Latest / Bennett Thrasher Presents: Beyond The Ledger / The Business of Being an Athlete: NIL, Taxes & the Financial Playbook Every Athlete Needs

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The Business of Being an Athlete: NIL, Taxes & the Financial Playbook Every Athlete Needs · Bennett Thrasher Presents: Beyond The Ledger

• 0:09
  SPEAKER_00: Welcome back to Beyond the Ledger.
• 0:10
  SPEAKER_00: I'm your host, Shard A Layfield.
• 0:13
  SPEAKER_00: In this episode, we're diving into one of the biggest changes to college athletics in recent history.
• 0:19
  SPEAKER_00: Name, image, and likeness.
• 0:21
  SPEAKER_00: What started as an opportunity for student athletes to monetize their personal brands has quickly evolved into a complex financial landscape involving endorsement deals, collectives, multi-state tax obligations, and long-term financial planning.
• 0:36
  SPEAKER_00: As NIAL opportunities continue to grow, so do the tax and compliance challenges that come with them.
• 0:43
  SPEAKER_00: Joining us today is Peter Stehopoulos, partner in Bennett Thrasher's state and local tax practice and leader of the firm's entertainment practice, where he works closely with athletes, entertainers, and high net worth individuals, just to name a few, by helping them navigate complex tax and business matters.
• 1:01
  SPEAKER_00: Today he'll share insights into the tax implications of NIO income, common record-keeping pitfalls, multi-state tax considerations, and strategies athletes can use to make smarter financial decisions both on and off the playing field.
• 1:16
  SPEAKER_00: Thanks for coming back to the show, Peter.
• 1:19
  SPEAKER_00: Thank you for having me.
• 1:21
  SPEAKER_00: This is an exciting topic.
• 1:22
  SPEAKER_00: A lot of people want to know what this is, how it affects them, how potentially maybe they can get one.
• 1:28
  SPEAKER_00: Who knows?
• 1:29
  SPEAKER_00: So I'm interested in learning more.
• 1:30
  SPEAKER_00: So thanks for being here.
• 1:33
  SPEAKER_03: It's been in the news a lot, and I think there's a lot of interest.
• 1:36
  SPEAKER_00: Okay, so NIL has completely changed the landscape of college athletics over the last few years.
• 1:43
  SPEAKER_00: So to set the stage, how did we get here and why has NIL become such a significant financial issue for athletes, school, and collectives?
• 1:52
  SPEAKER_03: So uh, you know, growing up, I think most of us, at least people my age, have spent their life being used to the fact that under the NCAA rules that were in place for most of the 20th and 21st century, colleges were not allowed to uh share revenues or to compensate student athletes for playing sports.
• 2:13
  SPEAKER_03: Um over a period of years in the 1940s and 50s, it had become allowed for colleges to provide scholarships and certain financial aid and ancillary benefits, but directly sharing revenues and directly paying athletes was not allowed.
• 2:32
  SPEAKER_03: And so following some antitrust litigation, which started in 2021 and was finally settled in 2025, everybody's probably heard of uh NCAA v house or house v NCA under a recent settlement and following a U.S.
• 2:47
  SPEAKER_03: Supreme Court decision that basically said that um schools could be and the NCAA could be subject to antitrust litigation, there was a settlement reached with the NCAA and a class of student athlete litigants, which for the first time uh basically called for one retroactive damages for players that had played Division I sports and had not been compensated and had not uh received any revenues.
• 3:16
  SPEAKER_03: So over two billion in kind of what I'll call reparations damages was set aside to pay those athletes.
• 3:22
  SPEAKER_03: And then two, under the new rules going forward, schools are allowed to directly share revenues with athletes up to 22% of revenues, and it goes up every year over a 10-year period.
• 3:37
  SPEAKER_03: And in addition, students are now allowed to get paid by third parties, whether that's corporations offering endorsement deals, whether that's collectives, which we'll talk about in a little bit, whether it's, like I said, directly by the school, um students can now earn income from multiple sources.
• 3:54
  SPEAKER_03: That being said, that income does count towards any compensation received from the school does count towards uh need-based aid like Pell grants and things like that.
