Your largest lifetime expense will be your tax bill.
Take a moment and let that sink in.
The biggest bill you will ever pay will be the one you pay to the IRS.
That is the bad news.
The good news is you can and should be planning around it.
You see tax planning for professional athletes is critical given you have one shot to do this right.
In this guide, I am going to give you 7 tax planning strategies for professional athletes.
Let's dive in...
Professional Athletes - Tax Strategies
Consider the earning arc as a professional athlete.
You are earning a lifetime worth of income in 3-10 years.
Most can see that, but here is what most miss…
The uniqueness of your tax bill as you're earning that money.
You can go from high income (signing bonus)⬆️ to low income (minor leagues)⬇️ to high income (top league)⬆️ to low income (post-playing)⬇️ all in a decade.
That means two things:
Your tax planning is going to be unique.
You will overpay the IRS without proper planning.
Consider me, a professional athlete for 10+ years ~ I estimate that I have overpaid the IRS by a few hundred thousand dollars during my playing career.
This was due to me not understanding the two concepts above. I failed to have experts in tax planning for professional athletes and I failed to think proactively about this.
I thought, I made money so I will owe taxes on it.
While on the surface this is correct, I didn’t think to the next level that there could be (and are) ways for me to legally reduce my lifetime tax bill.
So, let’s dive into 7 ways that professional athletes can reduce their lifetime tax bill.
1) Qualified Accounts
The easiest and most accessible way for professional athletes to reduce their lifetime tax bill is to maximize their qualified accounts.
A qualified account is simply a retirement account.
All that means it is a special type of account that the government provides you with either a current-year tax benefit or a future-year tax benefit.
Here are my three favorite ones for professional athletes:
Roth IRA - A Roth IRA is an individual retirement account that provides you no tax benefit on the money you contribute yet provides tax-free growth and distributions in retirement.
Example: A player can contribute up to $7,000 in 2025 into a Roth IRA. If this money grows to be worth $50,000 at retirement age (59.5) that entire $50,000 amount can be withdrawn tax-free.
***We often implement a backdoor Roth IRA strategy to avoid income limitations.
401(k) – A 401(k) is the most common form of qualified account. There are three versions professional athletes should be aware of. The traditional 401(k), the Roth 401(k), and the Solo 401(k).
Depending on the type of income (W2 vs 1099) and a player’s current tax rate should determine which of these three options an athlete should focus on.
Example: In 2024 a player can contribute up to $23,500 as an employee and potentially up to another $46,500 as an employer contribution. This means an athlete could see $70,000 in tax-optimized retirement savings.
HSA – An HSA or Health Savings Account is a special type of account designated for qualified medical expenses. So no it is not a typical “retirement” account but it is an extremely powerful qualified account. It is the only triple tax benefit account, meaning the contribution, growth, and distribution (for qualified medical expenses) are tax-advantaged.
Example: A player needs to be on a high deductible health care plan (common for players post-playing). This provides them eligibility to contribute up to $8,550 as a family to an HSA. This $8,550 contribution gets deducted from their taxable income, grows tax-free, and can be distributed (for qualified medical expenses) tax-free.
2) Tax Loss Harvesting
Consider for a second the fact that an athlete has an opportunity to save far and beyond the limits in just qualified accounts (retirement accounts).
This means you as an athlete will have significant money in taxable accounts. These accounts provide you with the opportunity for further tax planning.
One key element to consider is tax loss harvesting and here is how it works:
Example: You buy a share of a stock for $10 and that stock falls in price to $8. You can sell that position, capture the $2 loss, and immediately rebuy a similar position. This allows you to take your $2 loss and deduct it against your income (saving you money in taxes) while keeping your investment portfolio fully invested.
3) Charitable Giving
Giving is about the heart, not the tax benefit. Yet I have never met anyone who wants to give more money to the IRS and less to their favorite charity.
Remember how we talked about an athlete's earning arc ~ sharp spikes and steep drops?
One way to further take advantage of this is to be strategic about your charitable giving. In short, the most optimal time to give away money is during your playing career when your tax rate is high. Yet, you might want to spread that giving out over decades, long after your player career ends.
This is where a Donor Advised Fund comes in and here is how it works:
Example: A Donor Advised Fund (DAF) is a special type of account that allows someone to give a large sum of money in a given year, get the full tax benefit in that year, and then provides the optionality to distribute that money to charity over time (often years or decades).
***Pro Tip: You can further maximize this strategy by giving away appreciated stock to get a double tax benefit. If possible, never give away cash as this is the least efficient way to give away money.
