On July 8, 2010, much to the chagrin of Cleveland Cavaliers owner Dan Gilbert, the city of Cleveland, and millions of NBA fans, free agent Lebron James announced his decision to play for the Miami Heat. The controversial move became a media obsession with James agreeing to a less lucrative contract to boost Miami’s ability to sign other key free agents—particularly Dwayne Wade and Chris Bosh—in an attempt to build a juggernaut and win championships.
Undoubtedly, the Miami move was fueled by an opportunity to win a NBA championship and secure his legacy alongside All Stars such as Michael Jordan and Larry Bird.
While James’s legacy is yet to be determined, the move proves financially advantageous. In fact, it will save him millions of dollars in state income taxes over the duration of his Miami contract.
Unlike most states, Florida does not impose state or local income taxes on individuals. Forty-three out of fifty states and even a few local jurisdictions impose taxes on the income of individuals. That tax burden is in addition to Federal income taxes.
Aside from Miami, as a free agent James was pursued by the Cleveland Cavaliers, New York Knicks, New Jersey Nets, Chicago Bulls, and the Los Angeles Clippers. For comparison sake, let’s look at the impact of these other options:
|Cleveland||New York||New Jersey||Illinois||California||Florida|
|State Income Tax||6.24%||12.846% *||8.97%||5%||9.55%||0%|
* New York City imposes a local income tax of 3.876% on top of New York’s 8.97% state income tax.
The other teams would need to offer James a significantly higher compensation package to offset the income tax savings offered by a move to Florida. Due to the NBA’s salary cap, however, the other teams couldn’t overcome the Florida income tax savings by simply offering him more millions.
James’s tax savings will compound once you factor in his non-NBA gigs. James has secured some high dollar global marketing campaigns, providing him tens of millions of dollars of auxiliary compensation each year (which greatly exceeds his yearly NBA salary). While sipping a margarita on South Beach, James can sit back and watch the millions he’s saving in state income tax stack up—courtesy of the Sunshine State.
James is just one of the many wealthy individuals, celebrities, and sports figures that have made to the move to Florida, undoubtedly factoring in the significant income tax savings. This opportunity for income tax savings, however, is available to every Florida citizen—not just the rich and famous.
Further, this benefit can also provide a significant tax savings to businesses willing to start or relocate in Florida. If a business is structured as a partnership for Federal tax purposes (LLCs, Partnerships, S Corporations), it will avoid any additional state or local income tax in Florida. Considering the outstanding climate, tourist attractions, sports, beaches, in addition to the income tax savings provided to residents and businesses, James definitely made the right decision to sign with Miami!