The Luka Trade: Collusion?

[wizenheimer]

People talk about income taxes on these multimillionaires like they actually pay them. They have so many legal ways to not pay income tax and instead pay capital gains in whatever state they want to at a later date. They just have to roll their income into some investment in another state, sit on it for a few years while it grows and then just pay the taxes required by the federal government and if they do it right... that's it.

The rich get richer and pay a smaller percent of what they make in taxes, if they handle it in a smart way.

That's how investment income can work, sometimes. But, there aren't those kinds of shelters for wages and salary.

Doncic will be a California resident. He'll play 41 games at home, and that half of his salary will be subject to CA income tax. He'll play 12 of 41 road games in California, so over 65% of his salary will be taxed at 13%. He'll play 2 games in Arizona which has a 2.5% flat tax. He will play either 1 or 2 games in Oregon and be subject to a 9.9% rate

he will 6 or 7 games a year in Texas and Florida so around 8% of his income won't be subject to state tax

now I'm not sure how all of his endorsement income will be classified. I'm guessing most of it would be routed thru an LLC. But the corporate tax rate in CA is 8.8%. Texas does not levy corporate taxes.

income can't be sheltered by capital gains rates, as far as I know. That's usually from sale of assets

 

[SharpesTriumph]

I was suspicious Cronin got rolled over in negotiations such as the Clippers trade and especially his first year and Blazer GM/interim GM.

But he's by far light years better than Nico Harrision.

Hell even John Nash, Rich Cho, and Steve Patterson were all light years better than Nico Harrision.

Trading away a generational 25 year old MVP player who was far more successful than Michael Jordan at similar ages is just beyond reason.

 

[SharpesTriumph]

That's how investment income can work, sometimes. But, there aren't those kinds of shelters for wages and salary.

Doncic will be a California resident. He'll play 41 games at home, and that half of his salary will be subject to CA income tax. He'll play 12 of 41 road games in California, so over 65% of his salary will be taxed at 13%. He'll play 2 games in Arizona which has a 2.5% flat tax. He will play either 1 or 2 games in Oregon and be subject to a 9.9% rate

he will 6 or 7 games a year in Texas and Florida so around 8% of his income won't be subject to state tax

now I'm not sure how all of his endorsement income will be classified. I'm guessing most of it would be routed thru an LLC. But the corporate tax rate in CA is 8.8%. Texas does not levy corporate taxes.

income can't be sheltered by capital gains rates, as far as I know. That's usually from sale of assets

Nobody here can have precise enough knowledge of exactly what taxes Doncic will pay. He could have business with ordinary income losses that reduce his taxable income on salary and wages for example.

We also don't even know that he will be a California resident. Odds are he will be, but he doesn't have to be.

We do know that all the income from his home team games will yes be taxed at a much higher rate in CA than TX.

 

[blazerkor]

Got it. Thanks for the clarification @wizenheimer and @SharpesTriumph

 

[Wizard Mentor]

Collusion? Yes. There is no other explanation for the required secrecy.

 

[wizenheimer]

Nobody here can have precise enough knowledge of exactly what taxes Doncic will pay. He could have business with ordinary income losses that reduce his taxable income on salary and wages for example.

We also don't even know that he will be a California resident. Odds are he will be, but he doesn't have to be.

We do know that all the income from his home team games will yes be taxed at a much higher rate in CA than TX.

about the hypothetical losses: it doesn't change anything. He'd have those losses as a Texas resident but he'd have no state income tax to offset

as far as residency, I'm pretty sure the special IRS provision that allows professional athletes to be taxed by various jurisdictions where games are played require residency in the state of the employer. If athletes had that kind of illogical tax dodge, every player in the NBA & NFL would be a Texas or Florida resident

as I said, there are all kinds of shelters and loopholes for investment income. LLC's have different tax rates, in different states, but there will still be some liability

 

[SharpesTriumph]

about the hypothetical losses: it doesn't change anything. He'd have those losses as a Texas resident but he'd have no state income tax to offset

as far as residency, I'm pretty sure the special IRS provision that allows professional athletes to be taxed by various jurisdictions where games are played require residency in the state where the the bulk of salary originates. If athletes had that kind of illogical tax dodge, every player in the NBA & NFL would be a Texas or Florida residents

as I said, there are all kinds of shelters and loopholes for investment income. LLC's have different tax rates, in different states, but there will still be some liability

Losses probably would have no impact but nobody here knows that. They could apply to a specific state.

