As a college athlete, you can finally profit from your Name, Image, and Likeness (NIL) without losing your eligibility. But how should you manage your NIL money?

To help set you up for success, we talked to Katie Davis, a Practice Lead for Higher Education & Collegiate Athletics at CPA firm James Moore & Co

Here’s what she had to say about the most common NIL money questions. 

Note: The following interview has been edited for clarity and length. All content is for informational purposes only and should not be viewed as legal, tax, investment, financial, or other advice.

What is the first thing athletes need to know about their NIL deals?

Katie Davis: Be aware that taxes exist, it could be more than you think, and you’ll have to be diligent in setting money aside to pay taxes. 

In a way, college athletes have it harder than the pros because no one is withholding taxes on your behalf like they would if you were an employee of a company.

What financial steps should athletes take before their first NIL deal? 

Katie Davis: Get organized and have an easy way to keep good records of all of your NIL income and related expenses.

Note: You don’t need to do anything complicated or even pay for tools to do the job. Just a simple spreadsheet like the one below is a great start.

Screenshot of NIL Deal Budgeting Template

[Click here for a template]

Do athletes have to pay taxes on NIL deals?

Katie Davis: If you make at least $600 during the year, you should file a federal income tax return. However, you might not pay federal income tax if you make less than the standard deduction of approximately $12,500. 

However, the self-employment tax also applies even if you don’t owe any income tax. And, then there are state tax rules that vary depending on the state and whether the athlete is a resident or nonresident of the state(s).

How much money should athletes set aside from NIL deals for taxes?

Katie Davis: We recommend 25%. So, 25 cents for every dollar earned should be set aside in savings to cover federal income tax, self-employment tax, and potential state taxes.

Should athletes set up an LLC for NIL deals? 

Katie Davis: In many cases, an LLC won’t create much tax savings and will cost more time and money to make sure it’s set up correctly. However, if you’re planning to go in business with another athlete or hire employees, then you’d definitely want to create an LLC. 

There are also other legal reasons to create a separate entity (like an LLC) for business activities. So, it might still be worth it even if it doesn’t offer much in tax savings.

Note: When in doubt, consult a lawyer.

How can athletes invest their income from NIL deals?

Katie Davis: I am not an investment advisor, so I shouldn’t be giving this advice. But, there are multiple advantages to setting up an IRA, both for tax reduction and long-term retirement savings. 

Traditional IRAs will provide an immediate tax deduction. On the other hand, Roth IRAs do not offer tax savings in the immediate term but offer longer-term tax benefits down the road.

Note: If you’re interested in investing, an IRA will give you many advantages over just buying stocks with a brokerage like Robinhood. Learn more here: What is an IRA? Guide to Individual Retirement Accounts

Can schools provide financial and legal advice to athletes about NIL deals?

Katie Davis: This is a grey area and depends on state law and university policy around NIL. Generally, schools have to be careful when giving legal and financial advice.

The best thing a school can do is have a robust education program that covers all issues, even the “boring” ones like finances and taxes (an area James Moore & Co helps with).

In addition to a licensed CPA, what other resources can athletes use for managing their income from NIL deals? 

Katie Davis: You don’t have to work with a licensed CPA to help manage your income and tax responsibilities.

But finding a trusted person that can help, whether it’s a parent, a community resource, or a tax professional, will give you peace of mind that they’re doing things correctly. 

With that said, make sure any information you’re consuming comes from a reputable source. As a CPA, I should not be educating on contracts or personal branding.

Likewise, attorneys and branding professionals probably shouldn’t advise on taxes and other financial literacy topics. Consider the source.

For more NIL tax and financial literacy content, check out James Moore & Co’s resource center here: NIL Tax Headquarters.

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