The decision part 3: state tax impact and NBA free agency

Your Guide to State, Local, Federal, Estate + International Taxation

Lebron, Lebron James, state and local taxes, sports, NBA, basketball

Here we are again. The summer of Lebron. Four years ago, I thought Lebron would stay in Miami, but he chose to come home to Ohio. Lebron has to decide before June 29 if he will opt in to the final year of his contract with the Cleveland Cavaliers, or opt out and become an unrestricted free agent. He’ll also need to ultimately decide if he wants to stay in Cleveland or play elsewhere. Being a tax guy, I always am curious as to what the tax impact will be in choosing a team, at least from a State perspective. However, in 2018, Lebron’s decision will also impact his Federal income taxes, given the $10,000 cap on the deduction for State and Local taxes.

Although his taxes will be impacted by his decision, Lebron has other factors to consider that come before taxes. Those factors include his family and lifestyle, ability to play with the guys he wants and the opportunity to have a chance at another NBA title. As of June 22, Vegas odds have the following suitors listed as the favorites to land Lebron (yes, Vegas has odds on NBA free agency). Let’s look at the potential landing spots for Lebron and examine the tax impact.

  1. Los Angeles Lakers – This is the destination most frequently mentioned as it would fit from a lifestyle perspective and is a large media market. He would be able to have other fr
    ee-agents land there and this is a franchise rich in history. The downside is the California personal income tax rate is brutal. It can be as high as 12.3%. There is also a 1% surcharge on taxable income exceeding $1 million. Add to the fact that only $10,000 of this tax would be deductible at the Federal level and this makes the most expensive landing spot on the list.
  2. Cleveland Cavaliers – There is no place like home. There would be no need to uproot. Lebron can stay in the East where the path to the Finals is easier than being in the West. Ohio’s personal income tax rate tops out at about 5% so this is less likely a hit when compared to California.
  3. Houston Rockets – Landing in Texas could form the next NBA super team that could compete with the current NBA champions Golden State Warriors. Texas also does not impose a personal income tax so this is the best destination from a tax perspective.

Although Le

bron’s decision will not hinge on tax impact, there is a new wrinkle for 2018 given the Federal tax limitation. If I were to bet, I would go with the Lakers. Stay tuned.

Kelly Lynch, CPA

Comments

  1. John Garrison says:

    Since LeBron has a house and lives most of the year (off season) in California, I assume he is already somewhat affected by the California tax.