Sixteen-year-old Gabrielle Douglas cemented her spot in history last week, as the first African American to win the all-around women’s gold medal in Olympic gymnastics. But in addition to her newfound fame, Douglas is also taking home a hefty tax burden from her wins in London, as are other winning Olympians.
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For every gold medal won, Americans for Tax Reform calculated Olympians would pay close to $9,000 in federal income tax. ATR reports silver medalists pay more than $5,300 per medal won.
Scott Berger, CPA and principal with Kaufman Rossin and Co., said this tax burden comes from the compensation that goes along with the winning medals. Athletes who become their own brands—think Michael Phelps, Tiger Woods, Venus and Serena Williams—have to pay to play. The checks made out to Uncle Sam, of course.
Here are some tips Berger has for entrepreneurs whose brands are the business:
No. 1: Know what you can write off. Berger said when you, literally, are your own business, you can often write off the expenses you incur while performing your job.
“For example, if I am working as a sole proprietor, making $1,000 for doing a tax return, my expenses would be a deduction against that income,” he said.
No. 2: File tax returns and know your bracket. Berger said younger up-and-coming athletes like U.S. swimmer Missy Franklin, likely never had to file tax returns before. LeBron James, NBA and Team USA basketball player, is already likely in the top tax bracket making millions annually.
“Some of those athletes probably never thought of even filing a tax return before,” he said. “Gabby Douglas is 16, she probably hadn’t even made babysitting money yet at 16 [years-old], so she would probably be in the bottom bracket.”
No. 3: Consult a financial planner. Breakaway stars from the Olympic Games like Franklin and Douglas will likely stand to make a lot more money off endorsements and appearances, Berger said. Retirement planning is something that many small businesses and entrepreneurs overlook, so getting a head start on that is never a bad idea.
“Consider a retirement account to save early and often,” he said. “Even if you can put a few dollars away, just get into the habit of doing that.”
No. 4: Keep track of expenses. Track your revenue and expenses to create a budget, Berger said. With lots of money and deals coming in, tracking the money you make and spend becomes more and more important.
No. 5: Know how to classify your business. Berger said that oftentimes when you are the actual business, the appropriate classification is sole proprietorship. This means you don’t have to formally register yourself as a business, but can do so under your name or a fictitious name to protect your privacy.
“If you don’t have employees, you don’t need a separate tax ID number,” he said. “Depending on the type of business you have, you may want to patent or trademark to protect yourself or ideas.”