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Lebron James and State Income Taxes - October 18th, 2014
Although Americans pay federal incomes taxes (including social security and Medicare), the state in which you live adds one more tax. All 50 states create their own tax code. Many have an income tax or a sales tax on goods and services, or a property tax on your home, while some have all of them!
So your tax bill depends on the state that you live in. For middle class families, this can add up to thousands of dollars a year! For professional athletes, the difference can be in the millions!
Let's take the case of NBA basketball star, LeBron James. Let's look at a hypothetical tax return. Filing would be standard deduction, married filing jointly, 2 children, and not include other income (business, investment, endorsement, rental/royalties income, etc), deductions, or credits.
This summer LeBron changed teams and signed a 2 year max contract with the Cleveland Cavaliers for over $42 million ($20,644,400 in year 1, and $21,573,398 in year 2). This money would be taxed at the highest federal rate of 39.6%. The federal bill on the NBA income would be $8,263,756 in year 1, and $8,638,244 in year 2 for a total of $16,902,000. That is a big chunk!
Then there comes the state tax. By LeBron moving from the Miami Heat to the Cavaliers, it will cost him over $2 million.
| Team | State | Tax Rate (Highest) | Sales Tax | 2013/14 State Bill | 2014/15 State Bill | 2 Year Tax Total State |
|---|---|---|---|---|---|---|
| Miami Heat | Florida | 0.0% | 6.00% | $0.00 | $0.00 | $0.00 |
| Cleveland Cavaliers | Ohio | 5.421% | 5.75% | $1,119,133 | $1,240,470 | $2,359,603 |
Florida is one of seven states that do not impose an income tax on its citizens. But of LeBron's other options, Ohio is one of the better tax choices. If he chose one of the "big market teams", his state taxes would look different.
| Team | State | Tax Rate (Highest) | Sales Tax | 2013/14 State Bill | 2014/15 State Bill | 2 Year Tax Total State |
|---|---|---|---|---|---|---|
| LA Lakers / Clippers | California | 12.30% | 7.50% | $2,539,261 | $2,653,528 | $5,192,789 |
| Chicago Bulls | Illinois | 5.00% | 6.25% | $1,032,220 | $1,078,670 | $2,110,890 |
| New York Knicks / Brooklyn Nets | New York | 8.82% (plus 3.876% NYC tax) | 4.00% | $2,621,013 | $2,738,959 | $5,359,972 |
| Boston Celtics | Massachusetts | 5.25% | 6.25% | $1,083,831 | $1,132,603 | $2,216,434 |
New York (higher inside city limits) and California are two of the highest taxed states, and would affect his taxes by over $5 million.
If LeBron wanted to bring his talents to our local teams, it would still cost him millions of dollars.
| Team | State | Tax Rate (Highest) | Sales Tax | 2013/14 State Bill | 2014/15 State Bill | 2 Year Tax Total State |
|---|---|---|---|---|---|---|
| Minnesota Timberwolves | Minnesota | 9.85% | 6.875% | $2,033,473 | $2,124,980 | $4,158,453 |
| Milwaukee Bucks | Wisconsin | 7.65% | 5.00% | $1,579,297 | $1,650,365 | $3,229,662 |
Although this is an extreme case in state taxes affecting your pocket book, it is still something that influences us all. So if you are thinking about locating to a different state, take some time to evaluate this little topic before you move!
Learn more about what the new laws mean to you! Make an appointment with Fredrick Tax today!
Past Articles
9/27/2016 - Crowdfunding & Taxes10/18/2014 - Lebron James and State Income Taxes
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