Mullins: College athletes with NIL deals must plan for taxes

A newer opportunity for college athletes is earnings from name, image and likeness, otherwise known as NIL earnings.

As I sit in an airport on my way to a college visit with my son, the cost of college is at the forefront of our minds. As my son hopes to play college sports, scholarships, test scores and how to get in front of coaches dominate our conversations. A newer opportunity for college athletes is earnings from name, image and likeness, otherwise known as NIL earnings. Just over a year ago, the NCAA allowed college athletes to earn income from these sources. For some, this opportunity has the potential to help them pay their way through college. As a CPA who sees tax planning opportunities and problems daily, this new realm is very interesting.

Income earned from an NIL agreement could come in the form of cash, merchandise and vehicles, among other types of compensation. Those who can benefit from an NIL deal need to keep in mind that tax planning needs to take place along with this source of income. All these types of income will be subject to tax, whether receiving cash, goods or services. Also, your income will be subject to self-employment tax and could create a multi-state tax environment depending on where you are earning your income and which state you reside in. As a self-employed person, keeping track of your new business income and expenses will be part of good tax planning. You need to understand what types of income you may receive and what could be deductible expenses for tax purposes. This income may have some impact on the type and amount of financial aid packages being explored to help pay for college.

Depending on the amount of income generated from an NIL deal for an athlete, athletes and their parents may need to discuss the changes to both of their tax filings regarding if the parent will continue to claim their college-age student-athlete as a dependent or if it is more beneficial for the student-athlete to begin to claim themselves for tax purposes.

One more thing: College athletes may not consider what kind of retirement planning opportunities are available by having this new earned income. Contributing to a retirement plan gives them the chance to reduce their taxes today or later in life and allows their investments to grow over time tax-free.