Ep. 94 | Going for Gold: How Olympic Athletes Manage Their Tax Bills

07/30/24 • 29 min

In this episode of the Teaching Tax Flow podcast, hosts Chris and John dive deep into the fascinating intersection of Olympic athletes and taxation. As the Olympic Games captivate viewers worldwide, this episode shifts focus to an often overlooked aspect of an athlete's journey – the tax implications of winning medals and earning prize money.

The episode begins with Chris shedding light on the monetary rewards that athletes receive from the United States Olympic Committee (USOC) and introduces the Olympians and Paralympians Act of 2016, which exempts certain athletes from federal income taxes on the value of their medals and prize money. John and Chris discuss the complex layers of taxation that athletes, especially Olympians, might face, including foreign income taxes and the practicalities of tax planning. They also reflect on their recent experience at the Taxposium in Orlando, highlighting key themes like the importance of technology and continuous education in modern tax practices.

Key Takeaways:

Olympic Prize Money: Olympic athletes receive significant prize money from the USOC – $37,500 for a gold medal, $22,500 for silver, and $15,000 for bronze.
Tax on Medals and Prize Money: Both the monetary winnings and the value of the Olympic medals are considered taxable income. However, under the Olympians and Paralympians Act of 2016, athletes with an adjusted gross income under $1 million ($500,000 if married filing separately) are exempted from federal taxes on these earnings.
Foreign Tax Considerations: Athletes earning income in foreign countries may be subject to those countries' taxes but may receive a foreign tax credit in the US to avoid double taxation.
Ordinary and Necessary Deductions: Olympians, considered self-employed, can deduct ordinary and necessary business expenses related to their athletic training and competitions, such as travel, coaching, and equipment.
Professional Insights: The episode emphasizes the importance of specialized tax knowledge and ongoing education, drawing insights from the recent Taxposium conference attended by the hosts.

Notable Quotes:

"Olympians receive prize money from the USOC for winning medals – $37,500 for gold, $22,500 for silver, and $15,000 for bronze." – Chris
"The value of the Olympic medal is considered taxable income, along with the prize money." – Chris
"Under the Olympians and Paralympians Act of 2016, your medal prize money can be exempt from federal income taxes if your AGI is under a certain threshold." – Chris
"It's really neat to see how much emphasis is being placed on technology and modernizing the profession at these tax conferences." – John
"Ideas are cheap and implementation is valuable; that's why tax planning is so crucial." – Chris

Resources:

Episode Sponsor:
Legacy Lock (www.teachingtaxflow.com/legacy)
DISCOUNT CODE: Magic1495

(00:04) - Olympic Athletes and the Impact of Taxes
(02:44) - Taxposium: The Super Bowl of Tax Conferences
(10:23) - Tax Implications for Olympians and Their Prize Money
(13:16) - Tax Implications for Olympians Winning Medals and Prize Money
(15:41) - Employment Status of Professional Athletes in Team Sports
(17:09) - Tax Planning Strategies for Olympians' Prize Money
(19:16) - Navigating Double Taxation for US Residents Earning Foreign Income
(21:06) - Tax Implications for Olympians as Independent Contractors
(23:12) - Tax Implications and Value of Olympic Medals
(26:41) - Understanding Complex Tax Codes and IRS Efforts

Key Takeaways:

Olympic Prize Money: Olympic athletes receive significant prize money from the USOC – $37,500 for a gold medal, $22,500 for silver, and $15,000 for bronze.
Tax on Medals and Prize Money: Both the monetary winnings and the value of the Olympic medals are considered taxable income. However, under the Olympians and Paralympians Act of 2016, athletes with an adjusted gross income under $1 million ($500,000 if married filing separately) are exempted from federal taxes on these earnings.
Foreign Tax Considerations: Athletes earning income in foreign countries may be subject to those countries' taxes but may receive a foreign tax credit in the US to avoid double taxation.
Ordinary and Necessary Deductions: Olympians, considered self-employed, can deduct ordinary and necessary business expenses related to their athletic training and competitions, such as travel, coaching, and equipment.
Professional Insights: The episode emphasizes the importance of specialized tax knowledge and ongoing education, drawing insights from the recent Taxposium conference attended by the hosts.

