Trading Spaces and Moving Expenses
With training camp just around the corner for the NHL and NBA and all the athletes who change teams this off-season, it’s a good idea to review which moving expenses are tax deductible. This article discusses the requirements and limitations, deductible moving expenses, and necessary documentation.
Business related expenses for athletes are deductible under the Internal Revenue Code [IRC] §217(a) which states that deductions are allowed for all moving expenses related to beginning a new job in a new location.For a move to qualify for a deduction it must meet the distance and time test. First, the move has to be at least 50 miles further from your previous residence than your previous team’s facility. For example, if you lived 10 miles away from the arena or stadium, to qualify for a deduction your new team would have to be at least 60 miles from where you lived before. Second, you must work full time for at least 39 weeks during the first 12 months after you arrive in the general area of your new job location. Although a professional athlete’s move will nearly always qualify by distance, the time component is another issue. Training camps for the NFL start in July and both the NBA and NHL opened in September. So athletes who signed during the off season have not been in their new location the required 39 weeks. Athletes who have not met the 39 week requirement in the year of their move may take the deduction for all expenses paid in the year under IRC §217 (d)(2) if they successfully satisfy the time requirement in the following year. If an athlete does not fulfill the time requirement, any deductions taken in the previous year should be included as income the following year. Finally, under IRS publication 521 an athlete who is seasonal will still satisfy the 39 week time component if he or she is employed full time both before and after the off-season.
If you meet both the distance and time requirements, all reasonable unreimbursed moving expenses and travel are deductible. IRS publication 531 includes packing, crating, and transporting your household and personal belongings (and your family’s) from your former home to your new home. You may also deduct the cost of shipping your car or truck to your new home.
If you drive your car to your new home, you can figure your expenses by deducting either:
• Your actual expenses, such as the amount you pay for gas and oil for your car, if you keep an accurate record of each expense, or
• The standard mileage rate of 16½ cents per mile Whether you use actual expenses or the standard mileage rate, you may deduct parking fees and tolls.
If you moved outside the US to play professionally, you may also claim two additional moving expenses. First, you may claim the expense of moving your household items and personal effects to and from storage. Second, you may claim the expense of storing these items while you are with your new team. This is especially true for players who were on the Atlanta Thrashers and are now employed by Winnipeg.
Taking a practical look at the tax savings, we find that every dollar you claim as an unreimbursed moving expense lowers your taxable income by that same amount. So the tax savings equals your marginal tax rate. An athlete who earns $1,000,000 and is taxed at a marginal income tax rate of 35% will save $35 for every $100 he pays for unreimbursed moving expenses. An athlete who earns $100,000 and is taxed at the marginal income tax rate of 28% saves $28 of tax for every $100 he pays for unreimbursed moving expenses.
So if you have $2,500 in unreimbursed moving expenses and earn $1,000,000, you will save $875. And an athlete who earns $100,000 will save $700.Please remember to keep receipts to justify each moving related expense. Get this: every time an athlete has been denied moving expenses, it has been because he did not have receipts or other evidence to support the claim.
For more information on available income tax deductions or key tax issues regarding international and or state income tax issues for professional athletes, please contact me at 585-705-3405.
ALAN POGROSZEWSKI is an Assistant Professor of Sports Studies at St. John Fisher College and the President of his own tax consulting business whose clientele include professional athletes performing services on three separate continents. Prior to accepting his position at St. John Fisher College, Mr. Pogroszewski was the Vice President of Business Operations for Sports Consulting Group, a firm that specializes in the representation of professional hockey players. Mr. Pogroszewski received his M.B.A. from Rochester Institute of Technology in 1996 and his M.S. in Taxation from St. John Fisher in 2003