• 4:06
  SPEAKER_03: And schools are still not allowed directly to pay athletes to play.
• 4:09
  SPEAKER_03: So pay to play is still strictly forbidden.
• 4:12
  SPEAKER_02: Okay.
• 4:12
  SPEAKER_03: Um, but what they are allowed to do is share revenues, usually in the form of licensing and other uh streams of income.
• 4:19
  SPEAKER_00: Okay.
• 4:20
  SPEAKER_00: That's a lot of backstory, and it it puts things in perspective on how how fair the playing field needs to be a lot more fair.
• 4:27
  SPEAKER_00: So I love to dive in a little bit more.
• 4:29
  SPEAKER_00: So when people hear NIL income, they often think endorsement deals, but the reality is much broader.
• 4:36
  SPEAKER_00: What are some of the most common ways athletes are earning money today and which income sources tend to create the biggest tax surprises?
• 4:43
  SPEAKER_03: Sure.
• 4:44
  SPEAKER_03: So it's still very much a developing area, which is why it's so interesting.
• 4:48
  SPEAKER_03: But so, for example, a student might be receiving uh licensing income directly from a school for name image likeness, and that might be reported on a form 1099 NEC non-employment compensation.
• 5:04
  SPEAKER_03: They might be getting cash directly from a collective, and that might be reported on a 1099 miscellaneous.
• 5:12
  SPEAKER_03: We'll talk in a minute about the different tax implications of which form uh income is reported on.
• 5:18
  SPEAKER_03: So this is going to be very important to our later discussion.
• 5:20
  SPEAKER_03: They might get non-cash compensation.
• 5:23
  SPEAKER_03: Let's say a car dealership says, you know what, we'd really like this athlete to drive our car or this car manufacturer.
• 5:30
  SPEAKER_03: That is a form of non-cash uh compensation, nonetheless, for tax purposes, that student athlete is receiving something of value.
• 5:39
  SPEAKER_03: It could be collectibles, it could be there's a number of things that could be non-cash compensation uh received by that student.
• 5:47
  SPEAKER_03: So uh yeah, it's multiple forms of income which could be reported on multiple forms anywhere from a 1099 NEC, 1099 miscellaneous, to potentially a W-2.
• 5:59
  SPEAKER_03: Although students are not allowed to be employees of the school, because once again, pay to play is still uh forbidden under the house settlement.
• 6:08
  SPEAKER_00: Got it.
• 6:09
  SPEAKER_00: So many student athletes are receiving substantial income from the first time in their lives.
• 6:14
  SPEAKER_00: So what are some of the biggest misconceptions athletes have when it comes to taxes?
• 6:19
  SPEAKER_00: And why does NIL money often lead to unexpected tax bills?
• 6:23
  SPEAKER_03: Sure.
• 6:23
  SPEAKER_03: So the problem is because this is happening so quickly, there really aren't any safeguards in place.
• 6:29
  SPEAKER_03: Generally, if you go get a job, your first job, let's say my first job was at Hagen, I was working at Perimeter Mall.
• 6:36
  SPEAKER_00: Okay, and that was Chick-fil-A.
• 6:37
  SPEAKER_03: Chick-fil-A, okay.
• 6:38
  SPEAKER_03: We had we were probably next to each other.
• 6:39
  SPEAKER_03: Uh my employer withheld taxes.
• 6:42
  SPEAKER_03: So at the end of the year, I didn't have as uh a kid a big tax surprise.
• 6:48
  SPEAKER_03: You know, and most people are used to their employers withholding some level of tax on the compensation they get so that at the end of the year uh they are largely covered as far as their tax obligations.
• 7:00
  SPEAKER_03: Well, with NIL income, there is no withholding.
• 7:06
  SPEAKER_03: So typically a student is getting compensation, which could be in the millions of dollars or hundreds of thousands of dollars, but no taxes being withheld.
• 7:15
  SPEAKER_03: So that student has no idea how much they're going to owe, how much they should pay in estimated income taxes.
• 7:22
  SPEAKER_03: So generally, if you're not if your employer is not withholding, um employer withholding taxes monthly on your monthly income, you're supposed to file uh quarterly estimated tax payments.
