regulations. Experts also stay updated on changes in tax laws, ensuring that you benefit from the latest tax-saving opportunities.
- Tax Planning. Advisors can help you plan your finances in a tax-efficient manner, minimizing your tax liability. They can also provide strategic advice on investments, deductions, and credits to optimize your overall financial situation.
- Time Savings. Handling taxes can be time-consuming and complex. Hiring a tax advisor frees up your time, allowing you to focus on other aspects of your life or business.
- Accuracy. Tax advisors are skilled at preparing accurate and error-free tax returns, reducing the risk of mistakes that could lead to penalties or audits. They can also help you catch mistakes that you might’ve made or could make when it comes to daily expenses or when filing your taxes each year.
- Audit Support. In the event of an audit, a tax advisor can provide valuable support. They can help you gather necessary documentation and represent you before tax authorities.
- Customized Advice. Tax advisors offer personalized advice based on your specific financial situation and goals, tailoring strategies to your unique needs.
- Maximizing Deductions and Credits. Tax advisors are adept at identifying deductions and credits that you may not be aware of, maximizing your potential tax savings.
- Strategic Business Guidance. For business owners, tax advisors can provide strategic guidance on structuring business transactions, managing payroll taxes, and optimizing business-related deductions.
- Estate Planning. Tax advisors can assist with estate planning, helping you minimize estate taxes and ensure a smooth transfer of assets to your heirs.
- Financial Counseling. Beyond taxes, tax advisors can offer general financial advice, helping you make informed decisions about investments, retirement planning, and wealth management.
- Peace of Mind. Knowing that a professional is handling your taxes can provide peace of mind, reducing stress associated with financial matters.
- Cost Savings in the Long Run. While there is a cost associated with hiring a tax advisor, the potential tax savings and financial benefits they can provide may outweigh the expense in the long run
Just as precision and strategy are critical when you compete, a strategic approach to taxes can significantly impact your financial success off the field. Take the time to understand the tax landscape for athletes, explore deductions and credits, and seek professional advice to craft a winning tax strategy in the new year.