The IRS doesn't care what state you are or are not taxed in - the IRS is for federal taxes and applies to income in all states (as well as abroad).

States all have their own laws on tax nexus.

There are no set "LLC taxes" as that entities activity can be included on an individual, partnership, C Corp, or S Corp return.

LLC also don't have to be only investment income. Often times they have no income and huge assets, or have pure operating income only.

 

[wizenheimer]

Losses probably would have no impact but nobody here knows that. They could apply to a specific state.

The IRS doesn't care what state you are or are not taxed in - the IRS is for federal taxes and applies to income in all states (as well as abroad).

States all have their own laws on tax nexus.

There are no set "LLC taxes" as that entities activity can be included on an individual, partnership, C Corp, or S Corp return.

LLC also don't have to be only investment income. Often times they have no income and huge assets, or have pure operating income only.

Nobody is talking about federal taxes. The rates are the same in all states

C-Corps pay corporate tax rates. S-Corps are generally pass-thru, meaning they get taxed at individual rates. Some states, like CA do tax S-Corps (In CA it's a 1.5% tax vs 8.8% for C-Corp). The s-corp tax paid is applied as a credit against the remaining tax liability for the pass-thru individual

here's how I understand it: Doncic will be taxed as a CA resident; if it's not for the balance of this season (but probably will be), it will be for next season

* In CA the top individual tax rate is 13.3%. In Texas, it's 0%. (CA's tax rate will apply to 65% of his salary)
* In CA, the corporate and C-Corp tax rate is 8.8%. In Texas it's 0%
* In CA, the S-Corp tax rate is still 13.3% apportioned between Individual and S-Corp. In Texas, the S-Corp rate is 0%
* In CA, capital gains are taxed as ordinary income and for Doncic would be subject to that 13.3% tax rate. In Texas there is no tax on capital gains

the capital gains tax might be one area where some dodging is allowed. From my own experience, it's pretty damn hard to dodge Oregon's tax man. I'm assuming CA is just as aggressive and wide-sweeping. I'm pretty sure that in all states, members of an LLC are subject to the 15.3% SS and Medicare taxes. Doncic will be well above the 176K cap on SS taxes, so that's irrelevant. I don't think there's a cap on Medicare's 2.9% tax; maybe. But those are federal taxes that would impact the same in any state

 

[THE HCP]

God, I hate taxes! I have to do taxes in every state I work! Absolute pain in the ass,

 

[wizenheimer]

God, I hate taxes! I have to do taxes in every state I work! Absolute pain in the ass,

easy solution: marry a CPA like I did. It's her headcahe

 

[Phatguysrule]

God, I hate taxes! I have to do taxes in every state I work! Absolute pain in the ass,

Such a scam. This should all be easily handled on the IRS website by the government and your employer. Any tax documents you receive should already be calculated in your return and you should be able log in to the IRS website to confirm or adjust it starting on February 1st.

Done. Should be incredibly simple for the vast majority of people. People who need more should be able to drill in and do more and hire an accountant if needed.

 

[Quatro44]

One of the best Luka trade conspiracies.

 

[Cugel]

One of the best Luka trade conspiracies.

Didn’t load

 

[Quatro44]

Didn’t load

loads for me. Sometimes on phone I have to load reddit in new tab. Also just go to r/NBA.

 

[bigbailes]

According to ESPN article, Ainge didn't even know what trade he was facilitating until it was too late. Just crazy how the deal all went down and it's not lost on people around the league about how the new Dallas owners made their fortune in Vegas and wouldn't mind getting the team that's pegged for there. The grand idea was to get a casino built in the DFW and move the team out of downtown Dallas, but despite all their attempts, the owners haven't been able to sway the Texas politicians to legalize gambling and/or their casino. A lot of layers that make you wonder to this one.

 

[Trailblazers76]

The Truth Behind The Luka Doncic Trade Is Not What You'd Expect

 

[KingSpeed]

With increased LA endorsements Luka might ultimately net more money.

I mean its not like Dallas is a small market - but LA is of course bigger and the Lakers brand is by far #1. Lots of Lakers fans have never fully embraced LeBron. They might be happy to get behind Luka the next decade.