• 7:35
  SPEAKER_03: And if you fail to do so, even if you pay all your taxes at the end of the year, you're gonna have penalties, substantial penalties for failing to make those quarterly estimated payments.
• 7:46
  SPEAKER_03: At least initially, I think there's been just a lack of structure and education for these families and these athletes.
• 7:53
  SPEAKER_03: Hey, you're getting this money, but what kind of record keeping do you need to have?
• 7:58
  SPEAKER_00: What do you do with it?
• 7:59
  SPEAKER_00: So did you get it?
• 8:00
  SPEAKER_00: Yeah.
• 8:00
  SPEAKER_03: Are you saving enough money at the end of the year to pay these taxes?
• 8:04
  SPEAKER_03: Are you making estimated payments?
• 8:06
  SPEAKER_03: Do you have a tax advisor?
• 8:07
  SPEAKER_03: Most people don't, right?
• 8:08
  SPEAKER_03: I mean, I didn't have a tax advisor growing up.
• 8:10
  SPEAKER_03: How do you know how to report this income?
• 8:12
  SPEAKER_03: Is it business income?
• 8:14
  SPEAKER_03: Is it non-business income?
• 8:15
  SPEAKER_03: Is it subject to FICA FUDA taxes?
• 8:18
  SPEAKER_03: You know, these are all very complex questions.
• 8:20
  SPEAKER_03: And there just hasn't been a framework for preparing these families to deal with that.
• 8:27
  SPEAKER_00: And there's no I mean, well, I guess no matter how much money you do get, if it's monetary, it doesn't matter how much it is, you still have to go through those processes.
• 8:36
  SPEAKER_00: That's right.
• 8:37
  SPEAKER_03: I mean, you very quickly, you know, there is a there is a minimum threshold for filing an income tax return, um, but you very quickly hit those thresholds.
• 8:46
  SPEAKER_03: And we'll talk in a minute, too, about state and local taxes.
• 8:50
  SPEAKER_03: But in a lot of states, you know, any amount of um income earned from sources within that state potentially could subject you to tax.
• 8:57
  SPEAKER_03: So it's not just federal tax, as we're gonna talk about in a minute, it's all of a sudden that athlete could be getting tax bills from a bunch of different states, where could be the state where their school is, if they live in a different state, it could be where they've played games.
• 9:12
  SPEAKER_03: So, yeah, all of a sudden um tax advice and record keeping starts becoming very problematic.
• 9:17
  SPEAKER_00: Yeah, very complex.
• 9:19
  SPEAKER_03: Very much so.
• 9:20
  SPEAKER_00: Okay.
• 9:20
  SPEAKER_00: So one of the themes we hear repeatedly in business is that good records make everything easier.
• 9:26
  SPEAKER_00: You kind of insinuated to.
• 9:28
  SPEAKER_00: So in the NIL world, what types of records should athletes be keeping from day one to protect themselves and avoid headaches at tax time?
• 9:37
  SPEAKER_03: Absolutely.
• 9:38
  SPEAKER_03: So there's gonna be two sets of records.
• 9:40
  SPEAKER_03: One is the schools, collectives, and other payors who are giving money to these athletes need to make sure they're using the right forms.
• 9:49
  SPEAKER_03: Like I said, um payment for non-employee compensation, so for instance, for an endorsement deal, should be paid on a 1099 NEC.
• 10:02
  SPEAKER_03: But licensing income, let's say for uh somebody's image on a t-shirt might be paid out on a 1099 miscellaneous.
• 10:11
  SPEAKER_03: Depending on which form is used, there might or might not be FICA FUDA uh taxes on that.
• 10:18
  SPEAKER_03: Um on the student side of things, they need to have some way of not only tracking how much money they're getting, but what form was it reported on?
• 10:27
  SPEAKER_03: How much did I get in 1099 miscellaneous income?
• 10:30
  SPEAKER_03: How much did I get in W 2 income?
• 10:32
  SPEAKER_03: If any, how much did I get in 1099 NEC compensation?
• 10:38
  SPEAKER_03: How much non-cash compensation did I get?
