Professional Athlete Client

Technical topics regarding tax preparation.
#1
CathysTaxes  
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Just got a new client who is in the minors of my favorite MLB team. Any advice anyone can offer? His primary work location is AZ and then OR. His paycheck shows a deduction for housing in OR, which I believe that since his primary work place is AZ, he can itemize this and any other expenses.

Any suggestions? Thanks!
Cathy
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#2
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CathysTaxes wrote:Any advice anyone can offer?


Be skeptical of the state area of the W-2. Many states use the "duty days" method of apportioning wages which may lead the state wages area to be incorrect.
 

#3
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Thanks Donut.
Cathy
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#4
Goodday  
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If he played games in Louisiana; there is a unique Form for non-resident professional athletes (and artist/performers) that is required in addition to the non-resident tax return. Penalty for non compliance is outrageous. Some other states have or had a similar form, I seem to recall.
Baseball players typically pay a clubhouse fee, like a tip to the workers in the locker room, etc. Should be Sch A deductible, in 2017.
P S get him to sign a ball now, just in case he makes it to the majors someday.
 

#5
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Goodday is that form part of the tax software or do you have to get in from the department of revenue?
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CathysTaxes wrote:Goodday is that form part of the tax software or do you have to get in from the department of revenue?


Some tax software have that form, UltraTax does for example. When I last used Drake in 2015, it did not have it and I had to file through Louisiana's website.
 

#7
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If he is an employee does that not mean for salaried income the employer does the segregating to the States! At the major league level I believe baseball reached an agreement decades ago as to how the "salaries" would be allocated. Now other income from endorsements and appearances even New York and Florida residents have fought over that.
 

#8
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Jon, he definitely is an employee and his W-2 shows earnings and withholding for AZ and OR. His tax home is IL. His check stub shows a deduction for housing in OR. He is assigned to AZ.
Cathy
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jon wrote:If he is an employee does that not mean for salaried income the employer does the segregating to the States! At the major league level I believe baseball reached an agreement decades ago as to how the "salaries" would be allocated.


Just because there is agreement doesn't mean that the W-2s will be done correctly. I haven't been involved on a baseball return in a number of years, so I don't remember exactly the details of that W-2 except that there were a lot of states on it -- but in other sports the state portion ranges from perfect to "who prepared this thing?"

It can really get messed up when a player plays for two different teams during the year. At that point any hopes of having a correct W-2 go out the window.
 

#10
Doug M  
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W-2 shows earnings and withholding for AZ and OR


They should not allocate anything to AZ unless it is for games played. The allocation to Oregon should also be games played. If I remember right, the only state that I encountered allocation based upon duty days was NY.

Hillsboro Hops?
 

#11
jon  
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If as preparer you will know more about the allocation than the employer, I think that gets more confusing. For Major League Baseball it was the owners who negotiated the the deal on allocation and recording of it. A lot of minor league operations are owned by the major league teams. If something is wrong on the W-2 I would rather talk to the preparer of the W-2, than a ball player trying to recap his days.
 

#12
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W2 was prepared by The Chicago Cubs. The Cubs have teams in AZ and OR which is whom he played for.
Cathy
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#13
Doug M  
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The W-2 should have allocated 100% of the wages to Illinois, with other notations about other states' allocation. Based upon the games played or duty days. This seems odd. I have not dealt with baseball players, but this is how the NBA does it.
 

#14
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Thanks Doug
 

#15
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Update:

Oregon defines duty days as
(1)(a) General. Oregon source income of a nonresident individual who is a member of a professional athletic team includes that portion of such individual’s total compensation for services rendered as a member of a professional athletic team during the taxable year which, the number of duty days spent within Oregon rendering services for the team in any manner during the taxable year, bears to the total number of duty days spent both within and without Oregon during the taxable year.

(b) Special rule. Travel days that do not involve either a game, practice, team meeting, promotional caravan or other similar team event are not considered duty days spent in Oregon. However, such travel days shall be considered duty days spent within and without Oregon.

(2) Definitions. For purposes of this rule:

(a) The term “professional athletic team” includes, but is not limited to, any professional baseball, basketball, football, soccer or hockey team.

(b) The term “member of a professional athletic team” shall include those employees who are active players, players on the disabled list and any other persons required to travel and who do travel with and perform services on behalf of a professional athletic team on a regular basis. This includes but is not limited to coaches, managers and trainers.

(c)(A) The term “duty days” shall mean all days during the taxable year from the beginning of the professional athletic team’s official pre-season training period through the last game in which the team competes or is scheduled to compete.

