So you’re a pro athlete and you’ve received tens of thousands of dollars in fines for illegal hits and over-the-top celebrations? Well don’t feel so anxious before that next missed practice, foulmouthed outburst at the refs, or horse collar tackle because that next move might result in a tax deductionA tax deduction is a provision that reduces taxable income. A standard deduction is a single deduction at a fixed amount. Itemized deductions are popular among higher-income taxpayers who often have significant deductible expenses, such as state and local taxes paid, mortgage interest, and charitable contributions. .
According to CNBC Sports Business Reporter Darren Rovell, fines, which are actually classified as ordinary business expenses, are taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. deductible once they have reached a value higher than two percent of a player’s total adjusted gross incomeFor individuals, gross income is the total pre-tax earnings from wages, tips, investments, interest, and other forms of income and is also referred to as “gross pay.” For businesses, gross income is total revenue minus cost of goods sold and is also known as “gross profit” or “gross margin.” .
The example used is that of the Cincinnati Bengals spotlight-loving and NFL fine-magnet wide receiver Chad Ochocinco. According to Rovell:
Fines are classified as ordinary business expenses, according to sports tax accountant Robert Raiola of Van Duyne, Behrens & Co.
In order to deduct, Raiola says the fines have to be greater than two percent of a player’s total adjusted gross income because the IRS stipulates that the first two percent of employee business expenses are not deductible.
But assuming Ochocinco-who made $4.75 million last season-paid the standard three percent to his agent Drew Rosenhaus, he’s already above the 2 percent or $95,000 floor.
So Chad Ochocinco, who was fined $30,000 for wearing a sombrero after a touchdown and another $20,000 after he flashed a dollar bill at an official during a replay challenge actually ended up paying $17,500 less in federal income taxes because of the $50,000 in fines. Raiola also remarked:
“Based on his tax bracketA tax bracket is the range of incomes taxed at given rates, which typically differ depending on filing status. In a progressive individual or corporate income tax system, rates rise as income increases. There are seven federal individual income tax brackets; the federal corporate income tax system is flat. , every $10,000 in fines, will save him $3,500 in taxes,”
Knowing this, next season Chad should pick that sombrero and dollar bill back up and do the “Ickey Shuffle” in the end zone like there’s no tomorrow. He can thank me on tax day next year…
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