• 10:41
  SPEAKER_03: And then at the end of the day, what states did this come from?
• 10:45
  SPEAKER_03: So now you got to track, okay, some of this came from uh Georgia, some of this came from Arizona, some of it came from California.
• 10:54
  SPEAKER_03: And then there are even more complex considerations.
• 10:57
  SPEAKER_03: Should I be getting all this money as just an individual, a sole proprietorship, or should I set up a business entity?
• 11:05
  SPEAKER_03: You know, if the if this is going to be treated as business compensation, which the IRS is gonna treat it as self-employment income, then now should I set up an entity?
• 11:16
  SPEAKER_03: So for example, a common tax planning structure might be to set up an S corporation that instead of you getting all this money individually, receives all these various kinds of compensation as part of a business being carried on by that S corporation, which is loaning out me.
• 11:34
  SPEAKER_03: You know, my corporation would be loaning me out as talent, you know, to make this income.
• 11:41
  SPEAKER_03: But now I've got um possibly tax planning around if you are getting income from an S corporation, you only pay employment FICA FUDA type taxes on your salary that's being paid to you by your S corporation.
• 11:56
  SPEAKER_03: The rest is not subject to FICA FUDA taxes.
• 11:59
  SPEAKER_03: So that's one planning opportunity.
• 12:01
  SPEAKER_03: Now you have to pay yourself a reasonable salary.
• 12:03
  SPEAKER_01: Right.
• 12:04
  SPEAKER_03: Also, now you can think about things like can I set up a SEP or 401k and start putting money away on a tax-advantage basis for my future.
• 12:14
  SPEAKER_03: So these are just some of the things that students and their families really should be thinking about, but usually are not because it's so early uh and because this is all so new.
• 12:23
  SPEAKER_00: And for these younger athletes, especially, it sounds so complex.
• 12:29
  SPEAKER_00: Just me thinking along those lines, it sounds like it's unrealistic to keep track of all of that on your own.
• 12:37
  SPEAKER_00: The best way is to acquire a an advisor.
• 12:41
  SPEAKER_03: I think it is.
• 12:42
  SPEAKER_03: And you know, schools should be very much so.
• 12:45
  SPEAKER_03: And I think schools should consider providing and collectives should consider providing some initial advice to these families.
• 12:54
  SPEAKER_02: Right.
• 12:55
  SPEAKER_03: As part of uh maybe some of this prior compensation that, you know, for prior years um or for ongoing compensation, a little structure and maybe basic tax planning advice ought to be provided.
• 13:09
  SPEAKER_03: And then maybe the families could supplement that by getting their own advisors.
• 13:14
  SPEAKER_03: But especially as you know, the scale and complexity of the income grows, you know, I would highly recommend getting some advisors.
• 13:22
  SPEAKER_03: Because like I said, you can you could get um uh not only get into serious trouble with penalties and failure to to make various payments on time, but there are a lot of tax planning opportunities, like I talked about setting up kind of a personal holding S corporation.
• 13:36
  SPEAKER_03: So um yeah, so both sides of that.
• 13:39
  SPEAKER_00: And opportunities for that money to grow.
• 13:40
  SPEAKER_03: Absolutely.
• 13:41
  SPEAKER_00: Because some people just blow it all and then you still end up with a huge tax bill.
• 13:45
  SPEAKER_00: But outside of that, you can make that work for you in so many different ways.
• 13:50
  SPEAKER_03: So that's right.
• 13:51
  SPEAKER_00: I hope these colleges do provide a little bit more advice for the money.
• 13:56
  SPEAKER_03: I think they will.
• 13:57
  SPEAKER_03: But absolutely planning for the future, you know.
• 13:59
  SPEAKER_03: Um let's get up that that solo, you know, 401k SEP.
• 14:03
  SPEAKER_03: Let's start planning for retirement, let's start investing this money so that you set up a uh lifelong success.
• 14:10
  SPEAKER_03: Of course.
• 14:11
  SPEAKER_03: It's somewhat similar to what young professional athletes run into.
• 14:16
  SPEAKER_00: Okay.
• 14:17
  SPEAKER_00: So NIEL income doesn't stop at state lines.
