Tax Planning for Professional Athletes and Entertainers: Multi-State Filing, Loan-Out Companies, and Income Timing

By Yarik Yarosh, CPA ·September 5, 2026 ·7 min read

Written by Yarik Yarosh, CPA (US & Canada) September 5, 2026 · FL CPA license AC61704 · CPA Ontario

Professional athletes and entertainers earn compressed, high-dollar income over short career spans, which creates a tax planning challenge that’s fundamentally different from steady-income professionals. The combination of multi-state filing obligations (many states tax nonresidents on income earned within their borders), high marginal tax rates on peak-year earnings, and the uncertainty of career length demands strategies that most tax advisors never encounter. Under IRC 162, the trade or business expenses of a professional athlete or entertainer are deductible, but the method of deduction depends on whether the performer operates as an employee (deductions suspended under TCJA for W-2 earners) or through a business entity. This is why virtually every high-earning performer operates through a loan-out company: the entity receives the performer’s income, deducts all legitimate business expenses, funds retirement plans, and pays the performer a reasonable salary (with the remainder flowing through as S-Corp distributions or corporate earnings). Without the loan-out structure, an athlete earning $5 million per year as a W-2 employee can’t deduct agent commissions (typically 3-5% of gross), manager fees (10-20%), training expenses, travel, equipment, or any other business expense. With the loan-out, these expenses reduce taxable income at the entity level.

✓Key takeaway

Multi-state filing (“jock tax”) basics:

Concept	Details
Duty day allocation	Income apportioned by (duty days in state / total duty days)
Duty days include	Games, practices, team meetings, training camp, required appearances
Duty days exclude (generally)	Personal days, off-season days, voluntary workouts (in most states)
States that don’t impose jock tax	States with no income tax: FL, TX, TN, NV, WA, WY, SD, NH (limited), AK
Home state credit	Most states provide a credit for taxes paid to other states on the same income
Number of state returns	Typically 15-25 for athletes; varies for entertainers based on tour schedule

Loan-out company structure:

Element	Details
Entity type	S-Corp (most common) or C-Corp
The team/studio pays	The loan-out company, not the performer directly
The loan-out company pays	The performer a reasonable salary + S-Corp distributions
Business expenses deducted by	The loan-out company (agent fees, training, travel, equipment, insurance)
Retirement plan contributions by	The loan-out company (as employer)
Liability protection	The loan-out company provides a layer of separation from personal assets

How does tax planning work for athletes and entertainers?

Hypothetical example

Round numbers. A professional athlete earns $3,000,000 in salary from a team based in California. The athlete is a resident of Florida (no state income tax). The athlete plays 82 regular-season games, with 41 home games in California and 41 away games in various states. The athlete has 180 total duty days (games + practices + training camp).

Multi-state allocation:

State	Games/Duty Days	Income Allocated	State Tax Rate	State Tax
California (home games + practices: 100 duty days)	100/180	$1,666,667	13.3%	$221,667
New York (3 away games + travel: 4 duty days)	4/180	$66,667	10.9%	$7,267
Illinois (3 away games: 4 duty days)	4/180	$66,667	4.95%	$3,300
Other states (combined: 72 duty days)	72/180	$1,200,000	~5% avg	$60,000
Florida (residence, no income tax)	N/A	N/A	0%	$0
Total state taxes				~$292,234

Because the athlete is a Florida resident, there is no home-state tax and no home-state credit to offset the taxes paid to other states. The $292,234 is a pure additional tax cost.

Federal tax (without loan-out, as W-2 employee):

Item	Amount
Gross salary	$3,000,000
Agent commission (4% = $120,000)	Not deductible (W-2 employee, TCJA suspended misc. itemized deductions)
Manager fee (15% = $450,000)	Not deductible
Training, nutritionist, coaching ($50,000)	Not deductible
Travel (not reimbursed)	Not deductible
Taxable income	$3,000,000 (no deductions for business expenses)
Federal tax (37% on income above $626,350)	~$1,050,000
NIIT (3.8% on income above $250,000)	$104,500
Total federal tax	~$1,154,500

With a loan-out company (S-Corp):

Item	Amount
Team pays the loan-out company	$3,000,000
S-Corp deductions:
Agent commission	($120,000)
Manager/business manager fees	($100,000)
Training, nutritionist, coaching	($50,000)
Travel (not reimbursed by team)	($30,000)
Insurance (professional liability, disability)	($25,000)
Legal and accounting	($20,000)
Equipment and gear	($10,000)
Home office (if applicable)	($5,000)
Total S-Corp deductions	($360,000)
S-Corp net income	$2,640,000
S-Corp salary to athlete	$1,500,000 (reasonable compensation)
S-Corp distribution	$1,140,000 (not subject to payroll tax)

Tax Item	Without Loan-Out	With Loan-Out
Taxable income	$3,000,000	$2,640,000
Federal income tax	~$1,050,000	~$917,000
Payroll tax savings (1.45% Medicare on distributions)	$0	$16,530 saved
Total federal tax savings		~$149,530

Retirement plan contributions (through loan-out):

Plan	Annual Contribution	Tax Savings (37%)
401(k) deferral (age 30)	$23,500	$8,695
Profit sharing (25% of $1,500,000 salary, capped at $350,000 comp)	$69,000	$25,530
Cash balance pension plan	$200,000-$350,000 (depending on age and design)	$74,000-$129,500
Total retirement savings	$292,500-$442,500	$108,225-$163,725

Combined tax savings (loan-out + retirement):

Strategy	Annual Tax Savings
S-Corp business deductions	~$133,000
Payroll tax savings	~$16,530
Retirement plan deductions	~$108,225-$163,725
Total annual savings	~$257,755-$313,255

Career-planning strategies:

Strategy	How It Works
Residency in a no-income-tax state	Eliminates home-state tax; only pays to states where games are played
Negotiate signing bonus vs. salary	Some states treat signing bonuses differently (allocated to home state rather than duty-day allocation)
Deferred compensation	Under IRC 409A, defer a portion of compensation to post-career years when the marginal rate may be lower
Charitable remainder trust (CRT)	Transfer appreciated assets to a CRT; receive income stream; avoid capital gains; charitable deduction
Donor-advised fund (DAF)	Bunch charitable contributions in high-income years for maximum deduction
Disability insurance (tax-free benefits)	If premiums paid with after-tax dollars, disability benefits are tax-free
Post-career planning	Career span is 5-15 years; must plan for decades of living on accumulated wealth

Common mistakes:

Mistake	Consequence
Not filing in every state where games are played	Penalties, interest, and potential fraud charges
Operating without a loan-out company	Can’t deduct business expenses; loses payroll tax savings
Not funding retirement plans during peak years	Misses the window for tax-deferred compounding
Living in a high-tax state without planning	California, New York, New Jersey add 10-13% state tax on all income
Relying on the team’s tax withholding	Team withholds based on W-2; doesn’t account for multi-state credits, deductions, or entity structure

Illustrative numbers only, not a real client and not advice for your facts.

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Cite this page

Yarik Yarosh, CPA. "Tax Planning for Professional Athletes and Entertainers: Multi-State Filing, Loan-Out Companies, and Income Timing." Blue Cloud CPA, September 5, 2026. https://bluecloudcpa.com/guides/small-business-tax-planning-professional-athletes-entertainers

This guide is general information, not tax advice for your specific situation. Which points apply, and how, depends on your facts.