In Tax Season – Part 2, I dive deeper into what exactly tax preparation is and what you should look for. Whether you’re a do-it-yourself tax filer or hiring someone to do it for you, it can help you understand what questions you should ask and what questions they should be asking you.
The first topic is compliance when filing your tax returns.
Whether you’re in Canada or the United States, the state or the province you’re in will have some tax laws. That can include how much tax you should pay based on your income and what deductions and benefits are available to you.
You must understand those laws, or your tax preparer understands them so that you’re not breaking any rules and doing something illegal. The tax system works in a way where you must self-assess, then file your tax return, all on an honor system.
When filing your tax return, you must comply with the tax laws in that jurisdiction. The CRA or the IRS may audit you. If you’ve done something that does not comply with the tax laws in the jurisdiction, you can pay the penalty. Depending on how drastic the rule you broke, there can be some severe penalties.
Benefits and Deductions
Benefits and deductions are available that you can use to offset some of your income to lower the amount of tax you can pay.
An example would be as a pro athlete; depending on where you live, you may be able to claim your training costs, your health club, and training costs. With the fees that you paid to your trainer to go to the gym and get in shape for your upcoming season, you may be able to deduct that expense against your income.
Now that’s not necessarily entirely true everywhere. Hence, it’s essential that you look at the rules in the jurisdiction that you live in or talk to your preparer and make sure that they understand the rules about those deductions.
This is an important one, especially for players. When I was a player, I tended to drag my feet on anything that wasn’t related to hockey.
Players must understand that there are deadlines to filing their taxes. When your advisor or your tax preparer is chasing you down asking you for the documents that they need to prepare for you, it’s essential to get those on time.
For Canadian residents, the deadline to file your tax return is April 30th. The deadline to file your return as a U.S resident is April 15th. If you don’t file your return on time, you can face a penalty on top of what you already have to pay in taxes.
To note, in Canada, the slips that your employers are required to send you for you to begin the preparing process to file your return in Canada, you should receive this before the end of February. In the united states, you should receive this before the end of January.
My advice to players is to get that process of filing your returns started right as soon as you receive those documents, whether it’s your T4 in Canada or your W2 in the United States. Better to get the hard work out of the way before playoff season starts. Once the playoffs start, you’re not going to want to be thinking about taxes and money.
The last part is cost. How much should you be paying for someone to file your tax return?
If you’re doing it yourself, it’s free. It doesn’t cost you anything. Assuming most players aren’t taking that route, hiring someone is the alternative. If you’re playing in the East Coast Hockey League or the American League, a player can expect to pay anywhere between $750 up to $2,000. Talk to some of the other players in the room and see what they’re doing. You don’t need to be paying an outlandish amount of money to get your taxes filed.
However, if you’re playing in the NHL, it is a bit different. It’s not outrageous for an NHL player to pay $10,000 or more. Different planning strategies will be used as your income increases, such as trusts, corporations, and others. All these different things can make filing your taxes more complex.
These are guidelines for what you should be paying. If you’re playing the American league and you have to pay $10,000 to file your tax return, look into it; there may be reasons for it.
All of the above, compliance, benefits and deductions, deadlines, and cost are all things you should be thinking about when you’re starting to prepare to file your taxes. Stay tuned for video number three.
If you miss part 1, you can watch the video here