• 14:20
  SPEAKER_00: Right.
• 14:21
  SPEAKER_00: An athlete might live in one state, attend school in another, and earn money from companies across the country, like you've the scenario you provided earlier.
• 14:29
  SPEAKER_00: How does that create multi-state tax challenges and what should athletes be paying attention to?
• 14:34
  SPEAKER_03: Sure.
• 14:34
  SPEAKER_03: So this is a very complex and emerging area of law.
• 14:37
  SPEAKER_03: We still haven't figured out all the different ways that NIL income could be taxed.
• 14:43
  SPEAKER_03: In general, the way state taxation works is the state where you live in gets to tax, if it has an income tax, 100% of your worldwide income.
• 14:54
  SPEAKER_03: So if I live in Georgia, Georgia can tax 100% of my income that I earn from all over the world.
• 14:59
  SPEAKER_03: But they have to give me a credit for any taxes I pay to any other states.
• 15:04
  SPEAKER_03: Meanwhile, other states, even though I'm a nonresident, if I earn income from sources within that state, they can tax me as a taxable nonresident.
• 15:13
  SPEAKER_03: So I could be subject to state taxation in any number of states.
• 15:18
  SPEAKER_03: And if I fail to comply with that, there could be substantial penalties and interest associated with that.
• 15:25
  SPEAKER_03: So historically, you know, just earning income from providing, let's say, services as employee, states would base that on where you perform the services.
• 15:37
  SPEAKER_03: But now with NIL, it gets so much more complex because you're not an employee of that school.
• 15:41
  SPEAKER_03: Right.
• 15:42
  SPEAKER_03: You're not an employee of that collective.
• 15:44
  SPEAKER_03: You're earning income possibly for multiple things.
• 15:47
  SPEAKER_03: It could be licensing income from your name, image, likeness, it could be merchandise sales, it could be uh payments for revenue sharing from the school.
• 15:58
  SPEAKER_03: These all might have different sourcing implications from a state income tax standpoint.
• 16:03
  SPEAKER_03: And so it's not just a simple matter of keeping track, well, where did I play a game or where where did I go to school versus where I live?
• 16:12
  SPEAKER_03: It's keeping track of who's paying me and for what, because that has very different sourcing implications.
• 16:17
  SPEAKER_03: And once again, whether it's being paid to me individually or being paid to my business entity could also change the sourcing rules from a state perspective.
• 16:27
  SPEAKER_00: And quick question, I know this is a sidebar.
• 16:30
  SPEAKER_03: Sure.
• 16:30
  SPEAKER_00: Does it have to depend on what the athlete wants to do if it's a better choice to start an entity versus keeping it all to yourself?
• 16:40
  SPEAKER_03: In general, I think you're almost always better forming an entity for various reasons.
• 16:45
  SPEAKER_03: One, it centralizes all the various different business activities into one entity.
• 16:51
  SPEAKER_03: So instead of maybe having like a Schedule C self-employment income, sole proprietorship on your tax return, and then a Schedule E licensing income, and then it also helps from an expense recognition standpoint.
• 17:04
  SPEAKER_03: If everything is taking place within that one S corporation, then it's easier to track expenses.
• 17:09
  SPEAKER_03: Now all your expenses for training and travel and what have you, um possibly marketing, um, advisors, those are now deductible business expenses.
• 17:20
  SPEAKER_03: Um, and it's just easier to me to keep track of those on an enterprise-wide level versus just separately for various payments.
• 17:28
  SPEAKER_00: Okay.
• 17:28
  SPEAKER_00: Thank you for clarifying that.
• 17:30
  SPEAKER_00: Sure.
• 17:31
  SPEAKER_00: Okay, so we've heard professional athletes talk about jock taxes for years.
• 17:36
  SPEAKER_00: As NIA opportunities continue to expand, are student athletes starting to face similar issues?
• 17:41
  SPEAKER_00: And what are some examples of how those state tax rules can catch people off guard?
• 17:47
  SPEAKER_03: Sure.
• 17:47
  SPEAKER_03: So ironically, before I get into that, just a sidebar.
• 17:50
  SPEAKER_03: We keep hearing in the news about uh student athletes saying, you know what, I can't afford to get into pro sports.
