- Agents and managers can help globally earning clients like professional athletes, musical artists, and entertainers strategically manage finances and taxes across borders to maximize earnings.
- For U.S. citizens and residents earning money abroad, key areas for advisors to address include endorsement deals, royalties, foreign properties, foreign tax returns, and tax structuring that considers foreign investments.
- For foreign (non-resident) athletes, artists, and entertainers performing in the U.S., considerations include but are not limited to U.S. taxable income, withholding rules, tax status, Central Withholding Agreements (CWA), and tax treaties.
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As an agent or manager for athletes, artists, and entertainers, many of your clients likely earn income across borders as they perform worldwide. Strategically managing their finances and taxes is crucial to maximize earnings. Proper planning can help reduce tax burdens and avoid double taxation across jurisdictions. This allows your clients to focus on their careers while you may finesse your assistance to them in optimizing their income with guidance from tax professionals.
Understanding key tax considerations can enable you to put frameworks in place to mitigate your clients’ liabilities. For clients who are citizens or residents of the United States earning money abroad, all worldwide income must be reported to the IRS. However, foreign countries also tax income earned by non-residents. Assessing relevant tax treaties and structuring contracts in an appropriate manner can lead to more advantageous tax treatment.
When your clients have income from various sources both from inside and outside the United States, proactive tax planning is key. Common international income types to consider include:
- Salaries from foreign leagues and tournaments
- Performance fees from concerts and festivals
- Royalties
- Endorsements and sponsorships
- Bonuses and prizes from international tournaments
- Merchandise sales
- Other income earned while playing or performing overseas
How these income types are classified and sourced impacts tax liabilities. Consulting tax professionals before your clients sign any deals allows for upfront planning that can keep more money in your clients’ pockets.
5 Key Considerations for U.S.-Based Athletes, Artists, and Entertainers Earning Income Abroad
If you are an advisor to musical artists, professional athletes, film actors, or other performers who are U.S. citizens, residents, or green card holders with foreign income sources, here are five important areas to address:
- Endorsement Deals – How will the construction of a contract impact tax treatment abroad? Will the income be considered U.S. or foreign sourced? What are some ways to proactively plan for potential tax savings?
- Royalties – Can royalties be classified differently if content is published while clients are abroad? How are royalties affected by collaborations with international artists? Is it considered U.S. income if royalties are received while playing or performing abroad?
- Foreign Properties – What are the tax rules surrounding your clients purchasing or renting homes abroad (rules may vary by country)? Did you know that foreign rental income may need to be disclosed on a U.S. tax return? How do investments in foreign countries get reported and taxed?
- Foreign Tax Returns – When is return filing required for extended stays abroad? Can foreign taxes be credited (and is the credit dollar-for-dollar)? What should be expected for payments received as a contractor versus as an employee? Which expenses are deductible in each country? For example, are agent fees, travel expenses, and entertainment deductible?
- Foreign Tax Structuring – Is it better to withhold taxes on gross revenues or after deductible expenses? How do local, state, and regional (provincial, cantonal, district, county) taxes factor in?
With these areas addressed upfront, you can maximize income and minimize overall tax burdens for your clients as opportunities arise.
5 Top Considerations for Foreign Domiciled Athletes, Artists, and Entertainers Performing or Playing in the U.S.
If you are an advisor to athlete, artist, and entertainer clients who are not residents or citizens of the U.S. but earn income in this country, areas that could have an impact on your clients’ taxes include (but are not limited to):
- U.S. Taxable Income – Is U.S.-sourced income taxable? What types of income may this include? Is there a requirement to file a U.S. federal income tax return? Is there an income threshold that must be met?
- Withholding Rules – What are the withholding rules surrounding payments to foreign athletes, artists, and entertainers?
- U.S. Tax Status – How is U.S. tax status determined — residency for income tax and domicile for transfer tax? How is taxation affected with or without a Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN)?
- Central Withholding Agreements (CWAs) – A CWA is a tool that can help entertainers and athletes who don’t live in the U.S. by having U.S. income tax withheld based on the non-resident’s income. Is a CWA beneficial for the individual’s situation?
- Tax Treaties – Does the individual’s home country have a tax treaty with the U.S.? How does it impact tax liabilities?
Evaluating options surrounding tax statuses, withholding approaches, and applicable treaties can mitigate liabilities and optimize tax treatment for your foreign clients.
