By Jonathan Nehring | Disclaimer

This Sunday, the biggest names in the film industry will gather at LA’s Dolby Theatre for the 86th presentation of The Oscars. While this will be a big day for those involved in creating this year’s hit films such as American Hustle, The Wolf of Wall Street, and 12 Years a Slave it will also be a big day for two organizations with no involvement in creating any (good) films: the IRS and California’s state version of the IRS – the Franchise Tax Board (FTB).  
Gift or “swag” bags have been a common consolation prize for anyone who doesn't win an award. The Oscars go above the standard and runner-ups have the opportunity to get an “official” gift bag from the Academy of Motion Picture Arts and Sciences (AMPAS) as well as an “unofficial” gift bag coordinated by an L.A. marketing firm – Distinctive Assets.

US Weekly detailed the unique items in this year’s bags which include the following:

1. Pure Organic Maple Syrup
   
2. Two-day train journey through the Rocky Mountains
   
3. Hydroxycut gummies, and personal training sessions
   
4. Trip to tour by foot in Japan
   
5. Trip to Las Vegas to meet Boyz II Men
   
6. Hair restoration and/or transplant surgery
   
7. Home spa systems
   
8. Water filtration system
   
9. Resort packages
   
10. and pet products

It may seem odd that receiving so many gifts would be a bad thing but tax officials considers those gift bags to be income and taxes them according to the fair market value of the gift bag. Since this “income” will be “earned” in Los Angeles, CA both the IRS and California’s FTB will tax these gift bags up to 39.6% and 13.3% respectively. At this year’s Oscar’s, an actor or actress could receive gift bags with a fair market value estimated to be $80,000.

Losing an Oscar means “winning” a consolation gift bag which means paying $42,320 in taxes just for losing. In addition, these 121 nominees will bring tax organizations $4.11MM at the Oscars this Sunday just from gift bags alone.

What happens if you are one of the lucky ones to walk away with an Oscar instead of a gift bag? You would owe the IRS and FTB 53% of the fair market value of the Oscar trophy. This amount is not readily available because the AMPAS has required all winners since 1950 to enter into a legal contract requiring winners to offer the Academy the Academy Award for $1 if the winner or their estate ever wishes to resell the trophy. The last Academy Award to be sold to someone besides the Academy, sold in a 2011 auction for $861,542.

If that happened to be the value the IRS and FTB used to calculate tax owed to them by Oscar winners – each winner would owe a total of $456,000 in taxes per Oscar.

In addition to taxing these gift bags, the IRS makes sure to let you know they will be taxing them. Since 2006, the IRS and AMPAS reached an agreement that requires the Academy Awards to pass out applicable tax forms as reminders with the gift bags. However, the actors and actresses aren't at a total loss; they can follow George Clooney’s footsteps and donate their gift bag to charity and receive a tax deduction for doing so. 

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By Jonathan Nehring | Disclaimer

Update: The post below was written in 2014. This post has since been revised for 2015. You can find the 2015 post here. 

Before we can get into the details of this post, I’ll provide some background information. Like all US citizens, professional athletes must pay both federal and state income taxes. However, under what is commonly referred to as the “jock tax”, professional athletes pay state income tax in each state they play. The legal theory is that you are required to pay state income taxes in the state you earn that income and thus the professional athletes earn income in the stadiums they play in each season. But how much income does an athlete “earn” in each state? Does a player earn their money only by playing games or do they earn their money when practicing, making media appearances, offseason workouts, etc.?

To solve this problem, states have generally adopted what is known as the “duty day” method to calculate how much income athletes earn in their state. This method is calculated as the percentage of duty days spent in the respective state compared to the total duty days that athlete had that season multiplied by the player’s salary. 

Because each state has the ability to create their own method not all states adopt the “duty day” method (Tennessee) and not all states define duty day the same way. A duty day is generally defined as a day when an athlete participates in any form of team activity. This includes official offseason workouts, playoff games, preseason games, travel days, etc. However, Arizona is one of the states that does not follow the popular definition of duty day.

Arizona defines a duty day as “all days during a taxable year from the beginning of a professional athletic team’s first regular game of the season through the last game in which the team competes.” While calculating duty days from the first regular season game may not seem significant, this small change in calculation saves certain professional athletes millions of dollars.

Why did Arizona adopt this non-traditional approach to duty day calculations when they enacted this rule in 2000? A very brief Arizona sports history lesson - Arizona didn’t get a professional football team until 1988, a professional basketball team in 1968, a professional hockey team until 1996, and a professional baseball team until 1998. However, Arizona has had MLB teams conduct their spring training in Arizona since the Detroit Tigers trained in Phoenix in 1929. In 2000 when this rule was being considered, all 30 teams conducted spring training in only two states - Florida or Arizona. The catch – Florida doesn’t collect income tax at all. Therefore, had Arizona decided to adopt the traditional duty day calculation that most states have adopted they would be collecting 4.5% of every MLB player’s salary during spring training while teams training in Florida would have been playing tax free. Fearful that players and teams would move their spring training locations to Florida (or another state that doesn’t charge income tax e.g. Texas), Arizona valued the economic impact that spring training brings them over the economic impact taxing MLB player’s salaries would bring Arizona.

This is a big win for MLB players because regardless of which team they play for, they are not taxed for state income taxes on at least 20% of their salary each year. Players in other professional sports leagues generally have to pay state income tax on 100% of their income so by Arizona passing this law it costs the state lots of tax revenue but gives MLB players a nice tax savings each year.

Be sure to follow us on Twitter for the next few weeks as we will reveal each day that an MLB team reports for spring training which players benefit most from Arizona’s minor difference in duty day calculation. A few teams have already reported so here is a short list of some big tax savers.

FYI – if Arizona had taxed the 15 MLB teams that had spring training in AZ last year they would have received over $14MM in guaranteed tax revenue. The reported economic impact of spring training to the Arizona economy (not to the AZ tax revenues) for 2012 was $422 million. Do you think Arizona made the right choice? 

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By Jonathan Nehring | Disclaimer

As the 2014 Winter Olympics get under way athletes will see the fruits of their labor begin to pay off as soon as Saturday when the first Olympic medals will be given out. For some countries’ athletes, winning a medal includes a paycheck as high as $510,000. For the United States’ athletes, winning a medal means paying taxes. 

An American athlete will receive from the United States $25,000 for every gold medal they earn in Sochi, $15,000 for silver, and $10,000 for bronze. In addition to these salary amounts that haven’t changed for inflation in over a dozen years, our Olympic heroes could receive a tax bill from the United States for nearly $10,000 - the price of a bronze medal!

The United States is the only major country in the world to tax individuals based on their citizenship and not their residence. This means citizens owe the U.S. taxes for income received “from foreign sources”. Therefore, income earned by the Olympic Athletes in Sochi, Russia is taxable by the United States.

The good news is that they won’t have to pay any income taxes to Russia where they earned that medal unlike what many professional athletes in the States are used to paying.  

Thanks for your four years of hard work and dedication to our country.2

UPDATE: Congressmen Blake Farenthold (Texas), Walter Jones (N.C.) and Pete Sessions (Texas) introduced a bill in the House of Representatives last Wednesday to exempt from taxes the money the US athletes earn for winning a medal at the Olympics. 
This is not the first time a bill of this nature has been introduced. Senator Marco Rubio (FL) proposed a nearly identical bill in 2012 when the London Summer Olympics were under way. 
We will pass along if this bill gains any traction.