- July 10, 2016
- Posted by: admin
- Category: Tax
This is a guest post from Alan Duncan, CPA, controller at RCP.
by Alan Duncan, CPA
As the August 5 opening ceremony of the 2016 Rio Olympics draws closer, we see more news about the summer games taking place amid amazing Brazilian scenery with beautiful beaches, towering mountains, and classic architecture. Unfortunately, as of recent, we mostly tend to hear more about fear of contracting Zika virus, contaminated waterways, and the crime-ridden neighborhoods around Olympic Village. With plenty of time remaining in the next couple of months to address the issues, it is very likely that Olympic officials will iron out almost all of the problems and meet their upcoming deadlines in time for a spectacular opening ceremony.
Now let’s take a look at whether there are any tax implications that stem from being an Olympic medal winner. The U.S. Olympic Committee pays out $25,000 per gold medal, $15,000 for silver, and $10,000 for bronze (relatively small prizes compared to six-figure range payouts found in many smaller countries). The funds paid to U.S. medal winners comes not from the U.S. government, but from the sale of TV broadcast rights, licensing/trademarks, and sponsorship dollars. Sponsorship payouts to athletes is a whole other topic. The cash reward to medal winners is a nice prize to reward hard work, but the money is considered as being earned income and subject to IRS taxation. Pursuant to Section 74, a prize or award is included in gross income unless it meets one of the stated exceptions which do not apply in this case. Depending on the individual athlete’s income tax rate, one could end up with a tax bill as high as $9,900 for their winnings! Additionally, the value of the medal itself is likely subject to tax as well, adding up to approximately $600 for gold, $300 for silver, and $3 for bronze.
However, some accountants have a view to address the tax consequence of winnings being taxable by suggesting that the athlete treat his or her sports activity as a business, thus enabling the deduction of related expenses. Under this approach, one would likely claim that all of the training expense, travel, equipment, and other unreimbursed costs would be deducted against the winnings.
It also may be interesting to know that, in the past, politicians have frequently brought up a bill to Congress around the time of the Olympics to exempt those winnings from being counted as earnings. The bill has yet to gain traction with lawmakers, but awareness remains.
The Olympics are always an exciting and welcomed every-other-year addition in sports. As the athletes continue to prepare for the upcoming games, so can their accountants prepare to advise how to properly address taxable winnings.
Disclaimer: Publishing a guest post does not imply endorsement of the product, service, or company.