• 17:55
  SPEAKER_03: I'm making more money as a college athlete.
• 17:58
  SPEAKER_03: I mean they are.
• 17:59
  SPEAKER_04: Some are.
• 18:00
  SPEAKER_04: So it's crazy.
• 18:02
  SPEAKER_03: So state law usually takes years to catch up with changing conditions, right?
• 18:06
  SPEAKER_03: Because legislatures have to meet and change the law.
• 18:09
  SPEAKER_03: So right now, states are still not really set up to tax properly NIL income.
• 18:16
  SPEAKER_03: But uh a lot of states have been taxing uh income and chasing professional athletes for a while.
• 18:22
  SPEAKER_03: So unfortunately, there's no uniformity.
• 18:25
  SPEAKER_03: Depending on which state you were an income in, it might have either no threshold or a different threshold for when you have to start paying taxes and file a tax return in that state.
• 18:36
  SPEAKER_03: Furthermore, some states have uh basically exceptions for entertainers and professional athletes.
• 18:43
  SPEAKER_03: In other words, their usual rule might be, well, you've got to spend 10 days in the state before you have to worry about filing a tax return.
• 18:48
  SPEAKER_03: Okay.
• 18:48
  SPEAKER_03: Unless you are a highly compensated athlete or entertainer, in which case day one.
• 18:54
  SPEAKER_03: Okay.
• 18:54
  SPEAKER_03: So unfortunately it's very complex, and I do think that the state rules for taxing professional athletes probably will be more or less adapted to apply to these student athletes who are making all of this income.
• 19:07
  SPEAKER_03: Um, but like I said, there is no kind of one state answer, it's gonna depend on the state.
• 19:13
  SPEAKER_00: Okay, got it.
• 19:15
  SPEAKER_00: I mean, because they are literally like bringing in just an absorbing an amount of income from these.
• 19:23
  SPEAKER_00: So Yeah.
• 19:24
  SPEAKER_03: I mean, I watch a lot of Division I college football and basketball, so uh and go to these games.
• 19:30
  SPEAKER_03: So I'm contributing to this pot.
• 19:32
  SPEAKER_03: I mean, it's just yeah, it's it's great entertainment and it but uh but yeah, so it's probably billions of dollars.
• 19:38
  SPEAKER_00: Yes, and then I'm coming from the baseball world, so this also helps as well.
• 19:42
  SPEAKER_03: Yeah.
• 19:43
  SPEAKER_00: Okay, so while athletes often receive the spotlight, schools and collectives are navigating a lot of responsibility behind the scenes.
• 19:51
  SPEAKER_00: What record keeping, reporting, and compliance risk should schools and collectives be thinking about as NIL programs continue to grow?
• 19:59
  SPEAKER_03: Sure.
• 19:59
  SPEAKER_03: So uh as I said before, the type of form that you report income on has uh tax implications for the payee.
• 20:08
  SPEAKER_03: Um also failure to file these forms has potential penalty implications for the pay or so, for instance, failure to file a form 1099 miscellaneous could expose you, the payor, to penalties.
• 20:23
  SPEAKER_03: Um failure to properly track by a school or collective what you're paying somebody for if you're a school, for instance, could expose you to issues.
• 20:32
  SPEAKER_03: Hey, what were you paying this person for?
• 20:35
  SPEAKER_03: Are you sure it wasn't a play?
• 20:36
  SPEAKER_03: You know, are you sure this is an ILN code?
• 20:39
  SPEAKER_00: Right.
• 20:39
  SPEAKER_00: Um What are we labeling this?
• 20:41
  SPEAKER_00: Exactly.
• 20:42
  SPEAKER_03: So so labeling matters.
• 20:43
  SPEAKER_03: Right.
• 20:44
  SPEAKER_03: And once again, if you're also providing financial aid, they're supposed to offset, you know, are you are you offsetting?
• 20:52
  SPEAKER_03: Um so uh yeah, but I'm less concerned, you know, the the institutions um hopefully have the resources um to start putting these in place.
• 21:02
  SPEAKER_03: Um I think but I also think they should be providing some minimum level of uh assistance to the the families.
