Self-employed individuals are, in effect, running their own businesses, whether they work as consultants, freelance workers, or even touring golf professionals. From a tax perspective, self-employment has both advantages and disadvantages. On the down side, self-employed workers pay a higher percentage of their earnings toward Social Security and Medicare taxes. On the plus side, self-employed individuals can take advantage of some tax deductions that aren’t available to those people employed by others.
Golf as a Business
Most golfers play for fun. To legally deduct golf-related expenses from your taxes, however, you typically must play for profit. According to the Internal Revenue Service, taxpayers may deduct “ordinary and necessary expenses for conducting a trade or business.” For golf to be an individual’s business he must intend to make a profit and must rely on his golfing income. The IRS will presume that an activity is a business if it has turned a profit in three of the previous five tax years.
Common Business Deductions
Among the top 10 deductions for business owners listed by Nolo.com are several that may apply to professional touring golfers, including travel expenses, the hiring of staff, office expenses and retirement plans. The PGA Tour schedule includes a tournament in Hawaii, coast-to-coast venues across the United States, plus the Canadian and British opens. Travel expenses, therefore, are both significant and necessary. Pro golfers must also pay employees, such as caddies, swing coaches, personal trainers, agents and accountants. Their fees may also be deductible, along with the cost of a home office and money put into a retirement account. Players should consult tax professionals to determine which deductions they may take.
PGA Tour pros may need every deduction they can get just to pay their accountants to figure out their tax liability, since players must often file tax forms in dozens of jurisdictions. Every time a player earns money in a state he must pay taxes in that state, provided it has a state income tax. This rule doesn’t just apply to prize money. If a player is paid to endorse a specific golf ball, for example, he may have to pay a percentage of his endorsement money to each state in which he uses that ball, depending on each state’s tax laws. The same goes for foreign countries. Tiger Woods, who plays in numerous overseas tournaments, pays taxes in nearly 40 jurisdictions per year, according to a Savannah Morning News article.
Some casual golfers may also be able to deduct some golf-related expenses from their taxes. A self-employed person who, for example, entertains clients as a part of his business may earn tax deductions for taking clients golfing. If you qualify for the deduction you can typically claim 50 percent of costs such as green fees, caddie tips and meals in the clubhouse. As with pro golfers, a non-professional seeking golf-related deductions should consult a tax adviser.