Why Do American Boxers End Up Owing Money To The IRS?

Most boxers don't handle their own business affairs/finances; they leave that up to advisers, managers, or someone else they trust.

The problem usually is those people can rob him by either taking the tax money the boxer sets aside, or they simply don't pay the taxes and pocket it themselves. The boxer usually doesn't even know it's happened until years after. And, out of embarrassment, the con doesn't usually get brought up.

The 30 for 30 documentary "Broke" that ESPN did does a great job showing that aspect, as well as the other reasons athletes go broke. What really sucks is most of these thieves are licensed professionals who look the part, so an athlete would really have a hard time knowing they were con artists until it was too late. In some cases, it'd be impossible to know.

 

They don't pay their taxes on the money they earn.

 

Everybody owes money to the government, athletes and people that may be wealthier than most is not exempt!

 

There is a lot more to it than that. It is the structure of the sport and how it works that gets most boxers in trouble with the IRS.

A football or baseball player gets paid by the team and has a small sliver of that money go to the agent. There is no manager or trainer.

In boxing, the manager is usually going to get about a third of the purse and the trainer about 5-10 percent (or in the higher end, an agreed-upon fee). This comes out of the boxer's purse.

What happens is, let's say a fighter makes a $10,000 purse. To the IRS, he is responsible for taxes on that $10k -- but he immediatley turns, say, 43 percent of it over to the manager and trainer. That is a separate transaction, and the manager and trainer are then responsible for taxes on their end.

So the boxer takes home $5,700 in that case. He considers that his income on the fight and pays or expects to pay taxes on that amound. If he gets audited later, however, the IRS discovers he didn't pay taxes on the full $10k and says he owes back taxes on that full amount, plus penalties.

This usually doesn't happen on the lower end, where many of the transactions are in cash without W9 forms and all that. But if the boxer gets up there, he gets in an income backet where the IRS people see reports that he's making hundreds of thousands or even millions on a single fight -- and that triggers a review to see if his taxes have been paid properly.

The key is for the boxer and his management to set up a system where the promoter pays each separately -- if the promoter only pays the boxer his $5,700 directly in such a case as described above and disburses the other $4,300 to the manager and trainer directly, then the boxer wouldn't owe taxes for the money he never really even saw.

It's complicated and the best solution is for the boxer to set up a corporation and make the manager and trainer contract employees (something like how SR Leonard and others have done). That wouldn't happen and wouldn't be worth the bother to a journeyman making a few hundred dollars per scheduled round (as there are lawyer fees and license fees and such for a corporation or limited liability partnership) but to a prospect signed with a major promoter it is the way to go.

Of course, most boxers aren't well educated (the are often dropouts with few other options but to fight) and I'm sick of this perception that all managers are evil bloodsuckers -- they usually aren't the most educated people in the world either and probably don't have a tax attorney on retainer.

I know of plenty of cases where high- and middle-income (by the scale of the sport) boxers have been told time and again to get someone to properly manage their money, to save money for the time when they are no longer making huge sums after they retire (and they can set up a retirement account that shields their money from taxes) and to have a tax expert look at their situation -- and I know of very few times when that advice has been heeded.

What is a manager to do with a fighter who decides he's got a nice pile of money laying around and wants to flash it and spend it faster than it comes in? Mike Tyson was buying sports cars that he hardly ever drove, a live lion, tons of jewelry, he cashed in an annuity that would have guaranteed him like a million a year in retirement -- how is that anyone else's fault but his?

 

The real issue is the PROMOTERS who exploit them by siphoning money off their purses and then don't pay the boxers taxes, give them health benefits, pensions etc. :nod

These parasites get rich on the backs of boxers, and on top of it, don't take out enough for the frikkin' taxes. atsch THAT'S why boxers get in trouble with the IRS.

 

Good stuff. :thumbsup There is no clear cut good and bad guy, and every situation is different. There are crooked advisors and fighters who fall victim to their own unique blends of hubris, greed, and ignorance. I'm a finance guy, so I've seen schtick from some of these cons that's good enough to win over the "smart guys" (and does), let alone what one considers the average boxer to be when it comes to fiscal IQ. That's just the side of the fence I've seen more.

It's also worth noting that fighting internationally is another quagmire when it comes to accounting for fights since taxes are owed where the fight's held, as well.

 

Also, in other sports like baseball, football and basketball, players depending on how often they play in another state (division rivals for instance), they have to pay taxes for that state. If boxers have the same requirements, I'd imagine they could miss some tax payments here or there (without a good accountant or manager).

 

As an accountant, I've told people to pay their estimate taxes or risk getting penalized. Some of them don't listen and then blame me for not telling them so I have to show them the email reminders I sent. Or buy yachts and airplanes and are amazed why they are not deductible.

Fact is, they could have the best accountants in the world but if they choose to ignore their advice, they will end up in the ****.

 

Sad, but it will always be the case. Most top-flight boxers have been gym rats, with little education -- can barely read. They're ill-prepared to handle financial matters.

 

Great post. So, when we see the boxer has set up his own promotion company for a big fight, and its banner is flying over the ring with the other promoter's banners, is that the corp that you're talking about above?

And presumably that corp pays out everyone else the boxer has on his payroll, and maybe even the corp can take deductions for the boxer's expenses? How would the remaining corp revenue be disbursed to the fighter, as profits to himself as the shareholder or to himself as an employee?

 

Taxes are extremely high in certain states in the US...Pacquiao apparently has some tax issues as well which is why he might not fight in the US again for awhile ALLEGEDLY!

 

Hahahaha only in america

 

Many (probably most) pro athletes spend their money as if it's going to keep rolling in forever... As if they're never going to get old and/or injured and not be able to compete in their sport anymore, but it doesn't work that way. Most of them have a very short shelf life and will end up flat broke if they choose not to live well below their means during the brief window where they're really making a lot of money. Also, here in CA if you make $1million in a year you get to pay about 52% between state and federal taxes, so you're really only making about $480k before you even pay your trainers/managers/advisers, etc.

 

The payments to the trainer and manager should be recorded as contractor payments on the fighter's schedule C as a sole proprietor so the IRS would tax his income of $5700. Assuming travel expenses, some meal and entertainment expenses, permits, health insurance, legal and professional expenses, supplies, he would be taxed on less than $5700.

The main issue is self-employment tax which would add 15% to his income tax, which may almost double his tax burden.