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NIL tax tips for college athletes

Written by Chris Clark

If you are a college athlete making money from your name, image, and likeness, you need to make sure that you are educated on your tax responsibilities. Dollars earned from NIL activities will be subject to taxes and must be reported when filing your yearly tax returns.

What do athletes need to know about NIL taxes?

Please consult with a tax professional for detailed advice. See our full disclaimer.

 Here are some important points to know about NIL taxes from AthletesForProfit.com.

You must file a tax return if you make money from NIL

Each year, there is a deadline for individuals who earn income in the United States to file a tax return. In 2022, that deadline is April 18, unless you file for an extension. Why should you make sure that you file a return, as opposed to just ignoring your tax obligations?

Well, if you earn more than $600 in a calendar year from a single business or brand, that company is going to issue a 1099 tax form at the end of the tax year (by January 31 of the following year that you made the money). This creates a tax record, and now the government knows you've made money.

“At that point, there’s a check and balance system. The athlete should expect if they do not file a return that the IRS is going to reach out and say ‘we have this record but a return has not been filed.' They’re going to make the assumption that the 1099 you received, that it was all income and there were no expenses,” said Certified Public Accountant Rod Dooley of Dooley and Company in South Carolina.” In many cases, by filing a return, you’re able to reduce the tax that you would pay if the IRS automatically prepared a default return for the taxpayer. By filing a return, you’re actually preparing yourself and mitigating that tax obligation.”

Know how to complete a W9 tax form

Brands and businesses that do NIL deals with you are going to issue you a W9 tax form. If you have never seen one or have never filled one out, it's not difficult. Make sure you enter your full legal name, address, and social security number. Unless you have an LLC, you'll check the box for “Individual/Sole Proprietor”. Then, sign and date and return it to the business in the manner specified.

Open a separate bank account and keep records

Businesses and brands that contract you for NIL services and endorsements are not going to want to – or may be unable to – pay you via CashApp, PayPal, and Venmo. You will need a bank account and to have that information available in order to be compensated.

When it comes time to file your taxes, it's also important for you- or a tax professional who's preparing your return – to have a record of a) how much money you made from NIL and b) any expenses you paid in order to perform the services to make that money. Having a bank account that's separate from your personal account – the one you use to buy food, clothes, and things like that – will make the tax process a lot more smooth for you. Make sure you have a copy of contracts that you sign for NIL services, plus any tax forms that companies send you. You may be able to deduct expenses  – like mileage or professional services – so keep track of those receipts, too.

Do not spend all your NIL earnings

Hold some funding in reserve  and keep a good sense of what you may owe in taxes when it comes time to file. This will ensure that you do actually have some funds left over to pay your taxes. There are plenty of handy resources you can use to estimate your NIL self-employment taxes – like this one from Everlance.

Money that you earn from NIL activities is going to be classified as “self-employment income”, and that means that money is subject to self-employment tax. That's Social Security plus Medicare, and that tax rate is 15.3% of the earnings. Self-employment income is reported annually on an individual's “Schedule C” tax form.

After self-employment taxes, there's the possibility if income tax. Income tax rates depend on your state and how much you earn. There is always a “standard deduction” for 2022 that rate is $12,950 for a single person. If the total of your NIL earnings for the year is below that amount, federal income tax will not apply.

You may need to pay quarterly estimated taxes on NIL money

Self-employed individuals, at a certain point, may need to pay quarterly (four times per tax year) estimated taxes to keep up with their tax obligations.  

“If the individual feels like the tax that they owe exceeds $1,000, they probably do need to consult with a professional to determine if they’re going to have that estimated tax penalty for not making those payments along the way,” said Dooley.

You can decrease your NIL tax obligation

As said earlier, make sure you track any expenses you incurred when performing NIL services. As an example, if you made $10,000 in a year through NIL deals and had $500 in expenses that you can document, your “taxable income” is now $9,500. That saves you money on your tax bill. Expenses could also make the difference in keeping you below the income tax threshold.

You can also consider making a contribution to a retirement account in order to reduce your tax burden, and it has the added benefit of helping you save and grow your money for the future. Look at a traditional IRA or a SEP (self-employed pension) IRA.

“Whatever you contribute into those retirement accounts is a deferral of that income to a later date. If you were to contribute $6,000 into a traditional IRA it reduces that income by $6,000 that year,” Dooley explained. “It’s particularly important for someone that has income over the standard deduction. Contributing enough to get under that threshold so you wouldn't have to pay income tax is pretty important. It’s creating a retirement benefit and deferring the tax.

Consider hiring a CPA, or use tax software.

All of the above leads to this: you may want to think about contacting a CPA – a Certified Public Accountant – to help guide you through the NIL tax process. CPAs are experts in tax preparation and can advise you on expenses, how to lower your tax burdens, whether or not you should be paying quarterly estimated taxes, and the like. CPAs will charge you for their assistance, but often times – depending on how much you are making – you can save more on your taxes by using an expert than by doing it yourself.

If you feel comfortable enough to do your own taxes, look at using software like Tax Act, Turbo Tax, or H&R Block.

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