The massive success of Taylor Swift’s Eras Tour didn’t just shatter records for attendance and ticket sales — it showcased the unique tax challenges entertainers and athletes face when working across multiple states and countries. With most cities and states on her tour demanding their slice of the pie, savvy tax planning, including the strategic use of tax credits, becomes essential for maximizing profitability.
Performing a show or participating in a professional athletic competition typically triggers a tax liability. Athletes and performers generally have to file taxes everywhere they have an event, which adds up quickly when you’re touring or playing away games across the country. These so-called “jock taxes” are in addition to tax imposed by your state of residence on all your earnings — although you may be able to deduct taxes paid to other states.
Athletes, actors, musicians, producers and their business management teams must navigate a maze of tax requirements at every level: federal, state, local and international. (This also often applies to consultants, salespeople and other independent workers.) Whether you’re Taylor Swift, a baseball player or a self-employed professional who works in multiple locations, you’re in the same — rather uncomfortable — boat.
The combined tax burden can sometimes make a lucrative career feel more like an exercise in feeding tax coffers than an enjoyable way to reap the rewards of well-honed talent. But full compliance is a must. States and local jurisdictions have intensified their monitoring of revenue-generating entertainment in recent years, keeping tabs on events and strictly enforcing tax laws.
Ignorance of the rules doesn’t lower your liability, and fines and penalties added to the original tax bill could take a big bite out of your net gain. Worse yet, if tax authorities think your failure to report revenue and pay associated taxes constitutes willful noncompliance, you could face even higher financial costs, along with serious legal consequences.
The good news is that in most places your work takes you, there’s likely to be a tax incentive — or several — to help you tackle the monster that is your tax bill. From local and international tax credits to state-specific incentives, there are a host of opportunities to reduce your tax burden and protect your earnings. Your challenge is finding and integrating them into your overall tax plan for maximum savings.
Start your tour of tax savings opportunities with these common credits and incentives:
State education tax credits can be a great choice if you’re philanthropically inclined, interested in education or simply prefer that your tax dollars go directly to schools rather than the government. These programs may be state-run or operated by approved nonprofit organizations, which often serve as brokers for the tax credits.
Let’s say Swift’s Eras Tour had five concerts in Pennsylvania, and her tax liability in the state is a cool million dollars, based on the combined take from these shows. Instead of sending a check to the Pennsylvania Department of Revenue she could participate in these state programs:
Giving to either program allows Swift to claim a Pennsylvania tax credit worth up to 90% of the value of her donation. The remaining 10% of Swi ft’s total deduction is a charitable deduction on her federal tax return. And if she donates to the Economically Disadvantaged Schools program within Pennsylvania’s EITC, she can claim up to 99% of the donation as a state tax credit.
Over 20 states have similar programs to directly fund scholarships and education initiatives in exchange for a full or partial tax credit, including:
Availability and rules for claiming these tax incentives vary between states and individual programs. Generally speaking, however, they are dollar-for-dollar tax credits. That means they provide much greater tax benefits than other charitable donations, which may qualify as deductions from taxable income.
Film production is another deep well of tax incentives — for major producers like Tyler Perry a s well as people in unrelated industries who want to reduce their state tax liability.
For example, Georgia has some of the most well-developed film production incentives in the United States. There’s no cap on the 20% base state tax credit Perry could generate for production and post-production activities at his Fort McPherson studios in Atlanta or elsewhere in Georgia. If Perry added a little marketing that met specified criteria for Georgia to his production, he could qualify for another 10% credit.
What if Perry didn’t need all the tax credits his production generated? No problem — an actor in the movie or someone else with Georgia state tax liability could buy Perry’s excess film production credits at a discounted price through an authorized broker.
While not all are as robust as Georgia’s, most states (including film industry hotspots like California, Louisiana and New York) offer an above-the-line refundable or transferable tax credit for eligible film and television production activities.
Illinois offers a live theater tax credit in addition to one for film production, and some states offer additional tax benefits for expanding film and television studios or production sites. As the home of Broadway, it’s appropriate that both New York City and New York State provide musical and theatrical tax credits. Georgia also has music tax credits, along with incentives for game developers and other interactive media.
