Taxation & Estate Planning

Playing the State Income Tax Game

By Deirdre Wheatley-Liss

Why did LeBron James cross to the Miami Heat? Because his tax adviser said so of course! At least, that is what is posited in a very interesting article "Play The State Income Tax Strategies Game Like LeBron James" by Trace Mayer at Citizen Economists.

As a free agent, LeBron had options. He could go wherever he thought he could win a title, get the most money in endorsements, where he could enjoy the best Cuban food and beach lifestyle, and maybe all three. After being courted by half a dozen teams, he had some really nice offers and some potentially lucrative deals. The biggest players were Cleveland, the New Jersey Nets, New York Knicks, maybe even the Bulls or the Clippers and of course Miami. LeBron finally picked Miami. Miami could arguably offer a lot, but I wouldn't doubt that his state income tax attorney whispered a few sweet words into his ear about income tax strategies, like '$2-5 million a year,' that may have influenced his Decision."

The math really makes a difference when you are earning $44 million a year.  What was LeBron looking at with the other teams wooing him:

• Cleveland Cavaliers (Ohio) - state income tax bill - $2.6 million
• Chicago Bulls (Illinois) -- state income tax bill -- $1.65 million
• New York Knicks (New York) -- state income tax bill -- $3 million
• LA Clippers (California) --state income tax bill  -- $4.6 million
• New Jersey Nets (New Jersey) -- the winner!, with a state income tax bill of over $4.8 million

And the state income tax bill for the Miami Heat  (Florida) - zero, nothing, nada.  Hmmm, so maybe there is something to the concept of people don't want to come to  New Jersey because of the taxes.

This does illustrate an interesting tax planning concept regarding gifting. Many times we  will recommend to clients that they create a trust with situs in a state other than New Jersey. The trust's income would then be taxed by the state income tax rates, or not taxed all, in a state like Florida where there's no income tax.  This is done by having a trustee who is resident in the state that has no income tax.

Full post as published by New Jersey Estate & Elder Planning Blog on August 10, 2010 (boomark / email).