Captain 14
- The Last Best Place
Accountants....what are the tax liabilities for an athlete earning $100k in the state of Illinois? Pro Bono please.
NIL Thread (Name, Image, Likeness Rule)
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Holding the event at a huge pole barn saved money on a venue, so there's that.
Dang - that looks like a great turnout. Any idea if there are more of those? Do they hold those around the state?Holding the event at a huge pole barn saved money on a venue, so there's that.
I am not an accountant. I have done taxes for far to many years.
Assumptions:
- 100k income - schedule C - self employed
- single
- standard deduction
- 20% pass through for self employed
- 4.95% IL tax
~32k in taxes, including: SSN (both sides), medicare, the feds and the state.
This is a very quick calculation. I'd expect it to be within 5%. There are all sorts of free calculators for this type of thing if you need better numbers.
Free room and board is a taxable benefit in many circumstances. If I was an athlete I'd be prepared to get nailed for that. Not an issue when your overall income is so low but the IRS is not going to too kind to athletes with 6 figure income and a housing allowance.
As part of a scholarship though? That would seem kinda ridiculous. I’d get it if it was a benefit of your job, but we’re working with the technicality that they are still deemed students (at this point).
But, what happens when they start getting paid for good grades?
It incentivizes them to be more student like?
I think the people who couch their own distaste for change as a concern for the athletes are very funny. If the tax situation is really such a burden, student athletes can always forego NIL deals. Nobody is compelling them to take this money. Does anyone have the same concerns about people who forego college to enter the workforce at 18? They have to navigate the tax situation as well, probably with much less assistance (or less means to hire assistance).
Getting a W-2 from a single employer and filling out a 1040 is generally pretty trivial for a young, single person. I would expect that NIL from multiple sources and any other taxable benefits received from a school would be significantly more complicated and I would likely hire a professional at that point.
I can tell you my kids wouldn't file taxes if I wasn't on them to do so, just like my dad did for me. It's just not top of mind for kids. I think that's all anyone who mentions taxes is talking about - they won't be able to wait until tax day and do it in an hour.
I'd be shocked of the Athletic Dept didn't, at a minimum give them some info on taxes at the outset and later remind them about taxes as it gets closer to that time. I suspect they offer even more assistance than that. Again, if the tax issues are so much of a burden these young men and women always have the choice to decline NIL offers.
Agreed. I 100% expect the athletic department to be helping with this advice.
The "burden" isn't on the athletes - it's another task (i.e. expense) for the athletic department. It becomes a problem for the athletes if they ignore the advice and don't do their taxes correctly. The same is indeed true for anyone else who enters the workforce at 18, but I disagree with equating those two situations, as the latter is almost certainly much simpler.
sacraig
- The desert
This is great, but it's such a terrible name they chose.
Epsilon
M tipping over
- Pdx
How’s about the Pony Up Express club?
I think "Alma Otterly Ridiculous" is catchy.
sacraig
- The desert
I think they really missed an opportunity to use "NIL-ini" or something similar.
Wouldn't they also have to make periodic estimated tax payments throughout the year?
Why not just have the student athlete incorporate as an LLC or personal service corp, be the sole employee, have NIL pay the corp, with off corporate expenses, pay themselves a bimonthly salary and have taxes taken out at time of salary disbursement. Zero out the corporate books or show a loss on corp books and pay no corporate taxes. The corp could insure the student athlete, have the car lease, ect. It is going to get creative for big money NIL athletes in my opinion. Why not?
Why go through all of that hassle?
The reason to do an LLC or Corporation is liability protection. As a consultant you might do it if you have clients who require all contracts be company to company (or a middleman will try and take a ridiculous cut). You can do pretty much everything else via schedule C. If you do decide to open a company there are legal costs/hassles to open the company, and hire yourself. Then you need to have someone run your payroll (and they make mistakes, even on 1 person payrolls, which you need to monitor and get fixed, and deal with the IRS). Then you pay someone to do your corporate taxes, including the creation of the schedule K for your personal taxes (as the owner). Then you get the slightly more complicated personal taxes. On top of that, you lose all of the benefits unless you keep an absolutely clear separation of corporate assets and personal assets. e.g. There must be separate bank accounts, and clear payments on the books for any transfer of money.
The needing to pay taxes throughout the year is pretty much a non-issue. As long as you pre-pay at least as much as you owed in total taxes the previous year, there are no penalties.** You can figure out the actual balance then. If you know which of your benefits are taxable, e.g. room/board, etc., doing them takes 15m. You are still allowed legitimate business deductions so long as you carefully document them.
**The amount you need to prepay to avoid penalties has varied from 90-110% of the previous years. I think it is currently 100%. I'd need to look it up to be sure.
Disclaimer: I am not an accountant or lawyer. (I have run a small company.)
I don't think that type of tax avoidance scheme is necessarily smiled upon by the IRS.
Single-member LLC will be a Disregarded Entity, A single member corp is an S Corp but it's not as easy as you would suggest
Should've gone straight to the point with "ILLINOI$$$"
IlliniKat91
- Chicago, IL
Some companies pay the taxes on stuff like this for their employees. My husband's did when he had to temporarily relocate. It was part of how they kept him in place (if he'd left we'd have had to pay back the relocation bonus plus the taxes) and made relocation attractive to people who didn't want to move.
I have no idea how housing stipends are being handled at the university, but there are ways to avoid the students having to pay taxes on them. My money is on them being tax free and still considered part of the scholarship package since there's no equitable way to guarantee that all student athletes can pay for their housing using NIL deals.
(The difference in what's earned by men vs. women springs to mind as a sticky point that could come up if a school stopped paying room and board in full, or if students were responsible for covering the taxes on their own.)
I don't believe it is tax avoidance because payroll tax is being paid. It is just that all of the excess capital is used for salary vs income tax. The salary needn't be monthly, it could just be one time at the end of the fiscal year. I do believe that incorporating for a student athlete with significant NIL money makes a ton of sense. They could do an S corp if single member or an LLC if they want to add another member--maybe a family member who has a low percentage. Much of this could be done on schedule C but having the separate entity makes it cleaner in my opinion. Many expenses could be written off as business expenses--personal training, travel, legal, accounting, medical, etc. Also, they could form a SEP and put up to 25% of their salary into a retirement plan pre-tax. I trust the university (Josh Whitman) has thought this through and could provide a template for the athletes to use.
Other than potential liability protection, what is the corporation gaining them? A sole proprietor (schedule C) can write off business expenses. A quick search makes it look like they can also create a SEP.
Into the weeds a bit, but one key advantage is that you can lower self employment taxes with an S-corp if you don't take all the money as salary. Maybe it is just a preference, but I also like organization of the completely separate entity, and I have heard that the IRS audits more returns with Schedule C income. I wouldn't discount the liability protection either; especially in todays crazy litigious world.
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