Fresh off his excursion down the immaculate, sun-drenched fairways last Sunday, professional golfer Phil Mickelson admitted that, because of higher federal and state tax rates, "I will be making some drastic changes."
Granted, the California resident's final-round 66 at the Humana Challenge, good enough for a 37th-place finish and a $22,400 paycheck for the week, was several strokes higher than what the four-time major champion considers to be his tax rate. Maybe that's what got Mr. Mickelson started.
"If you add up all the federal and you look at the disability and the unemployment and the Social Security, my tax rate's 62, 63 percent," Mr. Mickelson said, according to press accounts. "I happen to be in that zone that has been targeted both federally and by the state. And, you know, it doesn't work for me right now."
Tax experts quickly debunked Mr. Mickelson's estimate, lowering it to the mid-50s or less. If he's paying more, Mr. Mickelson should hire an accountant who's as skilled as his caddie.
Mr. Mickelson was estimating his federal marginal tax rate. Once individuals exceed a certain amount of income, their tax rate increases. For example, 2013 income between $398,350 and $450,000 will be taxed at 35 percent. Anything over that will be taxed at 39.6 percent vs. 35 percent for 2012 income.
He and other successful members of the Rolex and plaid slacks crowd also face higher taxes on investment income, limits on their itemized deductions, and the 2 percentage point increase on Social Security that other working stiffs have to pay. That last item will cost Mr. Mickelson $2,200 this year, said Dan Phillips, a tax expert at Schneider Downs, a Downtown wealth management and business advisory firm. On top of that, California raised income taxes for the first time since 2004.
Mr. Phillips estimates that despite the federal and state tax increases, Mr. Mickelson's 62 or 63 percent tax rate is probably more like 50 percent.
That's because whether he files as an individual or a business, he can deduct his business expenses. They include his caddie, health care, traveling to and from tournaments, as well as accountants, attorneys, publicists and others who provide business-related services, said Joseph Nicola, a tax expert with Sisterson & Co., a Downtown accounting firm. Mr. Mickelson also benefits from deducting his California tax payments on his federal form.
While much of his tournament winnings come from Florida and Texas, two states that do not have an income tax, Mr. Mickelson will have to pay California income taxes on those earnings. For winnings in states that do tax income, California will give him a credit for those payments and he won't be taxed twice on the same winnings, Mr. Nicola said.
As the recent presidential election illustrated, the top marginal tax rate is frequently much higher than the effective tax rate -- taxes an individual pays as a percentage of his income. Unsuccessful Republican candidate Mitt Romney, despite his private equity pedigree, paid an effective rate of 14 percent in 2011 while President Barack Obama's was 20 percent. Mr. Phillips estimated that if Mr. Mickelson paid an effective tax rate similar to Mr. Romney's, his effective rate will increase to about 25 percent on his 2013 income.
To his credit, Mr. Mickelson, like many other PGA players, devotes considerable time and money to charity. And he apologized for his outburst as he punched the time clock at the Farmers Insurance Open, where he and other hardworking stiffs are scratching out a living along San Diego's stunning Pacific Coast shore. The winner will have to pay taxes on $1 million of the $6.1 million prize pot.
"I've made some dumb, dumb mistakes, and obviously talking about this stuff was one of them," he told reporters. "I've never had a problem paying my fair share. I don't know what that is right now."
Mr. Mickelson appropriately compared his comments to his errant tee shot on the final hole of the 2006 U.S. Open. Needing only a par 4 to win and a bogey to tie, he played foolish first and second shots and ended with a double-bogey 6.
"I'm such an idiot," Mr. Mickelson observed.
The quote is part of golf lore, which is full of colorful characters that Mr. Mickelson could learn from.
One is Walter Hagen. While Mr. Mickelson has won four majors, Mr. Hagen won 11, including five PGA titles and four British Opens. He is credited with being the game's first great marquee attraction, popularizing the sport in a way that has made it possible for Mr. Mickelson to face such exorbitant tax bills.
The Haig's prime was in the 1920s, when prize money was considerably less and professionals were considered blue-collar wretches unfit to enter clubhouses. Mr. Hagen changed that at a British Open. Banned from the clubhouse, he hired a limousine, chauffeur and footman and parked the car outside the clubhouse, where it served as his locker and dining rooms. Golf's royalty got the message.
While Mr. Mickelson will be remembered for calling himself an idiot, Mr. Hagen is immortalized by his simple advice. His fans reconstruct the quote in various ways, but its meaning is as crisp as one of the recovery shots Mr. Hagen was famous for: "You're only here for a short visit. Don't hurry. Don't worry. And be sure to smell the flowers along the way."mobilehome - bizopinion
Len Boselovic: email@example.com or 412-263-1941.