Ohtani signs with dodgers (10 / 700 million)

[Geezy]

3 hours ago, sdrawkcab321 said:

How do owners allow this to happen? 

Everyone had an opportunity to do it. 

[nagahide13]

5 hours ago, ramssuperbowl99 said:

The Dodgers are paying him $2M cash each year for 10 years, then they're paying him $68M/year for the next 10. He doesn't need the cash now because he can use advertising income.

Ohtani is doing it because it turns $440MM into $700MM with no risk on his part, and he gets to dodge California state taxes.

He'd probably (almost certainly) would have straight up come out ahead by taking as much now and investing it immediately, but he may also be considering that if he wins a WS his marketing value may go up more, so there's upside in deferrals beyond the $260MM in extra raw cash it got him.

I was under the impression that athletes payed taxes in states where they play games rather than where they reside. That they basically work wherever they play on a game to game basis. https://en.wikipedia.org/wiki/Jock_tax. Maybe he's avoiding that somehow?

 

Edited December 12, 2023 by nagahide13

[Leader]

 

[ramssuperbowl99]

7 hours ago, nagahide13 said:

I was under the impression that athletes payed taxes in states where they play games rather than where they reside. That they basically work wherever they play on a game to game basis. https://en.wikipedia.org/wiki/Jock_tax. Maybe he's avoiding that somehow?

 

You are normally correct, but in this case he gets around it by specifically waiting the 10 year deferral period.

Normally people are taxed based on where the work was done, and the only way around this is to wait at least 10 years, in which case it's based on the state residence when the payments are made. So Ohtani could get a spring training home in Florida or something and completely dodge state taxes.

 

This really isn't that much different than retirees moving to Florida or Texas or Arizona or some other spot with no state income tax to withdraw on a 401k that was contributed to in a state with income tax. The difference is the 401k gets you out of the waiting period.

[Leader]

 

Edited December 12, 2023 by Leader

[redsoxsuck05]

I'm not that kind of accountant, but based on the basic principles of accrual accounting his deferred money should be taxed based on where it was earned, right?

[Leader]

5 minutes ago, redsoxsuck05 said:

I'm not that kind of accountant, but based on the basic principles of accrual accounting his deferred money should be taxed based on where it was earned, right?

Dont know. I'm reading conflicting things.
Personally, I think it should be....but technically, if he retires and establishes residency in another state before the LAD start cutting him....basically retirement payments......what then?

[mse326]

On 12/11/2023 at 6:38 PM, sdrawkcab321 said:

How do owners allow this to happen? 

Why wouldn't they. Despite the Bonilla type jokes, deffered money is a benefit to the owners not the players because of the time value of money

[kgarrett12486]

12 hours ago, mse326 said:

Why wouldn't they. Despite the Bonilla type jokes, deffered money is a benefit to the owners not the players because of the time value of money

Exactly.  It allows a team like the Dodger to set-aside that money they know will be deferred for Ohtani, invest it and actually make money on it. 

[Sllim Pickens]

On 12/12/2023 at 11:03 AM, ramssuperbowl99 said:

You are normally correct, but in this case he gets around it by specifically waiting the 10 year deferral period.

Normally people are taxed based on where the work was done, and the only way around this is to wait at least 10 years, in which case it's based on the state residence when the payments are made. So Ohtani could get a spring training home in Florida or something and completely dodge state taxes.

 

This really isn't that much different than retirees moving to Florida or Texas or Arizona or some other spot with no state income tax to withdraw on a 401k that was contributed to in a state with income tax. The difference is the 401k gets you out of the waiting period.

Yeah, taxes are cash basis, so its not when you earn it, its when you receive the cash.  Similar to investments, you pay taxes on your gains when you sell them and receive the cash, not when they jump up (or down).  There really isn't a 10 year rule that I am aware of, although some plans require it to be paid out over a ten year period at least.  

[ramssuperbowl99]

2 minutes ago, Sllim Pickens said:

Yeah, taxes are cash basis, so its not when you earn it, its when you receive the cash.  Similar to investments, you pay taxes on your gains when you sell them and receive the cash, not when they jump up (or down).  There really isn't a 10 year rule that I am aware of, although some plans require it to be paid out over a ten year period at least.  

See the TurboTax link here:

https://turbotax.intuit.com/tax-tips/tax-payments/strategies-for-managing-your-tax-bill-on-deferred-compensation/L83l5ousH

Quote

• Normally, you pay income tax on deferred compensation when you receive the deferred payment, rather than when you earn it.

• Receiving your deferred compensation in installments over several years can reduce your tax bill, because the smaller installment payments will typically be taxed at a lower rate than a larger lump-sum payment will be.

• If you take your deferred compensation payments over a period of 10 years or more, those payments will be taxed in the state where you reside, rather than in the state in which you earned the compensation, possibly reducing your state income taxes.

 

[Danger]

On 12/12/2023 at 9:38 AM, Leader said:

 

Seeing as each state makes it's own tax laws. And how much California is known for penny pinching. California will absolutely get theirs.

[Sllim Pickens]

33 minutes ago, Danger said:

Seeing as each state makes it's own tax laws. And how much California is known for penny pinching. California will absolutely get theirs.

They actually won't, because although they all have their own tax laws, there are also federal laws that do dictate what can be taxable.  And as @ramssuperbowl99 pointed out above, the federal law is if you are being paid out over 10 years or more, you are taxed in the state you live when you receive the money.  So unless he stays in CA, they will not see any of it and Ohtani saves 12.3% on those payments if he moves to Florida.  Thats about $8.4M per year savings.  

[Danger]

2 minutes ago, Sllim Pickens said:

They actually won't, because although they all have their own tax laws, there are also federal laws that do dictate what can be taxable.  And as @ramssuperbowl99 pointed out above, the federal law is if you are being paid out over 10 years or more, you are taxed in the state you live when you receive the money.  So unless he stays in CA, they will not see any of it and Ohtani saves 12.3% on those payments if he moves to Florida.  Thats about $8.4M per year savings.  

California really does suck.

[bigbadbuff]

On 12/12/2023 at 11:03 AM, ramssuperbowl99 said:

You are normally correct, but in this case he gets around it by specifically waiting the 10 year deferral period.

Normally people are taxed based on where the work was done, and the only way around this is to wait at least 10 years, in which case it's based on the state residence when the payments are made. So Ohtani could get a spring training home in Florida or something and completely dodge state taxes.

 

This really isn't that much different than retirees moving to Florida or Texas or Arizona or some other spot with no state income tax to withdraw on a 401k that was contributed to in a state with income tax. The difference is the 401k gets you out of the waiting period.

I had no idea this was a thing. So I can retire to Florida and withdraw from my 401k without paying tax on it????