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How do Pro Athletes get paid...

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NewGlfr

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This was considered off topic in another thread so I figured I would bring it here to get some feedback and so as to not cloud the thread where it came up with this.

It was my contention that Pro Athletes don't get paid as "independent contractors" but that they start their own Corporations to manage how they get paid and to manage their sponsorships. This could potentially result in tax sheltering some of their earnings and also help others as well. The example I gave was if Jordan Spieth started a company, we'll call it "JS Incorporated", he could then put all of his earnings (winnings, money from sponsorships, money from appearances, etc) into this Corporation which would then give him a "salary" and also have this money for other things. Other things being, if his families are on the Board of Directors of this company or also be employees then can benefit from a travel expense account, vehicles through the company and other perks.

Someone mentioned that this could be "bad advice" tax wise, so I'm very interested in people's opinions of this.

Just FYI this was brought up in the Paige Spiranac thread and I would assume that as savvy as she is, the money she earns from her social media endeavors and now her PXG sponsorship will also be filtered through a company she owns.

Any thoughts? Any Accountants or people with expertise in this regard have any feedback? I'm very curious as I have experience with this in the Professional World, but not Athletics.
 
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My comment about independent contractors was meant towards the respective tours and not a company they form or however they choose to do their taxes. Professional golfers are not employees of the PGA, LPGA, Euro, LET, cactus, web.com, etc. they are all independent workers and set their schedules based on their tour status. Those with better status/exemptions have more flexibility in their scheduling as lomg as they meet the minimum standards to maintain their tour card and outside of the PGA tour mandating they play in an event they haven't played before every year or whatever it is they have no requirement on what tournaments they play or don't. Thus the term independent contractor and if you watch the Louis Oosthizuen episode of Feherty he uses that term to describe tour players.
 
I cannot remember which podcast i heard this in recently, but a lot of golfers do something similar to what youre saying. its an LLC that protects them and their team financially/tax wise. im not financial wizz so i cant explain further, but what youre talking about is close.
 
emart2173 said:
My comment about independent contractors was meant towards the respective tours and not a company they form or however they choose to do their taxes. Professional golfers are not employees of the PGA, LPGA, Euro, LET, cactus, web.com, etc. they are all independent workers and set their schedules based on their tour status. Those with better status/exemptions have more flexibility in their scheduling as lomg as they meet the minimum standards to maintain their tour card and outside of the PGA tour mandating they play in an event they haven't played before every year or whatever it is they have no requirement on what tournaments they play or don't. Thus the term independent contractor and if you watch the Louis Oosthizuen episode of Feherty he uses that term to describe tour players.
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It wasn't you that said this: "pretty terrible tax analysis in this thread".

I was hoping who said this would respond to this thread. He has not yet.
 
NewGlfr said:
It wasn't you that said this: "pretty terrible tax analysis in this thread".

I was hoping who said this would respond to this thread. He has not yet.
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that was me. i didn't say it was bad advice, but it's bad analysis at least as i see it.

the corporation is a good idea. but not for tax savings; it's a good idea for legal protection which is not my forte and i'd be talking out of my a$$ if i tried to expand.

for tax purposes a corp makes a lot of sense for many people, but certainly not all. if you're making in excess of $20 million as jordan did last year, a corporation won't shelter that income in a way that an llc disregarded entity wouldn't. he's a one man band; he doesn't have people working under him making money for him. he kills what he eats. so arguably every dollar he earns will be considered compensation subject to payroll taxes.

almost every deduction afforded to a corp is afforded to an llc disregarded entity. a c corporation could give him the ability to put in place some more tax preferred health insurance and life insurance arrangements. but at $20+ mil a year dude is self insured. and while the c corp top rate is 35% vs his ordinary income tax rate of 39.6%, see above about compensation.

now, if he wants to start other lines or business like a golf course design or other holding companies, s corps might make sense but honestly llc partnerships or c corps make more sense because of the flexibility in other owners.

none of the touring pros is an employee; all are independent contractors who report their income through various entities.

paying family members is really sticky. bona fide employee standards must be met. and you're costing yourself at least 8% on about $125,000 of compensation plus their individual rate. sure it saves him about 36% (net after payroll taxes), but it's going to cost them their federal rate plus their own payroll taxes.

someone like @desmond (assuming he's still a practicing tax attorney) or another estate tax attorney is a much better way to maximize after tax wealth. there isn't a lot of rocket science to what i do. the real work is in mitigating legal risk, saving estate taxes, and maximizing after tax return on investments.

i'm happy to try to answer any questions. full disclosure i don't represent any athletes (yet, might be acquiring a practice that does). but as i said above, it's not rocket science.


