Colin Kaepernick Faces IRS Sack over NFL Settlement
After a two and a half year legal battle, Colin Kaepernick’s collusion grievance against the NFL has been settled. While it is speculated that Kaepernick will receive an estimated $60-80 million before taxes, the official number is unknown since both parties are bound by a non-disclosure agreement. Like other windfall events, the large payout presents Kaepernick with equally as large tax implications. With the IRS constantly updating laws, there are a few ways a tax advisory expert can coach Kaepernick on understanding the tax game and help him avoid unnecessary fumbles.
In Kaepernick’s situation, the money he receives as part of the settlement would be counted as lost earnings and therefore treated like ordinary income on his tax filings. The only exception to this rule would be in cases involving personal physical injuries from accidents or illness that would be tax-free thanks to Section 104 of the tax code. In 1996, the IRS differentiated “personal injuries” and “personal physical injuries” meaning cases related to emotional distress, sexual harassment, and defamation are no longer included in this tax-free category.
Additionally, with recent tax laws on gross recoveries, individuals’ payments are taxed in full regardless of what lawyers may retain. If your lawyer is receiving half of your settlement, you will still be liable for income taxes on the total amount which finds many people unprepared. For professional athletes and average people alike, laws are increasingly preventing and complicating deductions both above and below the line. Understanding these complex regulations, especially during a windfall event, is one of the biggest challenges facing many today. With comprehensive knowledge of current laws, tax expert advisors offer financial, tax and legal insights needed to call the best plays.
Talley LLP offers a broad spectrum of services to fulfill the needs of professional athletes, high net worth individuals, and entrepreneurially driven companies and their owners. Whether you are considering an M&A transaction or experiencing a financial windfall event, the professionals at Talley LLP can make the most of both your earnings and winnings.