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Magazine : Taxation Requirements for an American Athlete if They Work in Foreign Country - Article Example

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Magazine Article Taxation requirements for an American athlete if they work in foreign country The United States of America is a federation with autonomous states and local governments. Taxes are imposed in the United States at each of these levels. These include taxes on income, property, sales, import, payroll, estates and gifts as well as fees…
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Magazine Article: Taxation Requirements for an American Athlete if They Work in Foreign Country
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Download file to see previous pages Sales taxes are imposed on the retail prices of goods. The professional sports players are taxed by every city and state in which they play in the United States. The major part of their salary is taxed in the city and state where the team is based. The income from others sources like endorsement, personal, appearances, dividends and interest income is taxed in their state of residence. Jock tax is levied on the visiting players. The professional golf players and others who play at international level pay the third part or much of their income in the local coffers. Any player who plays in foreign countries has to pay taxes in that jurisdiction and the liability of tax is from 5 to 10 percent state tax. It’s usually in the 30 percent to 40 percent bracket. Actually, the United States is one of those countries that impose tax on all income regardless of source. There is an old proverb that the world is growing smaller and smaller. This opens border of countries for trade, travel and even for playing purposes. Athletes are the performers who have increased international opportunities. These athletes earn large amount of income. So there is an issue raised that how this income is accounted for tax. There are athletes who are the residents of the United States but play in a foreign country and their taxation is discussed here. Athletes earn income from three sources: (1) Income from athletic services; (2) income from signing incentives and bonuses; (3) income from endorsement contracts. First of all, it is necessary to consider the US tax system. The US taxes its residents on their worldwide income and, unlike any other major jurisdiction, also extends worldwide taxation to its citizens. The citizens of the United States have this right that they can return to the United States whenever they choose. The athlete of the United States is also taxed in America because of worldwide taxation. So the athlete will pay taxes twice: once in the country where he is playing and the second time is in the United States. The citizens include both the residents of America and those who are qualified for the US citizens. Thus, the US citizens playing basketball in Italy are considered to have ‘foreign source’ income for purposes of US taxation. Athletes earn two kinds of income: one is based on incentive and signing bonuses. An athlete, like golf player or tennis player, who earns income from Canada is required to include all his or her income to allocate as taxable income earned in Canada (Jadd, Bacal and Leug 2008). The technique used by the United States of America to avoid double taxation is the foreign tax credit. The Congress has established the sections 901-908. On the basis of these sections, the rules of taxation are laid. By foreign tax credit the double taxation is removed by decrease of dollars of American income tax in place of dollars paid to foreign Government. But this process is used with the Governments with which America has relations, that is, when any treaty is signed between two countries. An athlete does not need to pay the taxes himself. Instead, the withholding agent takes the amount of tax himself and pays the amount of taxes to the foreign government. So the taxes are paid in this way. But there is one complexity of whether there is treaty between the United States and the country in which the player is playing. If there is no treaty, the foreign country will tax the income and the US ...Download file to see next pagesRead More
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