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Here is a bit of the article...read the entire article for a good understanding.
"If Howard re-signs with the Lakers and relocates to California, as a resident of the state he will be subject to a 13.3% on all of his income. Any income allocated outside the state and taxed in another jurisdiction– for example, when the Lakers play the Phoenix Suns – will generate a credit Howard can use against his California income tax. But because California’s rate will always be higher than the other state, Howard will still pay an effective rate of 13.3% on his income.
To illustrate, if Howard had $10,000 of income allocated to a state with a 5% tax rate, California – as Howard’s state of domicile — will tax the income at 13.3%, or $1,330. The other state will tax the income at 5%, or $500. Finally, on his California return, Howard will get a $500 credit for the tax he paid to the other state, reducing his California tax to $830, but his total tax will still remain $1,330 ($500 to other state + $830 to California).
Thus, if Howard earns $118 million over the five-year life of a new deal with the Lakers, he will pay approximately $15,700,000 in state income tax over that span. And while those taxes are deductible on Howard’s federal return, the revival of the PEASE limitation on a wealthy taxpayer’s overall itemized deductions renders the tax benefit negligible for someone at Howard’s annual income level.
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We’ve already determined that Howard will play 49 games in states with no income tax, meaning he will play 33 games in states with a tax. If we throw in another 5 playoff games located in taxable jurisdictions, we get a total allocation of duty days of 38/270, meaning 14% of Howard’s total earnings of $87.6 million over the life of his contract – or $12.3 million — will be subject to state income tax. At an average rate of 5%, Howard will pay approximately $600,000 of state income tax over the four year period.
This means that by signing with the Houston Rockets, Howard could save approximately $15.1 million ($15,700,000 less $600,000) in state income taxes on his next contract.
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The Lakers, by virtue of being able to give annual raises in excess of what Houston can offer, would still offer a larger gross payday: $91 million versus $87.6 million for Houston. But with the difference now reduced to $3 million, the state tax impact becomes magnified. Howard would pay nearly $12 million in California tax over the four years if he signs with the Lakers, but only $600,000 in state tax should he sign with Houston. This means that a four-year deal with Houston would actually yield an additional $8 million in after-tax income.
All of a sudden, fleeing L.A., once thought impossible for Dwight Howard, suddenly looks a lot more likely."
Stephen A Smith says Howard and Harden have been talking almost everyday this summer...also, Howard is intrigued by playing for McHale who was a low post legend himself.
Several rival executives, meanwhile, told ESPN.com that Rockets general manager Daryl Morey has likewise left the impression in recent days that Houston believes it has a legitimate shot at luring Howard away from the Lakers.
I don't understand the BS about people saying Texas is more lucrative than LA for Howard. I'm sorry, but I'm almost positive that the current cost of living in Los Angeles vs Texas isn't on the mind of an professional basketball player making an 8 figure income. Let's not forget that fiscal responsibility and overall "frugality" isn't a dominant trait among NBA players, seeing as how 60% of them go insolvent after retirement...lol
I'm not denying that Howard is leaning toward Houston at all. I'm just tired of hearing this stupid argument. Really.
I don't understand the BS about people saying Texas is more lucrative than LA for Howard. I'm sorry, but I'm almost positive that the current cost of living in Los Angeles vs Texas isn't on the mind of an professional basketball player making an 8 figure income. Let's not forget that fiscal responsibility and overall "frugality" isn't a dominant trait among NBA players, seeing as how 60% of them go insolvent after retirement...lol
I'm not denying that Howard is leaning toward Houston at all. I'm just tired of hearing this stupid argument. Really.
Yeah, we hear this argument every time there's a major free agent and it never seems to make any difference.
Contrary to popular opinion, it's not all about money with professional athletes. If it were, Lebron would still be in Cleveland, Bosh would still be in Toronto, and Wade wouldn't have taken a pay cut.
I don't understand the BS about people saying Texas is more lucrative than LA for Howard. I'm sorry, but I'm almost positive that the current cost of living in Los Angeles vs Texas isn't on the mind of an professional basketball player making an 8 figure income. Let's not forget that fiscal responsibility and overall "frugality" isn't a dominant trait among NBA players, seeing as how 60% of them go insolvent after retirement...lol
I'm not denying that Howard is leaning toward Houston at all. I'm just tired of hearing this stupid argument. Really.