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and one comment about paige spiranac. i don't know how much she is getting paid, but the corp would probably help her save some payroll taxes. start with how much she would be paid to be a spokesman with only those responsibilities she contracted for, and try to identify what the going rate for that commitment would be. then any funds in her contract in excess of that going rate could be carved out as profit distributions and save payroll taxes.

but at $20 mil for your performance on the course and likeness those payroll taxes are pennies. yes, someone like js absolutely still has a corp, but the tax savings very likely aren't driving those decisions.

i had a shot at a touring pro on an international tour but it never materialized. would have been fun!


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That's not exactly true about JS or any golfer. They do have people on their payroll. Caddy, agent, various other handlers, lawyers, accountant, etc.

Why would they pay taxes on the money they earn before paying those people? If it goes through a Corporation, they would only pay personal income tax on their "salary". The Corp would them be responsible to cover the FICA taxes and then the company would only eventually pay Corporate taxes only on the profit made in the fiscal year.

Yes, it can get very sticky with family, but there are many ways to make it legit.
 
NewGlfr said:
That's not exactly true about JS or any golfer. They do have people on their payroll. Caddy, agent, various other handlers, lawyers, accountant, etc.

Why would they pay taxes on the money they earn before paying those people? If it goes through a Corporation, they would only pay personal income tax on their "salary". The Corp would them be responsible to cover the FICA taxes and then the company would only eventually pay Corporate taxes only on the profit made in the fiscal year.

Yes, it can get very sticky with family, but there are many ways to make it legit.
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greller might be an employee, but i doubt it. my wife's cousin represented a guy on tour. ill check with him how he treated his caddie.

it behoves the primary to treat the sub as a contractor. but irs wants to default to employee until proven otherwise.

none of those other professionals are employees. their fees are ordinary and necessary business expenses that can be paid out of any entity structure and fully deducted against income.

i want to be clear that i would never advise someone making $20 million a year to allow all of that income to be subject to payroll taxes. without strategizing the majority would be subject to medicare tax plus the medicare surtax for all-in of 3.8%. that's not nothing on $20 million. my point is it will be difficult to classify his earnings as anything not subject to payroll given what he does. i get paid to live in the gray, and i would be aggressive where i could. but the real savings come from the other strategies i mention above: estate planning, risk management and tax preferred investments.


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fyi i confirmed that the pro golfer my wife's cousin represented treated his caddie as a contractor, not an employee. sounds like maybe this is the norm.


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NewGlfr said:
That's not exactly true about JS or any golfer. They do have people on their payroll. Caddy, agent, various other handlers, lawyers, accountant, etc.

Why would they pay taxes on the money they earn before paying those people? If it goes through a Corporation, they would only pay personal income tax on their "salary". The Corp would them be responsible to cover the FICA taxes and then the company would only eventually pay Corporate taxes only on the profit made in the fiscal year.

Yes, it can get very sticky with family, but there are many ways to make it legit.
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You mentioned you were a surgeon, correct? You pretty much know the human body pretty damn well. I would venture to say the only people you might listen to about procedures are other surgeons.

You created this thread in hopes that the tax comment would be answered. And it was by a solid CPA but you still question it. Were you looking for a legit sound answer or just a place to continue to argue?
 
c.a.eleric said:
fyi i confirmed that the pro golfer my wife's cousin represented treated his caddie as a contractor, not an employee. sounds like maybe this is the norm.
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It is the norm.
 
Chris gives an excellent analysis above - every analysis is fact and goal dependent based on the client, so we must stay general. I'm not up to date on details, as in retirement plans, etc. I am more of a generalist now that I'm more involved in corporate - contracts, documents/communication, and negotiating.

I'd plan for asset protecton and get cash out of the operating entity and into a protected entity, as well as the formation of charitable entities - and we've all heard that the successful players have charitable foundations. Besides securities, I imagine the most successful are also into real property - commercial and residential - and you'd want to be protected from and protect that property to the extent allowable in separate entities.
 
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Desmond said:
Chris gives an excellent analysis above - every analysis is fact and goal dependent based on the client, so we must stay general. I'm not up to date on details, as in retirement plans, etc. I am more of a generalist now that I'm more involved in corporate/contracts/documents/communication and negotiating.

I'd plan for asset protecton and get cash out of the operating entity and into a protected entity, as well as the formation of charitable entities - and we've all heard that the successful players have charitable foundations. Besides securities, I imagine the most successful are also into real property - commercial and residential - and you'd want to be protected from and protect that property to the extent allowable in separate entities.
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i'd set up a charitable remainder annuity trust to guarantee an income stream and get a nice deduction on the front end. i'd also consider a private foundation to fund a special interest. as i invested i would look into donor advised funds to make donations of appreciated securities. and the diversification is absolutely key. i'd consider private equity or other smaller hedge funds. reits aren't a bad idea either to provide some passive losses against passive income.

it's just about putting together a solid team to help you. what ends up happening is that at this level the client wants turn-key hands off management. pay my light bill, pay my mortgages, and never bother me about any of it. you can charge premium billing rates for mundane duties and assign low rate staff to handle it. it's a cash cow. the tax complexity is in managing state and foreign income tax issues. the foreign stuff is beyond my pay grade. everything else is embarrassingly easy.

the lower guys don't need this kind of stuff. those guys need insurance and annuities for if and when they lose their status. hope for the best plan for the worst.