4) Tax Efficient Investing
Remember how I talked about as an athlete you have the opportunity to save far more money than qualified accounts allow. Because of this opportunity, you will have significant money in a taxable brokerage account.
Well, this is where tax-efficient investing comes in and plays a key role in reducing your tax bill as a professional athlete.
Here is how it works:
Example: If you invest in certain ways, you can defer (push out) the gains from your investments longer. Consider an investment of $5 that grows to be worth $6 at the end of one year. If you can avoid taxes on your one-dollar gain you will have the opportunity to grow your money quicker than if you had to pay 25 cents in taxes that year.
In short, tax-efficient investing is the art of building a portfolio that allows you to control your tax bill, compound your money quicker, and let you keep more of your hard-earned money.
If you are interested in a deeper dive into how we think about investing you can check the Moment Guide to Investing for Professional Athletes.
5) State Residency
Taxes hit you in a few ways as a professional athlete. The first bite goes to the federal government (top tax rate of 37%).
The next bite goes to the state in which you either earned the money or you are a resident.
This can range from 0% (Florida) to 13.3% (California).
One of the single biggest tax planning moves as a professional athlete is to plan around state residency.
It works like this:
Example: If you can establish residency in a low or no state income tax state such as Florida or Tennessee this could save you hundreds of thousands if not millions of your lifetime tax bill. Consider an athlete receiving a $5,000,000 signing bonus. If that bonus is taxed in FL no state income taxes are due. If that bonus is taxed in California you would owe $665,000.
***Pro Tip: To navigate and establish state residency work with a qualified financial team that understands the nuances around multi-state taxation and athlete residency.
6) Income Shifting
You either plan now or you will regret it later. That has certainly been true for me with my tax bill and still rings true for nearly every professional athlete we serve.
One of the most proactive ways to plan is to always be running multi-year tax projections.
In short, this means we are working to project what an athlete’s tax bill will be this year, next year, and into the future. When this is done correctly in coordination with an athlete's on-field team (Agency) athletes can potentially look to save big money on their taxes.
Here is how it works:
Example: If an athlete receives a signing bonus of $500,000, the standard payout could be all at once or 50% year 1 and 50% year 2. Yet, what that athlete should be doing is having a qualified team run projections to see if we allocated a specific amount of income in year 1 vs year 2 could save them money on their tax bill.
***Pro Tip: There is more nuance to this not covered in this blog but just know that if you are blindly allocating income to certain years chances are you will be leaving money on the table.
7) Tax Deductions
The Trump tax cuts in 2017 significantly reduced the amount of tax deductions professional athletes could take.
Yet that doesn’t mean there are zero deductions for professional athletes.
The key here is to understand which expenses you incur reflect the type of income you are earning.
Example: All of your off-the-field money (1099 income) and the expenses that incur with that have the ability to be deducted. This is things like travel, food, and agent fees. Your on-field money (W2) does not allow for those same deductions.
***Pro Tip: Make sure you get an itemized bill from your agent reflecting agency fees for on-field income versus off-field income.
The seven strategies above are level one tax planning.
Every professional athlete should be considering these moves.
Depending on your situation tax planning as an athlete can significantly reduce your lifetime tax bill.
Yet what is most important is that you are considering (and planning) what ways you can implement to reduce your lifetime tax bill.
After all, it will be your largest lifetime expense.
If you are a future, current, or former professional athlete looking for help reducing your tax bill, let’s talk.
Moment was built to serve the specific needs of professional athletes.
You can book a call today and speak to a founder.
Get in Touch With An Advisor
Frequently Asked Questions
Here are some answers to questions received regarding athletes and money:
How does Moment help professional athletes with tax planning?
For us, it is all about presenting strategies to athletes that might make sense for them and then determining what is worth pursuing.
What is the biggest tax mistake you see with professional athletes? The biggest mistake we see is not planning in advance. There is a big difference between tax planning and tax preparation.
How does Moment work with CPA firms?
We work hand in hand with CPA firms that specialize in professional athletes. This way our clients are getting specific advice regarding their tax planning moves.
What is unique about tax planning for professional athletes?
The short earning arc, multi-state taxation, and income fluctuations provide athletes with circumstances often unique to them. We must account for all of these factors when looking at tax planning for professional athletes.
*Moment Private Wealth offers information on tax and estate planning that is general in nature. Tax and Legal advice are not provided by Moment Private Wealth. Consult an attorney or tax professional regarding your specific legal or tax situation.
Commentaires