How To Pay Less In Taxes: Endorsement Income

Earning endorsement income (card deals, appearances, equipment deals, etc.) is not only great because it’s extra income, but also because it provides you with the opportunity to pay less tax today and maximize your tax-deferred investment growth, ultimately helping you accomplish your financial goals more effectively.

Endorsement income is classified as self-employment income. This provides you with an opportunity to set up additional tax-advantaged retirement plans that will lower the amount of taxes you pay today and offer you tax-deferred investment growth for years to come.

NOT ALL MONEY IS CREATED EQUAL

All professional baseball players are treated as employees by their respective teams. Therefore, your earnings are considered wages. This classification as an employee limits the amount of money you can contribute to tax-advantaged retirement plans such as an IRA ($5,500 limit in 2015) or MLB Vanguard 401K Plan ($18,000 limit in 2015),regardless of how big your salary is.

This results in the majority of your income being taxed in the year that you earn it. In addition, this after –tax money that you choose to invest will continue to be taxed as it grows. Each time you earn interest or dividends you will be taxed and if you choose to withdraw this money, you will pay taxes on your gains.

TAX ADVANTAGED ACCOUNTS

If you have self-employment income, you may contribute to a SEP-IRA or Individual 401(k) retirement plan. This plan will be determined by the amount of endorsement income you have earned and if you are currently eligible to participate in a 401K plan at either the minor league or major league level. Regardless of the type of account, they all share the following benefits.Benefits of Contributing to a Tax Advantaged Account

1. Accumulate a significant amount of cash you can use to help provide financial security during retirement.

1. Get an immediate tax break, because contributions are subtracted from your amount of taxable income.

1. Get tax-deferred growth — meaning you don’t pay taxes each year on capital gains, dividends, and other distributions. This allows your money to compound more quickly than it would if it were taxed yearly.  You will pay taxes upon distribution after age 59 ½.

Contact Us today to learn more about how you can reduce your tax liability and save more money.