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c.a.eleric said:
i'd set up a charitable remainder annuity trust to guarantee an income stream and get a nice deduction on the front end. i'd also consider a private foundation to fund a special interest. as i invested i would look into donor advised funds to make donations of appreciated securities. and the diversification is absolutely key. i'd consider private equity or other smaller hedge funds. reits aren't a bad idea either to provide some passive losses against passive income.

it's just about putting together a solid team to help you. what ends up happening is that at this level the client wants turn-key hands off management. pay my light bill, pay my mortgages, and never bother me about any of it. you can charge premium billing rates for mundane duties and assign low rate staff to handle it. it's a cash cow. the tax complexity is in managing state and foreign income tax issues. the foreign stuff is beyond my pay grade. everything else is embarrassingly easy.

the lower guys don't need this kind of stuff. those guys need insurance and annuities for if and when they lose their status. hope for the best plan for the worst.

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Agreed - I've set up a CRAT in my earlier years, a QPRT, as well as a private foundation, and then, there are the Living Trusts as well as ILITs, when applicable. As you said, the tools are out there, it's whether the client will take the bait that's good for them depending on their circumstances, plays into their goals, the type of assets, and timing.

And you know what is heck with all of the above, including estate plans? Administration. The client starts doing the wrong thing like filling out a beneficiary form incorrectly, or doesn't take action, and everything you did gets thrown under the bus. That's another reason to like a CPA. Clients usually don't want to pay me to administer, so I go to the CPA to make certain the administration is done.

Of course, for a megastar athlete, you'd want it to be turnkey - unburden them.
 
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Tadashi70 said:
You mentioned you were a surgeon, correct? You pretty much know the human body pretty damn well. I would venture to say the only people you might listen to about procedures are other surgeons.

You created this thread in hopes that the tax comment would be answered. And it was by a solid CPA but you still question it. Were you looking for a legit sound answer or just a place to continue to argue?
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Related to the point being made above, I can't tell you how many, let's say more than 10 fingers and toes, potential clients came in, usually engineers because I officed near TI, and handed me their 70-100 pages living trust and wanted me to review and sign off on it. I always declined the offer -- because one wrong word in their form and you could be dead meat - besides the fact that most clients have no idea of their options or special drafting needs.

The point is they may have spent months studying and drafting their own trust when they could have spent that time on better pursuits, like the golf course. I believe in clients being prepared and I spoke at many seminars and other functions over the years educating the public on estate planning. But I don't pretend to be a doctor or an engineer. Why would I perform my own brain surgery? Find someone you trust and save money because your time is valuable. And the result of doing it yourself will be low quality or not work for you. I had a client that did a $50 Will on their computer. Two years later, and $10k in attorney's fees, the estate was settled. Could have been done for $1500 if they'd trusted an attorney.
 
Desmond said:
Related to the point being made above, I can't tell you how many, let's say more than 10 fingers and toes, potential clients came in, usually engineers because I officed near TI, and handed me their 70-100 pages living trust and wanted me to review and sign off on it. I always declined the offer -- because one wrong word in their form and you could be dead meat - besides the fact that most clients have no idea of their options or special drafting needs.

The point is they may have spent months studying and drafting their own trust when they could have spent that time on better pursuits, like the golf course. I believe in clients being prepared and I spoke at many seminars and other functions over the years educating the public on estate planning. But I don't pretend to be a doctor or an engineer. Why would I perform my own brain surgery? Find someone you trust and save money because your time is valuable. And the result of doing it yourself will be low quality or not work for you. I had a client that did a $50 Will on their computer. Two years later, and $10k in attorney's fees, the estate was settled. Could have been done for $1500 if they'd trusted an attorney.
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Herein lies the difficulty, when you have made a lot of money and are paying an "expert" to handle your affairs it is always difficult to accept that they may actually know more then you do. Tough to set the ego aside sometimes.
 
NewGlfr said:
That's not exactly true about JS or any golfer. They do have people on their payroll. Caddy, agent, various other handlers, lawyers, accountant, etc.

Why would they pay taxes on the money they earn before paying those people? If it goes through a Corporation, they would only pay personal income tax on their "salary". The Corp would them be responsible to cover the FICA taxes and then the company would only eventually pay Corporate taxes only on the profit made in the fiscal year.

