LeBron James: Income Tax Genius?

Florida has no state income tax. See what James would have paid in New York, Chicago, or Cleveland.

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LeBron James has strategy on and off the court

With all the hysteria surrounding “The Decision” that was LeBron James’ choice to leave Cleveland for the sandy beaches of South Florida, there are still multiple perspectives we could analyze as to why he opted out of of Cleveland.

Many of you may already be aware of the obvious reasons but there’s one interesting bullet point that may showcase LeBron’s true business acumen.

There was a solid selection of teams out there bidding for the “chosen one’s” abilities and talent, not to mention the economic boost he would bring to any city that he went to play for. There was the Chicago Bulls, still reveling in the ghost of Michael Jordan, arguably the greatest player ever to play the game. However, the Bulls are currently an organization that has great talent and a positive upside with key players in place to potentially make a championship run if James was persuaded to move in that direction.

There was the New York Knicks, which had been looking for a savior since the great Patrick Ewing retired, and that was notably the first team to really state their claim and desire to have James recapture the culture, feeling, and energy of Madison Square Garden, better known as the Mecca of basketball.

There was the strong pull of the ole’ faithful Cleveland Cavaliers, who demanded loyalty and who was promised by James to bring a championship to Cleveland.

Finally, there was the Miami Heat, which had the strongest selling points. James would have the opportunity to play with his former Olympic Gold medal teammates Chris Bosh, formerly of the Toronto Raptors, and Dwayne Wade, current Heat superstar. This in itself increases the King’s chances to obtain that ever-elusive championship ring that all strive for but so few acquire.

To do it, James would reportedly take a severe pay cut, but I’m pretty sure that to the average person, a possible $99 million over six or seven years versus staying with Cleveland where he could’ve earned an estimated $128 million over the same amount of time is nothing to sneeze at.

Here’s what some may fail to realize: There are some added benefits to playing in the warm confines of South Florida. Florida has no state income tax. Zip, Zero, Nada.

That automatically factors into the King’s contract, depending on where he decides to live. If you remember ESPN reporter Jim Gray asking James if he would continue to live in Cleveland, his answer was, “I don’t know.”

This may be a stretch, but is it really? This argument in no way disavows James’ quest for a championship ring but, as with any decision that any potential employee of a business makes, a good rule to follow is weigh ALL your options. This is something James and his much ridiculed P.R. company and inner circle has clearly done. All hail the king’s savvy.

Here’s a comparison of state income tax for Chicago, Cleveland, New York, and Miami:

Note: This is all assuming James is given the same contract he reportedly expected to earn in Miami.

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  • Maurice Coles

    If LeBron is a republican, as I suspect he is this is a very good deal for him. He gets a great opportunity to win an NBA ring and save money in the process. Who can argue with that? Although, I’m sure we will find some people from Ohio that will turn coat and say he deserted them. How about he made a good business decision.

    • Maurice, I agree that LeBron made a smart business decision as well as a thoughtful one for his career. But why would you assume that he is a republican? Surely, you aren’t jumping to that conclusion based on the assumption that because he is rich, he must be with the GOP. There are too many millionaire democrats and independents to make that assumption.

      According to the Wikipedia entry on James (http://en.wikipedia.org/wiki/LeBron_James), in June 2008, he donated $20,000 to a committee to elect Barack Obama. On October 29, 2008, James gathered almost 20,000 people at the Quicken Loans Arena for a viewing of Democratic presidential nominee Barack Obama’s 30-minute American Stories, American Solutions television advertisement. It was shown on a large screen above the stage, where Jay-Z later held a free concert.

      This doesn’t necessarily mean that he is a democrat, either. But there is far less to indicate that he is republican.

  • Michael Alston

    Dale, Your article just recited each state’s tax rates So what would The King’s tax bill (in $) have been in each city? … What’s a comparison without a bottom line??

  • Otto

    Just to clarify, James only gets the benefit of the no state income tax on half his games. He still has to pay taxes in the states he plays away games in. This effectively cuts in half the monetary benefits of playing in Miami. The benefit is still large, but not as drastic as you’d think. And also remember that money from his endorsement deals will be taxed according to the state where that company that’s paying him is from. I think the writer here left out these important details. There’s still a monetary benefit, it’s just quite a bit smaller than you’d think at first.

    • Otto, you make some great points. However, the fact he has to pay taxes on income earned from away games is true for any city he plays in, so it doesn’t cut the monetary benefits (as relates to income taxes) of playing in Miami in comparison to the other cities. The same would apply for taxes on endorsement deals; it would be the same no matter what city he played in.

      • Dink Singer

        Most, if not all, states give residents a dollar for dollar tax-credit for taxes paid to other jurisdictions on income earned there.  For example, if Mr. James was a legal resident of Ohio in 2009, he had to pay the full Ohio tax on the income from home games and games played in Florida,  paid nothing to Ohio on games played in New York and paid the difference between the full Ohio tax and the Illinois tax for the games played in Chicago.

        LeBron could have fairly easily established a Florida (or Nevada) residency while still playing for the Cavs.  In that case, the additional income tax he would have paid if he stayed with Cleveland instead of joining the Heat would be on only the half of his salary attributable to home games. 

        • Dirk;

          Another great point. It underscores that what ever the tax implications of James’ decision, it was probably only secondary to his desire to join a franchise he believed would have the best chance of making a successful championship run.

  • I think all of you have made valid points, maybe except for the republican statement. In all, my desire for this article was to highlight the bigger picture of weighing all your options. I believe LeBron James chose to go to Miami because it was his best chance at a championship. I do believe that a good company, in this example the Miami Heat definitely notified James of the tax breakdown, James definitely saw this as a perk, secondary to his main objective.

  • I don’t think taxes played a role in his decision. First, NBA players pay taxes to all the jurisdictions in which they play away games. So the tax advantage is smaller than you think. Second, just because you don’t pay an income tax doesn’t mean the state can’t get their money from you. Property taxes, luxury taxes, consumption taxes all play a role in decreasing the overall tax advantage achieved by playing in one jurisdiction over another. And lastly, a good accountant can structure the size, timing, form and jurisdiction of compensation so as to minimize taxes, irrespective of place of residence. Assuming his compensation from endorsements and other marketing deals matches or exceeds the amount he makes from playing the game, taxes are the least of his issues.

    Overall, the article comes from the perspective of a wealth-builder, one who tries to maximize the value of transactions; this often comes at the expense of a vision, a value statement or a relationship. Instead, Black Enterprise should take a longer term and more broader view by focusing on value-creation. Problem solving, innovation, creativity and entrepreneurship are the four horsemen of growth for black people. By focusing on financial engineering and tax planning, you place too emphasis on topics that don’t matter at the expense of topics that create long term sustainable opportunities for your readers. #imjustsayin

  • To Mr. Mazard,

    I hear what you’re saying completely, again, this piece was about a potential employee weighing his options. I believe I stated and gave his PR company credit for the job they did during the whole situation. By no means do I believe Mr. James took his talents to Miami strictly for tax purposes, but it doesn’t hurt. At Black Enterprise we try to give the broad, detailed, and sometimes colorful perspective of business. I think besides the way in which he delivered his news of heading to Miami, everything else was done in classy manner. It’s very plausible that we’ll produce something on the Four Horsemen in the future. I appreciate your insight.

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