I hope you're right, then it would be such an easy decision for Howard to play for the Rockets with a young budding star in Harden along with upcoming young players rather than a rebuilding team in the Lakers.
I don't understand the BS about people saying Texas is more lucrative than LA for Howard. I'm sorry, but I'm almost positive that the current cost of living in Los Angeles vs Texas isn't on the mind of an professional basketball player making an 8 figure income. Let's not forget that fiscal responsibility and overall "frugality" isn't a dominant trait among NBA players, seeing as how 60% of them go insolvent after retirement...lol
I'm not denying that Howard is leaning toward Houston at all. I'm just tired of hearing this stupid argument. Really.
1- These types of financial analysis are going to be put forth by any agent and pros like Dwight have financial advisors.
2- A number of famous people have done the same thing, including Tiger Woods.
It's not widespread, but it can factor into an individual decision for someone that isn't really anchored there.
However, there is no way to ever prove it because NOBODY will ever admit that was the reason they moved as it would be hugely unpopular.
It certainly didn't stop Shaq from leaving Orlando for California, but at the time the cap rules were minor and they threw a ton of cash at him and he wanted to keep doing acting etc.
With the stricter cap laws and top players making more $$$ from endorsements than from their playing salary going forward with new contracts it *could* be a bigger deal. It's certainly not in the Lakers favor to have the higher taxes coupled with payroll caps that are way less that what they could actually afford given their TV deal etc.
Yeah, we hear this argument every time there's a major free agent and it never seems to make any difference.
Contrary to popular opinion, it's not all about money with professional athletes. If it were, Lebron would still be in Cleveland, Bosh would still be in Toronto, and Wade wouldn't have taken a pay cut.
Um, I'm going to have to question you on the Lebron claim.
He got a sign-and-trade from Cleveland to Miami and just lowered his state tax burden 6% on 1/2 his player salary and ALL of his endorsement income. I'm not sure if that meant he got less or not. With the taxes even without the sign and trade it would probably be about a wash given his endorsement income is double his player income.
That's a 6-year net of tax income of around 200mil vs. maybe 215mil just to give a ballpark idea. (i'm pro-rating an estimated 40mil a year in endorsements to make the swag and factoring in his 110mil 6 yr deal)
I agree it's not ALL about the money, certainly the Miami situation was special but I think it is a contributing factor, even moreso when a player has significant endorsement income.
Florida has no state income tax, but that only applies to home games. Road games he generally pays non-resident state income taxes in whatever state he's playing in. These are known as "jock taxes" since they hit athletes a lot. They have to file income taxes in most of the states they play in. So that tax advantage would only be for the 41 home games. Florida's sales taxes and property taxes are also a little higher than average due to not having a state income tax.
Florida also has a state corporate income tax of around 5 or 6%, and I'm pretty sure his endorsement deals are run through some type of corporation that he formed with this friends.
I don't know exactly how it would all work out factoring in endorsements and everything else though, so it wasn't the best example. I thought about that and was going to try to think of a better example but I was feeling lazy. Shaq leaving Orlando for LA is a better example. Dirk and Duncan both left quite a bit of money on the table though I don't remember the details of that.
There was a lot of talk him potentially making the most money in New York due to endorsements, despite NY's high state income tax (about 13% I believe). Some people were floating around $1 billion as his potential endorsement income in NY.
I don't think taxes play much role in where players go for the most part though. Although NY's ~13% income tax probably makes some players think twice, especially those without a lot of endorsement income.
Let's say those numbers above are accurate and Dwight will net $8M more over 4 years with Houston.
If I were a 27-28 (whatever young age Dwight is) single multi-millionaire, would making 10% more salary be a huge factor in my decision? Nope.
It may be more meaningful to your average Joe ... maybe.
If Dwight does go to Houston, wow, what a legacy of big men the Rockets have had: Hayes, Moses, Hakeem, Yao!
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