Travel, Work & Taxes
Every four years, thousands of athletes travel across the world to represent their countries in the ‘festival of games’ popularly known as the Olympics. It’s been noted that during the 2012 Olympic Games in London, more than 4 billion people tuned in to some part of the 17-day competition. With the total population at slightly over 7 billion, these numbers indicate that well over half of the world was drawn into the international event — at least in some way.
The Olympic Games are a huge draw for professional athletes because they provide a number of international opportunities, otherwise unavailable to those only competing in the United States.
On one hand, an increased demand for professional athlete services on a global scale brings about additional sources of income — which is great. The problem is, this income can sometimes create tax-related issues that many athletes are unprepared to deal with.
As a professional athlete, it’s difficult enough to gain a clear understanding of the ever-changing US tax code, let alone comprehend the intricacies of each foreign jurisdiction that you earn money in.
And while this post is not meant to be an exhaustive list of all-things-foreign-tax-related, it should at least provide you with a better understanding of how money is taxed abroad and what you can do to avoid any major pitfalls.
Paying Taxes In Foreign Countries
I was recently asked about whether athletes paid by foreign countries must pay taxes on that money when they’re back in the United States.
The short answer is: Yes. But, as with most things, the devil is in the details. Whenever a professional athlete earns money in a foreign country, they have to pay taxes according to the tax laws in that particular jurisdiction. However, the athlete receives a tax credit in the United States for any taxes paid in a foreign jurisdiction.
The Athletes’ Responsibility
In many cases when you compete abroad, you or your agent are provided with a form that details the taxes you paid in each respective country. Generally you can collect these forms and hand them in to your accountant.
Although your accountant is capable of handling majority of your tax-related issues, it is still important for you to be aware of exactly where your income is coming from — especially if you have a global sponsor. For example, some athletes are paid by Adidas USA while others might be paid by Adidas Germany. Adidas USA is governed by the same tax laws as any other American company. Along the same lines, Adidas Germany will follow the tax laws of Germany.
If you are just under the assumption that you are sponsored by Adidas — and fail to identify the country that the sponsor is associated with — you could be setting yourself up for a very expensive learning lesson come tax time.
Another consideration that you may be unaware of is; sometimes the country you earned income in either does NOT tax your earnings or they tax your earnings, but you don’t receive any documentation. Even in these situations, you are still responsible for acknowledging the taxable event when filing your taxes in the United States. It’s easy to think that you can avoid this and perhaps not pay, but if you are audited you could end up in a heap of trouble.
Let’s face it, the life of a professional athlete is far from ordinary. Aside from consistently competing at a high level, there are also demanding business needs and complex tax obligations. If you’re an athlete overwhelmed with uncertainty around managing your finances, remember that you don’t have to solve everything on your own. Seek the counsel of a Certified Financial Planner who can help answer your questions and create a strategy to set you on the path for financial security long after your competing days have ended.