• 21:09
  SPEAKER_00: And I think that should be standard.
• 21:11
  SPEAKER_00: If you're able to dish out these types of funds, you should have like a structure behind it too to make sure that's the same thing.
• 21:17
  SPEAKER_00: Yep.
• 21:18
  SPEAKER_03: And and if and if collectives and schools don't, then state legislatures may step in and mandate that.
• 21:24
  SPEAKER_00: Yeah.
• 21:26
  SPEAKER_00: Okay.
• 21:26
  SPEAKER_00: At what point does NIL income stop feeling like side income and start looking like a business?
• 21:32
  SPEAKER_00: I know we kind of alluded to earlier.
• 21:33
  SPEAKER_00: And what are some of the tax planning opportunities athletes should consider as their earning increases, including deductions, business structures, and retirement planning?
• 21:44
  SPEAKER_03: Sure.
• 21:44
  SPEAKER_03: So we've touched on a lot of this, but I'll wrap it all up.
• 21:47
  SPEAKER_03: The answer to me is immediately, right?
• 21:49
  SPEAKER_03: If you're if you're making money, you know, any substantial amount of money, and if you're being paid NIL income, it it's usually a material amount of money.
• 21:59
  SPEAKER_03: Uh I would say from day one, it's important to begin treating it as business income and maximizing um deductions that might be applicable, right?
• 22:10
  SPEAKER_03: Because as I said before, your training expenses, maybe you have significant training expenses, travel expenses, other expenses that allow you to earn this income need to be uh captured.
• 22:21
  SPEAKER_03: Um as we talked a little bit about whether you perform these services as a sole proprietor or individual may not be as tax advantaged as performing them in an S corporation.
• 22:33
  SPEAKER_03: Whether income gets reported to you on a form 1099 miscellaneous or 1099 NEC or W 2 has different tax implications.
• 22:42
  SPEAKER_03: So it would be good for you to know.
• 22:44
  SPEAKER_00: Right.
• 22:45
  SPEAKER_03: Make sure that the payor knows the right one to use because they can have different tax implications.
• 22:50
  SPEAKER_03: As I said before, NEC is subject to FICA FUDA taxes.
• 22:55
  SPEAKER_03: Miscellaneous is not.
• 22:58
  SPEAKER_03: So you know, other things, like we said, there's tax planning associated with uh the delta between what you pay yourself as a salary uh as an employee of an S corporation versus the amount that's non-salary but gets passed through to you on a K1 from that corporation.
• 23:15
  SPEAKER_02: Okay.
• 23:15
  SPEAKER_03: Well S corporation, which would not be subject to employment taxes, which can be 15% or so.
• 23:21
  SPEAKER_03: So uh those are all very important considerations.
• 23:24
  SPEAKER_03: And then finally, you know, planning for the future.
• 23:27
  SPEAKER_03: Should you set up a uh a 401k or SEP?
• 23:31
  SPEAKER_03: And you know, is that going to be tax advantaged and can that be deducted by the corporation?
• 23:37
  SPEAKER_03: These are all things that that should be taken into account.
• 23:40
  SPEAKER_00: Thank you, Peter.
• 23:41
  SPEAKER_03: Yep.
• 23:42
  SPEAKER_00: Okay.
• 23:42
  SPEAKER_00: Looking ahead, NIO continues to evolve rapidly.
• 23:46
  SPEAKER_00: What are the biggest tax compliance or planning issues you believe athletes, schools, and collectives should be preparing for over the next few years?
• 23:54
  SPEAKER_03: I think step one is putting aside some money to pay those taxes.
• 23:58
  SPEAKER_03: Right.
• 23:58
  SPEAKER_00: Step one.
• 23:59
  SPEAKER_03: Step one is understand that don't spend all the money.
• 24:02
  SPEAKER_00: Right, right.
• 24:02
  SPEAKER_00: Please don't.
• 24:03
  SPEAKER_03: Yep.
• 24:04
  SPEAKER_03: Because roughly, you know, the highest effective federal tax rate is, you know, roughly 37 percent plus another five, six percent potentially for state.