Notable Quotes:

"Olympians receive prize money from the USOC for winning medals – $37,500 for gold, $22,500 for silver, and $15,000 for bronze." – Chris
"The value of the Olympic medal is considered taxable income, along with the prize money." – Chris
"Under the Olympians and Paralympians Act of 2016, your medal prize money can be exempt from federal income taxes if your AGI is under a certain threshold." – Chris
"It's really neat to see how much emphasis is being placed on technology and modernizing the profession at these tax conferences." – John
"Ideas are cheap and implementation is valuable; that's why tax planning is so crucial." – Chris

Resources:

Episode Sponsor:
Legacy Lock (www.teachingtaxflow.com/legacy)
DISCOUNT CODE: Magic1495

(00:04) - Olympic Athletes and the Impact of Taxes
(02:44) - Taxposium: The Super Bowl of Tax Conferences
(10:23) - Tax Implications for Olympians and Their Prize Money
(13:16) - Tax Implications for Olympians Winning Medals and Prize Money
(15:41) - Employment Status of Professional Athletes in Team Sports
(17:09) - Tax Planning Strategies for Olympians' Prize Money
(19:16) - Navigating Double Taxation for US Residents Earning Foreign Income
(21:06) - Tax Implications for Olympians as Independent Contractors
(23:12) - Tax Implications and Value of Olympic Medals
(26:41) - Understanding Complex Tax Codes and IRS Efforts

Previous Episode

Ep. 93 | Selling or Renting Out Your Primary Property

Episode Summary:

In this episode of the Teaching Tax Flow podcast, hosts Chris and John dive into the critical question many homeowners face: should one sell or rent their personal property after moving out? This episode expertly navigates the tax implications, financial considerations, and emotional factors homeowners must weigh when making this decision. With practical insights and real-life examples, the hosts break down complex tax topics like the Section 121 exclusion and depreciation recapture, as well as explore the financial and emotional implications of turning a primary residence into a rental property.

The discussion kicks off with Chris detailing the Section 121 exclusion, which allows homeowners to exclude up to $500,000 in capital gains from the sale of their primary residence if they meet specific requirements. The hosts then delve into the realities of rental income and the benefits of depreciation deductions. They emphasize that blending tax strategies can often lead to the most beneficial outcomes. Financial considerations such as market conditions, cash flow, and long-term investments also come under the spotlight, alongside the emotional aspects that might influence an owner's decision to sell or rent their property.

Key Takeaways:

Section 121 Exclusion: Homeowners can exclude up to $500,000 in capital gains from tax if their property was their primary residence for two of the last five years.
Depreciation Benefits: The rental property allows for depreciation deductions, reducing taxable income and potentially making rental income tax-free.
Market Conditions: Understanding the real estate market is crucial—selling at a market peak might provide better financial outcomes than renting.
Emotional Considerations: Long-standing personal connections to a property can influence the decision to rent rather than sell.
Blending Tax Strategies: Effective tax planning often involves combining multiple strategies, like using the 1031 exchange to avoid depreciation recapture.

Notable Quotes:

"Tax strategies don't live in a bubble. They are meant to be blended together." - Chris Picciurro
"If you rent your property, the time starts ticking on you taking advantage of the Section 121 or capital gain tax exclusion." - Chris Picciurro
"When you have a significant capital gain, sometimes it's the best move to sell and take that money tax-free." - Chris Picciurro
"Cash flow does not equal tax flow, meaning if you rent a property for $2,500 net, that doesn't mean you have to pay tax on that $2,500." - Chris Picciurro
"Don't let the tax tail completely wag the dog." - Chris Picciurro

Episode Sponsor
Sunsets & Dinks
www.teachingtaxflow.com/pickleball
CODE: TTF15

(00:04) - Sell or Rent Your Property: Key Considerations
(04:54) - Tax Considerations When Deciding to Rent or Sell Your Home
(08:00) - Navigating Real Estate Decisions and Market Timing
(10:09) - Tax Implications of Renting Versus Selling Property
(14:43) - Blending Tax Strategies for Optimal Financial Outcomes
(18:09) - Maximizing Cash Flow Through Strategic Property Rental
(21:45) - Navigating Market Conditions and Tax Implications in Property Management
(22:37) - Financial and Emotional Considerations in Property Investment
(24:50) - Converting Primary Residences to Rentals: Key Considerations and Timing
(29:08) - Maximizing Equity and Rental Income in Real Estate Investments
(29:41) - Upcoming Topics and Episode 100 Changes on Teaching Taxflow Podcast