Work with Tax Professionals to Help Your Clients Maximize Global Income
As an agent or manager navigating global income for your clients, working with experienced tax professionals is key. Advisors can assess your clients’ situations across jurisdictions to put frameworks in place reducing liabilities and avoiding double taxation. With the right global tax strategy tailored to each client, you can position them to pursue worldwide career opportunities with maximum income and minimum taxes.
Need help navigating the world of international tax for athletes, artists, and entertainers? We have experienced professionals dedicated to both international tax and entertainment, sports, and media (ESM) ready to answer all your questions. Reach out to our International Tax Team today.
]]>At a Glance…
- A professional athlete is the CEO of the brand that bears his or her name. That’s why sports stars should turn to the strategies employed by the world’s most successful entrepreneurs and executives as a playbook for long-term success. In short, they need to think like a CEO.
- Building a high-performing team is the number-one priority for growth-oriented businesses, and it’s no different for the Athlete/CEO. Drawing from the proven team-building models of the corporate world and the entertainment industry, we’ve developed the MGO Model, tailored to the unique needs of Athlete/CEOs.
- The Business Manager is the Financial Quarterback of an Athlete/CEO’s team. He or she is responsible for the daily oversight of a client’s financial affairs. That includes tax planning and compliance, establishing budgets, paying the bills, managing cash flow, and advising on major financial decisions. The Athlete/CEO should carefully vet the qualifications of anyone serving in this critical role.
Background
In the first installment of this series, we noted that the financial profile of a professional athlete more closely resembles a mid-sized, private company than a typical household. While the economics can be exceptional, an alarming number of players lack the support structure necessary to navigate the depth and complexity of their financial requirements.
A professional athlete is the CEO of the brand that bears his or her name. To ensure the long-term value of that brand, the Athlete/CEO needs to embrace that role and reimagine their future beyond the playing field. In this series, we examine the mindsets and practices of some of the world’s most effective business leaders as a model for navigating the unique challenges and opportunities facing professional athletes.
Building a Team
John Wooden said, “The main ingredient to stardom is the rest of the team.” This is just as true in the business world as it is in the world of professional sports. That’s why the world’s top CEOs make team-building their first priority. The way they approach that process serves as a valuable roadmap for Athlete/CEOs.
The Corporate Model
Most businesses share a common structural framework. While details may vary across different industries and global regions, the core elements of the Corporate Model (below) remain consistent. This framework identifies the primary business functions and areas of expertise critical to an organization’s success.
The Corporate Model has been successfully adapted to a wide variety of business categories, evolving as necessary to the unique needs of each organization’s operating environment. When working with athletes, perhaps the most relevant example is the entertainment industry.
The Hollywood Model
The Film & Television industry shares many of the traits of people working in professional sports. The quality of the product is determined largely by the quality of the talent in the spotlight – driving significant demand and high salaries for the best actors, directors, writers, etc. Over the years, Hollywood leaders recognized that many of the same principles of growth and financial governance in the corporate world apply to the financial lives of talent in Film & Television. This led to the evolution of what we call the Hollywood Model (shown below).
This model identifies the importance of each individual role in the Corporate Model, albeit by different names. For example, the Business Manager takes on the role of the Chief Financial Officer (CFO), serving as the quarterback of the client’s financial affairs.
The Sports Model
Over the past several decades, the financial lives of professional athletes have grown increasingly complex. Salaries have grown significantly, as have endorsements, appearances, other sources of income, and the demands on each player’s time and attention. However, the average player’s support system has failed to evolve at the same pace. The model below shows how the support team of a typical athlete compares to Corporate Model.
While professional athletes understand the importance of experience, expertise, and teamwork, they often lack a clearly defined model for building their own teams off-the-field. The majority of highly publicized financial failures in professional sports stem from athletes who were either (a) missing key role players on their teams, or (b) trusting important roles to inexperienced or sometimes even unscrupulous acquaintances.
The MGO Model
At MGO, we’ve been fortunate to work with some of the most successful executives and entrepreneurs in the world – as well as many of the biggest names in Sports & Entertainment. As a result, we’ve come to know the traits and practices that drive success across industries.
The MGO Sports Model was developed to be a blueprint for Athlete/CEOs as they build their own teams. It identifies and defines the roles that are critical to success, while aligning the work of leading advisors under a common vision. While each role is important, we encourage clients to begin with the person who will serve as the quarterback of their daily financial lives; the CFO Business Manager.
The Financial Quarterback
In a recent article, Variety described the role of Business Managers in the Sports & Entertainment industry, stating, “Business Managers are the personal CFOs for celebrities, executives and athletes… They put their fortunes and their day-to-day lives in the hands of these trusted advisors.”
