Five Things To Do When Moving Up To The PGA Tour

You have just achieved one of your life-long dreams of making it to the PGA Tour. No doubt you have loftier goals and have set your sights on winning your first PGA Tour event or whatever your next goal may be. You are a competitor which means raising the bar to achieve a higher level of excellence. What about off the course? How do you raise the bar to achieve the highest level of excellence with your money?

Here are five things to do when moving up to the PGA Tour before the season starts:

LLC to S Corporation

First off you should have an LLC (Limited Liability Company) set up for your golf business by now. If you have not, that is step one. We have a whole podcast HERE  on the advantages of an LLC. Up until now, you likely were being taxed as a “sole proprietor”. This means all your business income and expenses were netted out and then pass to you on your personal tax return. Now that you are moving up to the PGA Tour, you will be making enough money that you should most likely elect to have your LLC taxed as an S Corporation. You do this by filing form 2553 with the IRS. You will elect the start date to be taxed as an S Corporation. Unless you have a large bonus coming in before the end of the year, it typically makes the most sense to have the start date be January 1st of next year.

The benefit of filing as an S Corporation is tax optimization. You will have to pay yourself a “reasonable salary” but the remainder of your earnings will pass to you as distributions. These distributions will skip the Social Security and Medicare tax, that can add up to as much as 15.3%. Another major tax optimization benefit of electing S Corporation status, is paying state income tax at the business level in the states that you owe taxes in. This allows that tax paid to be deductible, where on the personal level the deduction is currently capped at $10,000.

Finalize This Year’s Taxes or Tax Projection ASAP

Taxes may sound like an April 15th issue, but taxes should be a 365 day a year process. The stakes are higher now that you will be on the PGA Tour (higher stakes is a common theme). You played well enough this year to move up to the PGA Tour, which means you probably made more money than you have before. You will probably make more money next year than you did this year! That means your tax bill is going up this year and next year. This is good problem to have, and you can use strategy to make sure you pay the lowest amount possible without loaning the government your money before you owe it to them.

By finalizing this year’s tax projection, you will know exactly how much you will owe in April for your remaining tax bill. You should be paying the minimum amount needed on your quarterly payments so far this year, and then have a larger balance due in April. This way you can save that money and have it earning interest along the way. If you owe $100k in April for example, and you have been holding it in a money market account earning 5% for 6 months, that is an extra $2,500 in your pocket. Now think about that if you add a zero to the numbers.

Next, once you know your total tax bill for this year, you can use that number to determine the minimum amount owed next year per quarter for what is called “Safe Harbor” tax payments. Since your income will likely go way up next year, so will your tax payments. But we don’t want to pay that higher tax bill until the following April if possible. If you really want to nerd out on this strategy, here is an entire article we wrote Athlete Taxes: Safe Harbor Strategy.

Solo 401k

Do you already have your own retirement account set up? The Tour has a retirement plan for the players and we will focus on that in the next blog. You should have your own retirement account set up though as well. If you are thinking why do I need to save for 30 or 40 years from now, there are a lot of reasons, but think of retirement accounts as tax strategy accounts.

The optimal retirement account for a professional golfer is a Solo 401k. Not a SEP IRA, not a SIMPLE IRA, not an IRA. The Solo 401k will allow you the option to put in the most amount of money to the plan with lower income requirements, has the flexibility to be pre-tax or after-tax, and allows you to have use an additional Roth IRA or Traditional IRA.

The maximum Solo 401k contribution for 2024 is $69,000. Assuming you are in the 35% tax bracket, that contribution would save you $24,150 in taxes this year. In other years, $69k may seem like a lot of cash to tie up in a retirement account, but since you made a lot this year and should make even more next year, it is a great way to play the tax optimization game.

One of the bigger mistakes I see golfers make is not maximizing the full amount they put into their own retirement plan. The amount you put into the Tour’s Retirement Plans does not count against your annual limits.

Additionally, as long as you don’t have another IRA or SEP IRA, you can contribute another $6,500 to a “non-deductible” IRA and then convert it to a Roth IRA. You will have made too much to make a direct contribution to your Roth IRA, but this is a strategy available to you by using the Solo 401k to get money into a Roth IRA for tax-free growth.

Umbrella Liability Insurance Policy

Like I said earlier, higher stakes. That also means higher visibility and higher potential for someone to sue you. It also means more assets to protect. This isn’t a scare tactic, this is reality. Working with hundreds of professional athletes, we have seen some ridiculous lawsuits. People may recognize you or may just see the logos on your shirt, or your staff bag in your car. They will see dollar signs unfortunately.

Getting an “umbrella” liability insurance policy is a policy that insures against liability for everything above and beyond the coverage you have on your car and home or rental. You want to have a policy that is equivalent to your net worth as a rule of thumb. Even if you aren’t there yet, get a $1 million policy to start. It is not going to be very expensive and it will cover you against a lawsuit. The other benefit of having an umbrella policy, the insurance company is not going to want to pay $1 million so they will fight the lawsuit with their lawyers.

Getting a policy as a professional athlete can be a little difficult though. Most common insurance companies will NOT insure a professional athlete with an Umbrella personal liability policy. They group you with all other professional athletes and they do not want your risk. If you pursue one with your insurance carrier, make sure you get in writing that they are covering you as a Professional athlete. Otherwise, you risk them pulling out some fine print when there is a claim and not covering you.

Earnings Assurance Program

One of the newer benefits to PGA Tour players is the Earnings Assurance Program. It essentially sets the minimum earnings for players with Korn Ferry Tour / Q School category status or higher at $500,000 for the season. For first year players and players graduating from the Korn Ferry Tour, you can receive the $500,000 up front, usually paid out the first week or two of January. This is a nice up front cash infusion for your season. Here is what to do with it (hint: don’t go spend it all yet).

You are going to owe some amount of taxes on that $500k, it is earned income. The Tour withheld $100k in 2024 to go towards potential state and foreign taxes, but that did not cover any US Federal tax. Have your tax team base your projection off of last year’s tax liability so that you can pay the minimum amount each quarter next year. You will still owe the remainder the following April, but that way you can hold on to the cash for 9-12 months longer.

For example, assuming you are in the top tax bracket next year (2025), you will owe roughly $185k in federal taxes on that $500k., which would be $46,250 per quarter. If you paid $75k in federal taxes for this year (2024), then you would only need to pay $20,625 per quarter to avoid any penalties and interest, what we call “Safe Harbor”. That saves you $26k per quarter to put in a money market account and wait until April 2026 to pay. More opportunity to have your money work for you instead of the IRS.

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These are five things you can do to raise the bar of excellence and be a pro with your money. There are many more ways to be a pro with your money as well. This shouldn’t fall on you to execute. You are a professional golfer, not a professional wealth manager. Make sure you have a Wealth Management team that is built to take care of professional golfers.

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