Structured celebrity endorsements, renewed interest with 2013 tax increases

As we all know, elections and political decisions on the state and federal level have consequences, with the decade long governmental spending frenzy now leading to much higher marginal tax rates for those fortunate enough to be in the "rich guy" brackets. 

 Phil Mickelson looks ahead to a future of high marginal tax rates and their impact on career and financial planning.

Phil Mickelson looks ahead to a future of high marginal tax rates and their impact on career and financial planning.

Early this week PGA golfer and Arizona State University icon, Phil Mickelson made national news by simply articulating the implications for his career and planning that being a resident in the State of California has for him. As he points out in the linked article, his marginal effective tax rate for Federal, State, FICA and ObamaCare surtax is now in the 62% to 63% range, meaning that he gets to now keep about a third of his earnings each year while various governments get to keep two thirds.

As many of our clients and regular readers are aware, there is in the IRC, the ability for celebrity and professional sports figures who receive substantial endorsement income and earnings, to structure/defer that income into future tax years. This is very much the same process by which we structure legal fee income for trial lawyers, structure property and asset sales for farm land and commercial property and even now structure certain aspects of divorce settlements. All of this deferred income is of course secured by life insurance companies with A+ ratings and outstanding financial stability. 

Obviously this is a niche product and an opportunity only viable for a very small category of elite professional athletes  However, the option to privately but strategically plan large sums of income that fall into the highest tax brackets makes incredible sense if done properly and we encourage our clients to contact us to learn more about how this could work for them or their clients. Strategic deferral is a crucial planning tool now that needs to be considered and implemented carefully, but if properly planned can make a huge difference for upper income clients or those faced with a one time tax event that subjects them to the highest marginal rates.

Contact our office, Wahlstrom & Associates, to learn more and watch for our interview later this week with national tax expert Attorney Rob Wood on The Tax Law Channel where we discuss this planning option at greater length.