Baseball spring training is suspended. The season’s start is delayed. Not on indefinite hold, though: the “jock tax” players must pay on their 2019 income.
A leading financial advisor and tax advisor for baseball players, the CPA’s client list includes stars Cal Ripken Jr., Didi Gregorius, Tom Murphy, Mark Teixeira and former player Omar Minaya, special assistant to the Mets general manager.
The 2017 tax overhaul brought significant changes to taxpayer returns, and the players of Major League Baseball were certainly not exempt.
“The new tax laws dramatically change baseball players’ tax planning techniques and the way their returns are done,” Geier tells ThinkAdvisor in an interview.
One big difference is that, as W-2 employees, they can no longer deduct employee business expenses — on everything from agents’ fees to clubhouse dues. Geier’s value lies, in part, in helping players write off some of those expenses; for example, as deductions on 1099 income they may have received from product endorsements.
Kicking off his career at a large sports management firm, the advisor has worked in the industry for 30 years now. He and his team — several on it are also CPAs — handle all aspects of clients’ financial lives. Geier’s focus is exclusively on baseball players, current and retired.
Given MLB players’ short careers — typically three to five years — the advisor encourages his young clients to think ahead and, for instance, contribute as much as possible to their 401(k) plans.
In the interview, he explains the so-called jock tax: Baseball players and other pro athletes must pay income tax to every state in which they worked during the previous year, as well as the one in which they reside. Many players therefore choose to live in states that have no income tax, such as — and especially — Florida.
ThinkAdvisor interviewed Geier two weeks before MLB announced training and season-start delays because of COVID-19. Speaking from his office in Marriottsville, Maryland, the FA remarked, concerning the tax-law change in deductions, “It’s a whole different ball game, if you will.”
Here are highlights of our conversation:
THINKADVISOR: Has the 2017 tax overhaul benefited or hurt baseball players?
JOE GEIER: Major league players are employees with contracts and part of a union. They receive income from their teams on a W-2. So since they’re no longer able to deduct employee business expenses, it’s hurt them, But the top tax bracket being lowered by two percentage points helps players that make a substantial amount above the major league minimum because their tax bracket was reduced.
What about players who are at the minimum of $563,000 to $1 million?
It probably hurt them because they can no longer deduct those employee business expenses.
What are examples of specific expenses?
The big thing is agent fees — from 4% to 5% of their income. Players used to be able to write off the total fees.
Can they be written off somewhere else on the tax return?
One thing we do is if a player has a substantial 1099 endorsement income, we try to allocate a portion of that agent fee to the endorsement income reported on Schedule C or on a separate LLC.
That must benefit Philadelphia Phillies’ shortstop Didi Gregorius, who does lots of endorsements — reportedly for Nike, Mizuno, Louisville Slugger and Banana Republic, among others.
We’re able to allocate some of his agent fees to his endorsement account, and he can also write off some of the other expenses associated with endorsement income on his Schedule C.
What other expenses can baseball players no longer deduct?
Equipment, clubhouse dues, housing during spring training. It’s a whole different ball game, if you will.