(B) Duty days shall also include days on which a member of a professional athletic team renders a service for a team on a date which does not fall within the aforementioned period (e.g., participation in instructional leagues, the “Pro Bowl” or promotional “caravans”). Rendering a service includes conducting training and rehabilitation activities, but only if conducted at the facilities of the team.

(C) Included within duty days, shall be game days, practice days, days spent at team meetings, promotional caravans and pre-season training camps, and days served with the team through all post-season games in which the team competes or is scheduled to compete.

(D) Duty days for any person who joins a team during the season shall begin on the day such person joins the team, and for any person who leaves a team shall end on the day such person leaves the team. Where a person switches teams during the taxable year, a separate duty day calculation shall be made for the period such person was with each team.

(E) Days for which a member of a professional athletic team is not compensated and is not rendering services for the team in any manner, including days when such member of a professional athletic team has been suspended without pay and prohibited from performing any services for the team, shall not be treated as duty days.

(F) Days for which a member of a professional athletic team is on the disabled list shall be presumed not to be included in total duty days spent within and without the state.

Arizona defines duty days as:
“all days during a taxable year from the beginning of a professional athletic team’s first regular game of the season through the last game in which the team competes.”

According the my client's stats, he played all games with the Eugene Emeralds in Oregon (Northwest League).

In July, there were 9 away games.
In August, there were 16 away games
In September, there were 6 away games.

In earned $8046 playing in the minors, he pitched in 10 games.

The Northwest League plays in Oregon, Washington (no state income tax), Idaho, and British Columbia (treaty with US, no tax owed).

So this kid has to file taxes in Illinois, Arizona, Oregon, and Idaho based on these days? ETA. He's probably too low income to have to file in those other states. His W2 shows withholding for AZ and Oregon.
Cathy
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#16
Doug M  
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Laughing at myself. Never knew OR was a duty day state, as my 2 clients were residents of Oregon.

Games played is just what it says. What is the ratio of games play in State/total games played during calendar year. Gets really fun since no pro sport has a calendar year season.

You can see Oregon's definition of duty days. It really says, "it is first day required to report for spring training to the last day of the season". So it's duty days/365.

AZ-file to get the state tax refunded. Allocate -0- income. Take state tax credit for taxes paid to OR on the IL return.

You don't have enough income to file a return in ID. NR's is $2,500.
 

#17
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Doug M wrote:Laughing at myself. Never knew OR was a duty day state, as my 2 clients were residents of Oregon.

Games played is just what it says. What is the ratio of games play in State/total games played during calendar year. Gets really fun since no pro sport has a calendar year season.

You can see Oregon's definition of duty days. It really says, "it is first day required to report for spring training to the last day of the season". So it's duty days/365.

AZ-file to get the state tax refunded. Allocate -0- income. Take state tax credit for taxes paid to OR on the IL return.

You don't have enough income to file a return in ID. NR's is $2,500.

Wow Doug thanks. His W-2 shows that AZ is primary but I googled his name and according to his stats he was assigned to the Oregon team almost immediately.
Cathy
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#18
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Here's why I got. Player assigned to OR on 7/5/17.
July = 26 duty days
August = 31 duty days
September = 12 duty days.

69 duty days / 365 = .19 (still can't believe they go with 365 days because as Doug pointed out, no professional team operates year round, perhaps they mean work days in a season).

There's more! There's the signing bonus that gets allocated to the Home State (in this case Illinois).

Bonus is $5000
Wages is $3046.
Oregon income is $3046 X .19 = $578.77!
Illinois income is $5000 bonus + $2,467 = $7467!

Here's what the W2 says:

AZ gross wages $5508 (probably includes $5000 signing bonus)
OR gross wages $2538
Cathy
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#19
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The duty days calculation usually has duty days as the denominator with the numerator being the number of days worked/present in the state.

according to his stats he was assigned to the Oregon team almost immediately.


"Almost immediately." As in, perhaps, after two weeks? Such that 14 days were worked in Arizona and then 70 in Oregon? That would line up with the allocation on the W-2...
 

#20
Doug M  
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The duty days calculation usually has duty days as the denominator with the numerator being the number of days worked/present in the state.


That would mean a NR would allocate 100% to Oregon and 100% to his domicile state. Let's use a more normal situation. Let's stay with baseball. I live in IL and play for the AZ Diamond Backs.They start in the cactus league in AZ in April and they play their last game in September. Assume 6 months, 180 days.

So, my duty day's are 100%?? 180/180 = 1.
 

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