While each member of the Athlete/CEO’s team plays a vital role, the CFO/Business Manager is the person with the most tangible daily impact on a client’s financial life. He or she is the quarterback of the financial operation – responsible for hands-on, real-time execution of the financial plan. This includes establishing budgets paying the bills and monitoring the expenditures of anyone with access to the client’s accounts or credit cards.
Additionally, Business Managers serve as on-call financial advisors, working closely with clients on many of their most important financial decisions including family estates and trusts, tax planning, major purchases, potential investments, and charitable contributions.
High profile athletes are sometimes targets of investment scams and unwarranted requests for financial support. When these propositions come from friends, family and former acquaintances, a Business Manager can provide an important gatekeeper function. By establishing a recognized first point-of-contact for all financial requests, the majority of questionable requests can be filtered out before reaching the athlete.
Finally, the CFO/Business Manager works closely with the entire roundtable of advisors, ensuring that everyone is aligned and working together to implement a common strategy.
Selecting a CFO/Business Manager
Despite the critical role played by Business Managers in the financial lives of their clients, most states require no credentials to use the title Business Manager. As a result, there are people with little or no accounting experience using that title today.
Many of the highly publicized financial challenges in Sports & Entertainment have stemmed from unqualified and/or unethical advisors serving in the role of Business Manager for high profile clients. That’s why we suggest doing your own due diligence before hiring the quarterback of your financial team.
Questions? Let’s Talk.
]]>The financial perils celebrities face in Hollywood
A professional athlete or a top tier individual in entertainment should look at their expanded wealth and the management of that wealth the same way a mid-sized company would. The person earning the income is the CEO of the business and their name is the brand. They need a CFO to manage finances who is supported by a team of experts who are the best in their fields of wealth management, diversified investing, and financial planning. This team then enables the talent to get the best use out of their wealth while still making provisions for a comfortable future.
A good partnership between a high earning professional and a financial team can yield endless results and allow earners to live comfortably now and long into the future when considering retirement. Trust is the key to a successful working relationship between a high-income client and their financial team. With that trust established; the future of an individual and their family will be assured with strategy, planning, and more than just a bit of market savvy.
The first step in working with a professional financial team is to take ownership of financial awareness and education. It’s important that the earner takes time whether over the phone, remotely through video conference, or when possible in person; to sit and talk to their financial professionals. This will help them understand how and why their money is being managed the way it is.
A financial team needs to be allowed to act as guardians of wealth
High-earning talent must allow their financial team to act as guardians and keepers of their money. In the worlds of sports and entertainment celebrity, very few things are ever denied top-earning talent, and quite often they are not acquainted with the word “no.”
This is where financial teams step in to not only shield talent from financial predators and bad investments, but to also protect the earner’s money from themselves by helping curb extravagant spending and off-the-wall purchases. A good financial professional team is the best line of defense against money disappearing with no return.
Establish current and future goals for the life you want
A series of goals must be set by the earner and their financial professionals to properly plan for the future. Where do you want to be when you retire? What kind of life do you want to have? With the money you have coming in, what sort of plans can you make for yourself and your family? It’s important that individuals set realistic goals that are guided by their financial team, and that they maintain solid credit through their more lucrative years so they have an excellent history to build from.
Work to establish a series of sound and profitable investments
Talent can work with their financial team to establish investments that will earn returns and dividends that they can draw upon once they are no longer working. Municipal Bonds and ETFs in efficient markets are examples of smart investments. There are a multitude of options available, and if your financial team is savvy; they can advise you in the world of alternative investments like casinos, restaurants, hotels, and newer
markets like cannabis.
Get the right insurance for your career and risk profile
The financial team must work to ensure that talent has adequate insurance. Athletes take risks with their bodies all the time, so it is important that a player maintains the correct type of insurance that will cover them if they are injured and are unable to return to playing for a season. Or in a worst case scenario, they are forced into early retirement by an injury. The same can is true for actors, directors, and professionals in the world of entertainment. On-set accidents do happen, and if a person is unable to work in their chosen field; their earnings drop to next to nothing.
There is an energy and synergy to money
There is a synergy and energy to the exchange of money. Money is like an electrical current and a flow must be maintained at all times for wealth to increase in size. There needs to be a give and receive in place when balancing an individuals’ investments and wealth, and there is always the value of giving vs. receiving to consider. This journey to finding a balance with a financial team and a true vision of what a person wants to achieve with their wealth and their life is a much broader topic; which we’ll be discussing soon enough. So, just keep your eyes open for further editorials in this ongoing series!
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