Even if he doesn't get as much money in the long run - I have a hard time thinking of anything meaningful you can do with $350 million that you can't do with $250 million.

Buy a house on billionaire beach in Malibu. I mean, that’s what I’d do.

 

[SharpesTriumph]

Nobody is talking about federal taxes. The rates are the same in all states

C-Corps pay corporate tax rates. S-Corps are generally pass-thru, meaning they get taxed at individual rates. Some states, like CA do tax S-Corps (In CA it's a 1.5% tax vs 8.8% for C-Corp). The s-corp tax paid is applied as a credit against the remaining tax liability for the pass-thru individual

here's how I understand it: Doncic will be taxed as a CA resident; if it's not for the balance of this season (but probably will be), it will be for next season

* In CA the top individual tax rate is 13.3%. In Texas, it's 0%. (CA's tax rate will apply to 65% of his salary)
* In CA, the corporate and C-Corp tax rate is 8.8%. In Texas it's 0%
* In CA, the S-Corp tax rate is still 13.3% apportioned between Individual and S-Corp. In Texas, the S-Corp rate is 0%
* In CA, capital gains are taxed as ordinary income and for Doncic would be subject to that 13.3% tax rate. In Texas there is no tax on capital gains

the capital gains tax might be one area where some dodging is allowed. From my own experience, it's pretty damn hard to dodge Oregon's tax man. I'm assuming CA is just as aggressive and wide-sweeping. I'm pretty sure that in all states, members of an LLC are subject to the 15.3% SS and Medicare taxes. Doncic will be well above the 176K cap on SS taxes, so that's irrelevant. I don't think there's a cap on Medicare's 2.9% tax; maybe. But those are federal taxes that would impact the same in any state

Your the one that brought up federal taxes with your incorrect comment "the special IRS provision that allows professional athletes to be taxed by various jurisdictions where games are played require residency in the state"

The statement "members of an LLC are subject" is an inherently incorrect tax statement as an LLC is a legal classification and is not a tax classification. An LLC can be on any of any of an individual/partnership/scorp/ccorp return.

Technically Texas is not pure 0% CCorp/Scorp tax. It has a franchise tax of 0.375-0.75% above 1.23 million

 

[SharpesTriumph]

Such a scam. This should all be easily handled on the IRS website by the government and your employer. Any tax documents you receive should already be calculated in your return and you should be able log in to the IRS website to confirm or adjust it starting on February 1st.

Done. Should be incredibly simple for the vast majority of people. People who need more should be able to drill in and do more and hire an accountant if needed.

Thats basically how its done in Europe.

Plenty of problem is Europe though - their health care sucks (I lived there 4 months)

Taxes are far simpler in the US if you only have wages from a job though. It gets exponentially harder when you have a bunch of states and businesses/investments.

 

[Phatguysrule]

Thats basically how its done in Europe.

Plenty of problem is Europe though - their health care sucks (I lived there 4 months)

Taxes are far simpler in the US if you only have wages from a job though. It gets exponentially harder when you have a bunch of states and businesses/investments.

Their healthcare gets better results in a lot of critical areas than ours does. And sucky healthcare is better than no healthcare. Or being trapped at a job you hate or being unable to start a business because you can't afford to go without healthcare.

In the US, even if you just have a job taxes should still be much simpler. You shouldn't even have to approve anything unless you want to.

They should just send/deposit your return or send you a bill.

 

[Strenuus]

easy solution: marry a CPA like I did. It's her headcahe

Only when you're not being the headache

 

[wizenheimer]

Your the one that brought up federal taxes with your incorrect comment "the special IRS provision that allows professional athletes to be taxed by various jurisdictions where games are played require residency in the state"

you edited out the last part of that sentence that said "where games are played require residency in the state of the employer". In this case, Doncic will be employed by the California corporation, the Los Angeles Lakers (or whatever their legal name is). I may have been unclear in defintions but not in impact

The statement "members of an LLC are subject" is an inherently incorrect tax statement as an LLC is a legal classification and is not a tax classification.

incorrect

Technically Texas is not pure 0% CCorp/Scorp tax. It has a franchise tax of 0.375-0.75% above 1.23 million

