6 Wealth Management Tips for Professional Athletes
One of the best wealth management tips for professional athletes is to pay down debt. Unfortunately, many athletes take on unsustainable debt, assuming their current salary will allow them to keep up with monthly payments. However, this financial strategy can leave athletes unable to make payments if their career ends. By taking wealth management for professional athletes into account, you can safeguard your wealth and bolster your long-term financial security by paying down your debt. Below, you will find six wealth management tips for professional athletes.
One of the best ways to maximize your deductions as a professional athlete is to make sure that you allocate all of them to your income and wages. You can claim both itemized deductions and business expense deductions. Generally, the highest earners get a higher tax rate than the average American, so the lower the income, the higher your deductions. You can also deduct expenses incurred through your professional activities, such as agent fees, workout clothing, gym memberships, and nutritional supplements.
While most professional athletes are lucky enough to be paid handsomely during their careers, a lack of tax planning can affect their financial future. Choosing the appropriate domicile is crucial to their tax planning. Some states offer tax advantages for high-income earners, so a no-tax state can help you save significant amounts of money. Tax planning is particularly important for pro athletes, as they have to pay taxes to multiple states, including their home state.
While pro athletes often earn multimillion-dollar contracts, they must also learn how to handle their money. Professional athletes should make a spending plan that details how they will spend their money and save it. This plan should be completed before incurring any new financial obligations. It will serve as a road map to achieving financial goals. As a professional athlete, you should consider your cash flow a limited resource. Therefore, you must put money away as early in your career as possible. If you can’t afford to make payments now, use it to save for a rainy day—also, budget for expenses during off-seasons. If you can’t afford to pay, don’t spend money on expensive items until you can make more payments.
For those pursuing second careers in sports or performing arts, it is essential to diversify their portfolio. While investing in private equity may be exciting, losing money in a failing business is not. Instead, athletes should invest in public and alternative assets, such as gold. Likewise, although investing in stocks may sound exciting, athletes should avoid losing too much money and stick to investments that bring them the most long-term benefits.
Maximizing investment returns is important for pro athletes because their peak earning years are much shorter than those of other people in their professions. For example, the NFL career can last as little as 2.5 years, depending on the position and skill level. For the NBA and MLB, the career length is slightly longer. Professional sports careers can be short, with players suffering injuries and teams cutting players without prior notice. For this reason, proper planning and investment diversification are essential.
While professional athletes can enjoy high salaries throughout their careers, tax planning is especially important to help retain that income. Many sports professionals are multistate employees, which means that they must choose the state where they will pay taxes. Athletes can take advantage of tax credits for paying taxes in lower states, but the higher taxes will increase their taxable income. Tax planning is essential to professional athletes because a career as a professional athlete can last decades and even two decades.
When it comes to tax planning, you should be proactive and consider the advice of a professional financial advisor. It will ensure that all of your financial planning strategies are working together. Avoid get-rich-quick schemes and make sure you have clear guidelines for your beneficiaries. To avoid paying more than you need to, you should also consider establishing a residence in a tax-friendly state. Doing so could save you thousands of dollars.
Professional athletes must have proper asset management. As professional athletes, they are often easy targets for unscrupulous business people. John Elway, for example, lost $15 million in a Ponzi scheme. Professional athletes lost $600 million in fraud between 2004 and 2018 alone, and this figure only includes cases where public court documents were available. Hence, athletes must understand their investments and work with a trusted wealth management service.
A fee-only financial advisor, Carlos Dias Jr., works with professional athletes and their agents. As a cautionary tale, he points to Ash Narayan, a financial advisor who was approved to manage the assets of NFL players. However, Ash Narayan was accused of cheating several of his clients, and the Securities and Exchange Commission froze his assets. Thus, professional athletes need to choose a financial advisor who understands their situation and will guide them in their decisions.
Tax planning for athletes
While it is not possible to avoid the tax consequences of a professional athlete’s career, proper tax planning can help you avoid the penalties and maximize your investment returns. The following are some tips to help you navigate the complicated tax laws of the sports industry. Before signing any player contracts, you should speak to your agent about the tax implications of your new player contracts. Choose an agent who has experience working with a CPA and understands tax planning for athletes.
The first step in tax planning is to identify the state tax consequences for the athletes’ income. Athletes should also consider whether they are citizens or residents of their own country. Different international jurisdictions require different levels of filing requirements. For example, in the U.S., athletes must file both as citizens and as residents. In Canada, athletes must file if they are residents. By using this information, athletes can easily determine which tax laws apply.