Essential Tax Strategies for College Athletes in the NIL Era

Essential Tax Strategies for College Athletes in the NIL Era

March 31, 2025

There are several important steps athletes should take to ensure a smooth tax preparation process when engaging in NIL opportunities. These include:

Setting Up an LLC for Your NIL Earnings

Setting up a Limited Liability Company (LLC) is a fundamental step for college athletes looking to manage their earnings from Name, Image, and Likeness (NIL) opportunities. An LLC provides personal liability protection by separating your personal assets from your business dealings. To establish an LLC, consult with an attorney in your state and apply for an Employer Identification Number (EIN) from the IRS. This structure not only safeguards your personal assets but also enhances your professional credibility when negotiating deals.

Managing Finances and Preparing Necessary Forms

Proper financial management is essential for college athletes navigating the NIL landscape. One of the first steps is opening a business bank account to keep personal and business finances separate. This separation is crucial for maintaining liability protection and simplifies tax preparation. Additionally, preparing a W-9 form to provide to companies you work with ensures that they have the necessary information to complete a 1099 form, detailing your income at the end of the year.

Tracking Income and Expenses Effectively

Accurate record-keeping is vital for managing your NIL earnings. Track all income received, whether in cash, goods, or services, and maintain detailed records of business-related expenses. Common deductible expenses include advertising, marketing, professional fees, travel, and equipment costs. Keeping thorough records not only helps in preparing your tax return but also ensures you maximize your eligible deductions. Consider using financial software or consulting a CPA to assist with tracking and categorizing your income and expenses.

Benefits of Electing to File as an S-Corporation

Electing to file as an S-Corporation can offer significant tax advantages for college athletes. While this option comes with additional compliance requirements, it can reduce the amount of self-employment tax you owe. In an S-Corporation, only a portion of your income is subject to the 15.3% self-employment tax, potentially resulting in substantial tax savings. However, it's important to weigh the benefits against the increased administrative responsibilities and consult with a tax professional to determine if this strategy is right for you.

By adopting these tax strategies, college athletes can effectively manage their NIL earnings and ensure compliance with tax regulations. Setting up an LLC, managing finances, preparing necessary forms, tracking income and expenses, and considering the benefits of an S-Corporation are all crucial steps in this process.

For additional guidance, contact a tax advisor at Larson & Company.  Larson and Company has developed a suite of services specifically to serve the needs of companies of all sizes in a wide range of industries.