Avoiding Taxes?

Question

Im training for MMA to compete in it, professionally one day I hope. One thing I read about a while back which struck me as odd was that professional fighters get a huge amount of their earning taken away by the government, taxed, like basically on the spot, like how taxes are taken out of your paycheck.

In a situation where a fighter earns $10,000.00 for winning a professional fight, one figher said that the government taxed him $4000.00! How is this right? Thats 40% of what he fought hard to get. What ways are there to avoid being taxed like that? I have heard that if the government is going to tax you 40%, if you were to donate half of what they would tax you, then they dont tax you anything. That sounded pretty weird and off beat to me, but is there any way to avoid this kind of stuff?

Answer 1

The things you heard aren't true. The maximum federal tax rate is 35%, and you only pay that if you make hundreds of thousands of dollars a year.

As to donations, if you donate half of your income to a registered charity, you'll only pay taxes on the other half and not on the half you donated.

Answer 2

As someone has already said, the government hasn't taxed 40%, it was merely withheld from the winnings. Depending on the fighters tax situation at the end of the year, they may get all or part of it back when they file.

But as MMA fighter you will most likely be running your own business (I'm assuming the promoters will be issuing 1099-MISC to fighters for their winnnings).

As a business owner there are a lot of deductions available to you so you can avoid as much tax as possible.

Remember:
Tax Avoidance = Good (leads to paying less tax)
Tax Evasion = Bad (leads to lengthy stays in federal prison)

Answer 3

Not a chance of avoiding it. There are several taxes here- both Federal and State- the Federal withholding rate would apply to the proceeds. There are also State taxes on athletes (for example, some states tax professional athletes on the earnings they make while they are playing an away game in another state).

Death and taxes. MMA may give both.

Answer 4

The government did not tax him on those earnings at that time. They merely required that a percentage be withheld toward his yearly tax liability, and ther is a major difference. That money is not the tax for those earnings, but is only an estimate of what they will be. If too much was taken at that time, the remainder will apply toward other taxes or will be refunded. You are going to pay the taxes one way or another or go to federal prison for tax evasion. Look at overwithholding as enforced savings.