Yes, it can get very sticky with family, but there are many ways to make it legit.
Click to expand...

I wouldn't view any of those individuals as on the payroll, they are expenses to the enterprise and get scored accordingly.
 
Tadashi70 said:
You mentioned you were a surgeon, correct? You pretty much know the human body pretty damn well. I would venture to say the only people you might listen to about procedures are other surgeons.

You created this thread in hopes that the tax comment would be answered. And it was by a solid CPA but you still question it. Were you looking for a legit sound answer or just a place to continue to argue?
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Wow, dude. I've helped set up Professional Corporations for doctors and also my family owned a Medical Company we set up on our own that we eventually sold for over $1M. Also recently beat the IRS on a legal case I filed against them without using a Lawyer or an Accountant to help me. Did it alone. Learned the tax code and the legal jumbo jumbo and didn't spend a dime for representation.

Honestly, bro, if you don't like my threads, stay out of them. I'm asking questions. Don't like it? Don't read it.

Not arguing. Trying to learn by asking questions. I'm blown away that you haven't added anything of value to this thread, but came in just to give me crap. Just wow.
 
Desmond said:
Related to the point being made above, I can't tell you how many, let's say more than 10 fingers and toes, potential clients came in, usually engineers because I officed near TI, and handed me their 70-100 pages living trust and wanted me to review and sign off on it. I always declined the offer -- because one wrong word in their form and you could be dead meat - besides the fact that most clients have no idea of their options or special drafting needs.

The point is they may have spent months studying and drafting their own trust when they could have spent that time on better pursuits, like the golf course. I believe in clients being prepared and I spoke at many seminars and other functions over the years educating the public on estate planning. But I don't pretend to be a doctor or an engineer. Why would I perform my own brain surgery? Find someone you trust and save money because your time is valuable. And the result of doing it yourself will be low quality or not work for you. I had a client that did a $50 Will on their computer. Two years later, and $10k in attorney's fees, the estate was settled. Could have been done for $1500 if they'd trusted an attorney.
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There have been many times I've been burned paying for bad information or paid to be told something that ended being 100% false. Or paid someone to do a job they said they did well and ended paying someone else to do the same job over again. Too many times for me. So I educate myself and have been very successful doing so in many different endeavors.

The only person looking out for you is you. No one will ever be as invested in your success as you. I learned this the soul crushing, very expensive way. Maybe that makes me difficult to deal with. I can handle that. It means I am 100% in control of my affairs.
 
JB said:
It is the norm.
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it makes sense. but i've been up against some auditors who have argued otherwise and really made me scratch my head.


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NoLine said:
Herein lies the difficulty, when you have made a lot of money and are paying an "expert" to handle your affairs it is always difficult to accept that they may actually know more then you do. Tough to set the ego aside sometimes.
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Or been burned so many times, you find that the only real person you can trust is yourself. People you hire aren't always out looking for your best interest. How many times have we heard that story from celebrities and pro athletes?
 
NewGlfr said:
Or been burned so many times, you find that the only real person you can trust is yourself. People you hire aren't always out looking for your best interest. How many times have we heard that story from celebrities and pro athletes?
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you're right. i caught a mistake this year from a global bank, and ended up saving my client $250,000.

but i would caution against a diy mentality. finding someone you can trust is key. And staying engaged to keep applying the "smell test" is a must.


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NewGlfr said:
There have been many times I've been burned paying for bad information or paid to be told something that ended being 100% false. Or paid someone to do a job they said they did well and ended paying someone else to do the same job over again. Too many times for me. So I educate myself and have been very successful doing so in many different endeavors.

The only person looking out for you is you. No one will ever be as invested in your success as you. I learned this the soul crushing, very expensive way. Maybe that makes me difficult to deal with. I can handle that. It means I am 100% in control of my affairs.
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Disagree to an extent. You look out for yourself by choosing the right pro and asking questions during the process. An excellent pro is more thorough than the client. Their name is on the work and they take pride. Heck, I don't mind if we discuss a complex case by inviting other attorneys. I call other attorneys to review a case. You put down your ego for the good of the client.

You've apparently gotten hold of some professionals who just go through the motions or do not go beyond the bottom line. Sounds like Chris is someone who is fully invested in a client. When I was a CPA, I found a loophole in the alternative minimum tax and saved a client ... let's say it was a lot of money.

I've worked with attorneys who don't care to do the custom work or do the research. On the other hand, I've been blamed for being too thorough, and caring too much about getting it right. That's just my way.

If I have a client who knows his stuff or not, we have an open discussion and my questions help me determine how much he can or cannot do. Most want to hand it over to me. I usually can do the simpler items quicker and more efficiently. The client and I get a list together of what each of us will do. In that way, I can supervise what he is doing.
 
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