Don’t worry if these tax credits don’t match your niche or tour locations. They’re just a few of the many state and local entertainment-specific incentives that can reduce your tax liability. Many states even provide tax credits for pausing your tour there to run through a few rehearsals.
Travis Kelce can take advantage of the same incentives that Taylor Swift can, but what if he needs more? As a big-name athlete, he can deduct amounts he pays his agent to negotiate lucrative endorsements and marketing agreements — but not his NFL contract. Unlike the salary the Kansas City Chiefs pay Kelce, his endorsements and advertising deals are business income, so agent fees qualify as a deductible expense.
On the courts, Steph Curry’s legendary shooting prowess means he can pretty much have his pick of NBA teams to join. He seems quite happy with the Golden State Warriors, but if he ever decided to leave, it would make financial sense to consider state income tax as he weighed his options.
As a California resident, Curry is subject to the highest state income tax in the nation. He pays much more state income tax than he would if he played for teams like the Miami Heat, Memphis Grizzlies or Houston Rockets — all located in states that do not impose income tax on residents.
If the Tax Cuts and Jobs Act sunsets as scheduled at the end of 2025, Curry and Kelce will both gain the ability to deduct their sports-related expenses from federal and state taxes. Things like workout gear, off-season training, travel to away games and even therapeutic massage for sore muscles could once again qualify as business expenses if the athletes pay for them rather than their respective teams. But since they are W-2 employees, NFL and NBA players cannot currently deduct any personally incurred expenses associated with their job.
Professional athletes should also evaluate non-salary earnings and consider forming a corporation if it’s a significant amount. This strategy can let you take advantage of the low federal corporate tax rate for income you generate through endorsements, public appearances and other revenue streams.
Like Kelce and Curry, you should track and deduct business expenses that aren’t tied to an employee role. There are also standard federal tax benefits that entertainers of every ilk should take advantage of, with similar incentives often available at the state level:
If your tour goes beyond U.S. borders, you’ve got yet another layer of taxation to navigate.
Say you’re one of the top tennis players in the world, and you get to compete at Wimbledon. You’ll owe United Kingdom taxes on any prize money, plus any money from sponsors that’s tied to your winnings, as the tournament is held in England. And whether you’re singing or swinging a racket, you’ll also owe U.S. taxes on income you earn while out of the country.
It’s not all bad news, though. Entertainers can deduct business expenses like travel, venue rental and advertising costs associated with shows wherever these events take place. And American basketball players who join a European team for a year or so get a nice perk: The team typically covers the income tax bill associated with your salary — although only what’s due to the foreign country. The IRS will still want its cut.
Besides increasing your tax bill, the international angle further complicates your tax situation. For example, athletes that play games in Canada will owe taxes to Canada as well as to the U.S. Even ensuring consistent currency conversion can be a challenge, since you have to report any income you receive in foreign currencies to the IRS in U.S. dollars.
You’ll need expert planning and guidance to make sure you’re in compliance everywhere — and to claim credits for foreign taxes that you pay, so you can avoid or minimize double taxation.
Your tax advisor’s depth of knowledge is a critical factor in how much you’ll owe at the end of the tour. A nuanced understanding of tax incentives everywhere your work takes you is a lot to ask of your CPA. However, this kind of specialized expertise equips you and your team to maximize your financial success while navigating a national or global career.
For taxable income in one or two jurisdictions, a well-informed local CPA may be able to deliver the necessary guidance. But as the list of places that stake a claim on your income grows, so does your need for detailed tax insights. If you owe tax in more than a couple of locations, you’ll likely get the best results from specialists who can help you identify and claim tax incentives across the country and even internationally.
Do you incur tax obligations in multiple places? If so, you’re probably paying more tax than you owe (and who wants that). Explore how Armanino’s Tax Credit experts can help you take full advantage of local, state and international tax saving opportunities so you can keep more of your hard-earned dollars.
Armanino has the industry expertise, tax credit experience and track record of customer satisfaction to best advise your tax credit incentive strategy and compliance needs.
Contact us today for a free assessment.