California has a franchise tax too

it's actually a little more complicated than a strict 1/82 apportionment. A lot of states base jock taxes on 'duty days' and they have different definitions for duty days. I suspect that 100% of salary isn't apportioned by the 82 game formula. Most players don't play games from mid-May to late October, but they are getting monthly compensation. One reason summer league is played in Las Vegas and Orlando is those states don't have income tax

and as I mentioned, I imagine there are many shelters, loopholes, and dodges for endorsement income. However, if Doncic is getting endorsement income from a CA corporation or entity while he's a resident of CA, I'd imagine CA will be insisting on their cut

this is all jabber anyway. There is no doubt at all that Doncic will be paying a lot more taxes as a Laker than he was as a Mav, which is the main point. Now, he is a foreign national so there may be some further complexity because of that

 

[wizenheimer]

Only when you're not being the headache

still her headache

 

[JfizzleBlazer]

SharpesTriumph is right. LLC is not a tax classification.

A LLC can be various tax entities. A single member LLC would be a sole proprietorship unless they did something like elect to be a S-Corporation.

It defaults to a sole prop, which IS a tax classification (just reported as a Schedule C on their personal return).

 

[JfizzleBlazer]

@wizenheimer link to your residency "special rule?"

That's not anything I have ever heard.

There are residency rules, but in layman's terms, a player would have their residency (things that go into that are like where their kids go to school, where they attend social gatherings, where are the bank accounts from, are they members of clubs, how much time did they spend there, where do they work, etc all go into an evidence category to provide a strong case). If the player is on a team located in a state the player is not a resident of, the player would pay based on income from games played in the state. When they file a return in their resident state, they include all income. To avoid double taxation, generally the resident state allows for a credit for taxes paid to another state.

 

[wizenheimer]

SharpesTriumph is right. LLC is not a tax classification.

and I never said LLC's are a "tax classification", whatever that means. I'm not even sure what relevance it has

what I said was "LLC's have different tax rates, in different states, but there will still be some liability"

the liability I was talking about was tax liability

@wizenheimer link to your residency "special rule?"

That's not anything I have ever heard.

There are residency rules, but in layman's terms, a player would have their residency (things that go into that are like where their kids go to school, where they attend social gatherings, where are the bank accounts from, are they members of clubs, how much time did they spend there, where do they work, etc all go into an evidence category to provide a strong case). If the player is on a team located in a state the player is not a resident of, the player would pay based on income from games played in the state. When they file a return in their resident state, they include all income. To avoid double taxation, generally the resident state allows for a credit for taxes paid to another state.

and I said I was unclear about that...delete it from the discussion if you want. I'll evens say I got that backasswards if it will help

bottom line though is that based on a jock tax apportioned by 82 games, as a Laker, approximately 65% of Doncic's NBA salary will be taxed at California's 13.3% rate. As a Maverick, approximately 60% of his salary was taxed at the 0% rate in Texas. That's a pretty hefty change

But I'd wonder if it's more complicated than that based up duty days:

"The jock tax is calculated based on duty days. Duty days are the days a player has during a professional season. If a player has 100 duty days during his season and spends 10 days in a certain state or city, thus 10% of his income earned during that season would be allocated to that state."

does the season include training camp? During the season do players spend more that 50% of their time at home?

if a player is injured and misses games does his formula change? Might want to be healthy for road games to Texas and Florida. The other side of that coin is if your team has a 5 game road trip thru California and Oregon, those might be advantageous games to miss

 

[noknobs]

Talking taxes....

 

[JfizzleBlazer]

and I never said LLC's are a "tax classification", whatever that means. I'm not even sure what relevance it has

what I said was "LLC's have different tax rates, in different states, but there will still be some liability"

the liability I was talking about was tax liability

Tax classifications have lots of relevance. There are plenty of different rules between different entities that can affect what your tax liability ends up being.

LLCs pay $800 in annual tax in California. It's basically an excuse tax.

The tax entity is what they get taxed at different rates.

 

[wizenheimer]

Tax classifications have lots of relevance. There are plenty of different rules between different entities that can affect what your tax liability ends up being.

LLCs pay $800 in annual tax in California. It's basically an excuse tax.

The tax entity is what they get taxed at different rates.

yeah, that 800 is the franchise tax IIRC?

 

[JfizzleBlazer]

yeah, that 800 is the franchise tax IIRC?

Yeah, it auto corrected to excuse but it should have said "excise."

Oregon has an excise tax but it's $150 and it based on certain tax classifications.