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August 3, 2012
Taxes on Olympic Winnings Not the Whole Picture

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by Eric Kroh

Republican lawmakers and their supporters are decrying the potential tax bills for Olympic athletes who win medals in the ongoing games in London, but practitioners who specialize in taxation for athletes told Tax Analysts the taxes on earnings are only one part of the equation.

Americans for Tax Reform (ATR), the group headed by Grover Norquist, said July 31 that gold medal winners could owe the IRS nearly $9,000 for their winnings if they are subject to the top income tax rate of 35 percent. Silver medalists could owe as much as $5,385 and bronze medalists could owe some $3,500, the group said. Gold medal winners at the Olympics are given a $25,000 honorarium from the U.S. Olympic Committee, while silver medal winners receive $15,000 and bronze medalists receive $10,000; those winnings and the value of the medals are included in taxable income, ATR said. (For the ATR release, see Doc 2012-16528.)

Sen. Marco Rubio, R-Fla., on August 1 introduced a bill that would exempt the winnings of Olympic athletes from taxation. "Athletes representing our nation overseas in the Olympics shouldn't have to worry about an extra tax bill waiting for them back home," Rubio said in a release. (For the bill, see Doc 2012-16579. For a release, see Doc 2012-16498 or 2012 TNT 149-35.)

Glenn Tanzer of Marcum LLP, formerly the chair of the New York State Society of Certified Public Accountants' Entertainment Arts and Sports Committee, said the potential tax liabilities put forth by ATR do not account for all of the applicable tax laws.

"They're just picking this little piece out," Tanzer said. To get a true understanding of the taxes Olympic athletes pay on their winnings it would be necessary to delve into the athletes' individual circumstances, such as how they are paying for their expenses, he said.

"Are their parents paying for it? Is it being done through the Olympic Committee?" Tanzer said. "You're opening up a whole can of worms."

Athletes would be taxed at the top income tax rate only if they had additional earnings, such as from endorsements, Tanzer said. Taxing Olympics earnings "sounds terrible," he added, "but really they're getting that higher rate because they have a contract with Cheerios for $500,000."

Ryan L. Losi of Piascik & Associates, a CPA firm that advises professional athletes, said that even though the Olympics winnings are included in taxable income, "it doesn't mean you owe any tax at the end of the day."

If athletes have a profit motive and the goal is to win prize money, expenditures in pursuit of that goal are deductible, Losi said. That could include expenses for travel, equipment, training, coaches, and massages, he said.

Because of the number of exemptions that could apply to the Olympics winnings, the taxes paid on those winnings are likely to be minimal, Losi said. For athletes who earn enough that their deductions do not cover their tax liabilities, the taxes on the winnings will have only an incremental impact on their total taxes owed, he said.

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