Next Episode

Ep. 95 | The Hidden Benefits of Deferred Sales Trusts for Real Estate Investors

About the Guest:

Todd Jackson: Todd Jackson is a highly experienced tax attorney, M&A advisor, and real estate attorney based in Franklin, Tennessee. Known for his expertise in Deferred Sales Trusts (DSTs), 1031 exchanges, and complex tax planning strategies, Todd has worked closely with clients to help them minimize tax liabilities on large capital gains. He is also a licensed real estate agent and title insurance agent, showcasing his diverse skill set in the financial and legal sectors.

Episode Summary:

In this episode of the Teaching Tax Flow podcast, hosts John and Chris are joined by special guest Todd Jackson to explore the intricacies of Deferred Sales Trusts (DSTs). As Episode 95 counts down to their milestone 100th episode, the team delves into how DSTs can empower and educate high-income earners, real estate investors, and successful entrepreneurs to legally and ethically minimize taxes paid over their lifetime.

Todd Jackson provides a thorough comparison between DSTs and 1031 exchanges, highlighting the flexibility and control DSTs offer in deferring capital gains. This episode demystifies the concept of installment sales and explains how DSTs can alleviate some of the stringent requirements of 1031 exchanges, such as debt replacement and time constraints. With practical examples and insightful explanations, Todd emphasizes the significant tax planning benefits DSTs provide.

Key Takeaways:

A Deferred Sales Trust (DST) is a powerful tool for deferring capital gains taxes using installment sale treatment.
DSTs provide more flexibility and fewer restrictions compared to 1031 exchanges, particularly regarding replacement debt and investment options.
It's essential to have the DST structure in place before any sale occurs to avoid triggering taxable events.
The minimum capital gain for considering a DST is generally around $500,000 to justify the structure's complexity and cost.
Timing and control are critical components of a DST, allowing the deferral of income recognition over several years while preserving and growing the trust's assets.

Notable Quotes:

"My phone usually rings when somebody's selling something and facing a capital gain." - Todd Jackson
"Would you rather pay something today or ten years from now? Most people are going to say they'd prefer to pay it later." - Todd Jackson
"We have to create this and maintain it in a way that prevents you from having a constructive receipt to where that triggers all the gains." - Todd Jackson
"The relationship between the trust and you as the seller is that of an installment sale, which is borrower and lender." - Todd Jackson
"DSTs can invest in anything. The conversation is more about what it should invest in, based on risk tolerance and preservation strategy." - Todd Jackson

Resources:

Todd Jackson Law: Website

Join us next week for another insightful episode of the Teaching Tax Flow podcast, where we continue to bring you expert advice and actionable strategies to optimize your tax planning. Don't miss the countdown to our 100th episode!

Stay tuned and keep following us on Facebook, Twitter, and LinkedIn for more updates and exclusive content.

Episode Sponsor:
Strategic Associates, LLC
Roger Roundywww.linkedin.com/in/roger-roundy-86887b23

(00:04) - Deferred Sales Trusts and Year-End Tax Planning Strategies
(04:55) - Deferring Capital Gains Taxes Through Installment Sales
(09:56) - Choosing Flight Times and Recognizing Income
(10:49) - Comparing 1031 Exchanges and Deferred Sales Trusts
(16:20) - Deferring Capital Gains Through Installment Sales and Trusts
(21:25) - Deferred Sales Trusts for Large Capital Gains
(26:00) - Fun Questions and Career Insights with Todd Jackson

Teaching Tax Flow: The Podcast - Ep. 94 | Going for Gold: How Olympic Athletes Manage Their Tax Bills

Transcript

Intro00:00:04.160

Welcome to the Teaching Tax Flow podcast where the goal is to empower and educate you to legally and ethically minimize taxes paid over your lifetime.

John Tripolsky00:00:17.390

Hey, everybody, and welcome back to the Teaching Tax Flow podcast, episode 94. We are deep into the Olympic games. And today, we are gonna talk about those athletes and taxes and what they have to do with each other. So as always, let's take a