• 24:13
  SPEAKER_03: You get up into the 40-something percent needs to be set aside for taxes at the highest level.
• 24:18
  SPEAKER_00: Let's just say half to be safe.
• 24:20
  SPEAKER_00: Just to be safe.
• 24:21
  SPEAKER_03: Um and the other thing is be aware of uh quarterly estimated filing deadlines.
• 24:28
  SPEAKER_03: Because once again, failing to make quarterly estimated payments, even if at the end of the year you pay all your taxes, there are going to be penalties, which are unnecessary.
• 24:35
  SPEAKER_03: So why give the government extra money?
• 24:37
  SPEAKER_00: Right.
• 24:38
  SPEAKER_03: Right.
• 24:39
  SPEAKER_03: Um and then record keeping right away.
• 24:42
  SPEAKER_03: Uh you're not gonna be able to figure out what you owe and what your taxes are and what proper tax deductions might be if you don't keep records.
• 24:51
  SPEAKER_03: So right away you gotta, you know, invest in some maybe some software, you know, maybe some QuickBooks to start tracking, you know, okay, not only my income, but my expenses, which offset that income.
• 25:02
  SPEAKER_00: Yeah.
• 25:03
  SPEAKER_00: Okay.
• 25:04
  SPEAKER_00: Last one.
• 25:05
  SPEAKER_03: And finally getting an advisor.
• 25:07
  SPEAKER_00: Yeah.
• 25:07
  SPEAKER_00: Oh, well that yes, that might actually be step one.
• 25:11
  SPEAKER_00: Yeah, yeah.
• 25:12
  SPEAKER_00: Especially if you know it's coming.
• 25:14
  SPEAKER_00: That's right.
• 25:14
  SPEAKER_04: That's right.
• 25:15
  SPEAKER_00: Right.
• 25:15
  SPEAKER_00: So if there's one piece of advice you could give every student athlete, I think you already said it, but we'll keep going.
• 25:21
  SPEAKER_03: Yep.
• 25:21
  SPEAKER_00: Receiving NIL income today, what would it be?
• 25:24
  SPEAKER_03: I think it would be educate yourself as much as possible about what it is that you're getting and what to do with it, and what are the opportunities to not only minimize taxes, but plan for the future for you and your family.
• 25:43
  SPEAKER_00: Thank you, Peter.
• 25:44
  SPEAKER_00: Yeah.
• 25:44
  SPEAKER_00: I mean, this I feel like you're providing a lot of tools and will prompt a lot of questions to a lot of these athletes and families that can help them set themselves up for success, especially if they know they're getting their first NIL deal or what to do with if they've already had one.
• 26:02
  SPEAKER_00: So that's right.
• 26:04
  SPEAKER_04: Knowledge is power.
• 26:06
  SPEAKER_04: Absolutely.
• 26:06
  SPEAKER_00: Be very curious.
• 26:08
  SPEAKER_00: Make sure you have a future plan in place.
• 26:11
  SPEAKER_00: So I appreciate the conversation, Peter.
• 26:13
  SPEAKER_03: As always, I enjoy speaking with you.
• 26:15
  SPEAKER_00: Thank you, and I hope to see you back soon.
• 26:17
  SPEAKER_03: You too.
• 26:18
  SPEAKER_00: Thank you.
• 26:19
  SPEAKER_00: That wraps up today's conversation with Peter Stethopoulos.
• 26:23
  SPEAKER_00: NIL has created exciting new opportunities for student athletes, but it has also introduced a new layer of tax, compliance, and financial planning considerations.
• 26:33
  SPEAKER_00: As athletes, schools, and collectives navigate these evolving landscapes, understanding the rules, maintaining strong records, and planning ahead can help avoid costly surprises and create a stronger foundation for long term success.
• 26:48
  SPEAKER_00: Thanks for tuning in to Beyond the Ledger.
• 26:50
  SPEAKER_00: For more insights and expert perspectives, visit btcpa.net and explore our latest resources.
• 26:56
  SPEAKER_00: And don't forget to like, follow, and subscribe.
• 26:59
  SPEAKER_00: Until next time, I'm Sardane Layfield, and we'll see you for the next conversation.