The ultra-wealthy have a lot of options when it comes to spending their money. Lavish houses, huge properties, remote islands, expensive yachts and exotic cars are just a few of their choices. Of course, like most anyone, the extremely wealthy are always looking to save on taxes. In fact, because they already pay more taxes than everyone else, the uber-rich are generally looking for more ways to save than most people.
Huge Tax Break Potential
A lot of the lavish purchases made by the wealthy won’t qualify for any kind of tax deduction, but there are some that do, including owning a sports team. Although most people will never have enough money to own a major professional sports franchise, for those few very wealthy people who do, there are some nice tax write-offs.
Ballmer Playing Ball
Owners of professional sports franchises have been getting a healthy tax deduction from their players’ salaries for years. In fact, players’ salaries can be a huge write-off for owners. For example, you might be aware that the NBA’s Los Angeles Clippers were put up for sale earlier this year and were purchased by former Microsoft chief executive, Steve Ballmer. The purchase price was a staggering $2 billion.
Buy and Save
That is a huge sum of money, but according to some tax experts, there is also potential for Mr. Ballmer to receive a huge tax break. In fact, he could get as much $1 billion in tax benefits over the next 15 years, which is half the total purchase price. Although, Mr. Ballmer probably didn’t buy the Clippers just to find a nice tax deduction he was aware that when you buy a business there are certainly deductions available.
Here’s How it Works
The main reason Mr. Ballmer can get such a huge deduction is due to the high cost of player salaries. He is already on the books for this season alone for $80 million, which is the third highest amount in the NBA. However, there are other factors in play. Owning an NBA team means you are part of a successful league. So not only are the players’ salaries deductible, but Mr. Ballmer can also receiving a deduction because of the intangible assets that come with ownership.
For example, Clippers’ point guard Chris Paul, is considered one of the best players in the league. Therefore, Mr. Ballmer could not only claim Mr. Paul’s salary as a deduction but he could also get a tax break for the point guard’s value in bringing the team millions of dollars in additional revenue via broadcast deals and ticket sales. Because these are not physical assets, the IRS does not tax them as such. In fact, the IRS gives specific tax breaks to any business that carries a lot of intangible assets. So, Mr. Ballmer could conceivably claim that this additional value was part of the original purchase price. That means the IRS might allow Mr. Ballmer to amortize a large part of the $2 billion purchase price over a 15-year period, just like a factory owner would depreciate his factory’s older machinery.
Don’t Discount the Tax Break Potential
So if you have an extra $500 million to $2 billion sitting around burning a hole in your pocket just waiting to be spent, then consider buying a professional sports team. Not only will you get to enjoy a front row seat at every game, but you can also enjoy a nice write off when it comes time to file those taxes every year.
The post Player Salaries Could Be Huge Tax Break for New NBA Owner first appeared on Advisors to the Ultra-Affluent – Groco.