An accountant for NBA stars describes the ‘very complex’ process of preparing taxes for pro athletes — from ‘jock tax’ to hot tub write-offs

February 28th, 2024 Off

Taxes are especially complicated for professional athletes.

  • Pro athletes’ taxes are complex because they pay taxes in nearly every place they play.
  • John Karaffa, president of ProSport CPA, told Insider that athletes’ tax returns are as thick as reams of paper.
  • From filing in multiple jurisdictions to unique write-offs, Karaffa said it’s a “complex” process.

When it comes to filing tax returns for professional athletes, John Karaffa has seen it all.

Karaffa, a CPA and president of ProSport CPA, has been serving professional athletes for decades, helping thousands of athletes handle their taxes.

A former college basketball player at Butler who later played professionally overseas, Karaffa once told his alma mater that he was motivated to get into this line of work because “professional athletes can earn a lot of money, but at an age when they know very little about money.”

It’s one of the most overlooked aspects of a professional athlete’s life — but along with the multi-million dollar contracts and luxurious lifestyles they afford comes “very complex” tax situations, according to Karaffa.

John Karaffa, president of ProSport CPA. via John Karaffa/ProSport CPA

In the US, athletes have to file taxes in most of the states and cities they play in. For many, this could mean filing taxes in 20-plus jurisdictions.

“If you were to print out all those tax returns, it would be about a ream of paper,” Karaffa said.

Otherwise known as the “jock tax,” these payments takes a serious chunk out of an athlete’s income. NFL defensive tackle Ndamukong Suh had previously told Insider that these taxes (plus other fees) essentially cut players’ earnings in half.

“Athletes have large W-2s; we’re hit very heavily,” Suh said.

According to sports business personality Joe Pompliano, Stephen Curry paid nearly $1 million in taxes just for away games in 2018.

And Karaffa has some high-income clients. Though he’s reluctant to name names, he told Insider he works with several max-contract NBA players. During the 2022-23 season alone, there were 18 players who had salaries worth more than $40 million, according to Spotrac.

Taxes can also be a factor in free agency considerations

Of course, not all cities and states are the same when it comes to taxes. Karaffa said ProSport CPA also advises clients on free agency decisions, breaking down what their earnings would be in different states.

“If somebody gets an offer from Dallas versus Toronto versus a team in California, there could be a big discrepancy. Even if it’s the same offer, gross, it could be a huge difference to go to the Texas team,” Karaffa said, though he noted taxes are not usually a player’s biggest priority in choosing a team.

There are other matters that complicate taxes for athletes. If a player gets traded mid-season, then they’re often earning income in even more states. Some athletes support multiple households. Other times, investments — from holdings in companies to restaurants or gyms or apartment buildings they own — factor into the returns. It gets even more complicated when athletes, like tennis players or golfers, play overseas (though that can also result in US tax credits).

Athletes can also qualify for some unorthodox deductions

Of course, athletes are competitive individuals and look for any edge they can gain. Karaffa said over the years he has seen a lot of unique requests for tax write-offs.

“I get asked about swimming pools, saunas, hot tubs, those kind of things,” he said. “Those are interesting ones. And you know, there are some circumstances where those items may be able to be deducted.”

He added: “There’s definitely ones that are gray areas.”

Karaffa said he’s generally impressed by how much his clients know about their spending and taxes and how eager they are to learn.

“It gets me excited when I’ve got an NBA player who really cares about taxes,” Karaffa said. “And more do than you think.”

He added: “Asking hard questions and wanting to know more. That’s the best thing, when you’ve got clients that are engaged, especially when it’s their biggest expense.”

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