COLLEGE ATHLETICS & ATHLETES
With the NCAA clearing the way for student-athletes to be able to profit off their name, image, and likeness, there is now another new role student-athletes must consider: the role of the business-athlete. All student-athletes have effectively become entrepreneurs/small business owners. With the ability to now generate revenue comes an increased amount of responsibility. As any small business owner knows, it is a lot of work.
As CPAs, our focus is on the complexities regarding the accounting and operational components of running a business. However, not to be forgotten are the legal issues such as business formation, contracts, and a host of other legal issues that may come up.
Business-athletes will soon realize or remember that with income comes taxes. While there is a standard deduction that will shield some income for athletes, there will likely be many athletes that are able to eclipse that mark. Additionally, there are other taxes such as self-employment, state taxes, and local taxes that will also factor into the equation.
Income received by athletes, who are not considered employees, will be issued via a 1099. Generally this means that there will be no income tax withholdings for these athletes. Athletes may also receive non-cash benefits, such as cars, merchandise, etc. These benefits are generally taxed at the fair market value, which creates even more issues as athletes can have taxable income without even receiving cash. These athletes will need to make estimated tax payments to ensure that they do not have to pay significant interest and penalties due to underpayment of estimated taxes. It will be very important for the athletes to understand their cash flow and the impact on their year-end taxes.
Another large issue will be the state side of things. Income earned across multiple states generally requires filing multiple state income tax returns. An appearance in a nearby state could create a need to file a return for that state. Income will likely need to be apportioned to different states if the athlete lives in different states during the year. State filings can be a challenge for seasoned business professionals, and athletes will need a quick crash course.
This new generation of business-athletes will need to make sure to keep track of their income and where it comes from. Additionally, they will want to keep track of all their expenses as those will help offset the income that they receive. Expenses such as travel, meals, phones, and internet are deductible if incurred as part of their business.
The modern-day student-athlete already has plenty on their plate. With this new opportunity, they will need help from coaches, administrators, advisors, and professional services. We look forward to serving and help educating these new business-athletes.
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By Brent P. Laird, Partner
Filling Out Your Roster
On the field it is important to have a well-balanced roster and it is just as important to have a strong team off the field. Successful business owners and entrepreneurs have a few things in common and one of those is a team of key consultants and advisors.
Accountants can play many roles and are often viewed as trusted advisors. Accountants can provide an array of services focused on bookkeeping, consulting, advising, and tax planning. Most businesses will need an accountant from the beginning to help structure their businesses and consult on cash flow needs and tax expectations.
Attorneys can help with business formation, contract negotiation, and a host of other legal issues. A great attorney is a must have for any business owner.
Bankers assist with the operational side of finances. They can open transactional accounts and provide lending and credit services for businesses as they look to expand or for other operational needs.
Insurance agents provide asset and liability protection for business issues that may arise. Insurance agents can help protect you against various risks such as injury, lawsuits, or other
Investment advisors can help you plan for a myriad of events. They will generally focus on ways to grow your wealth and help you to achieve your financial goals. Balancing risk/reward and diversifying investments are concepts that your investment advisor will help you implement.
Your promotional team will help focus on brand, image, and finding opportunities for additional business growth. Public relations will focus on building your brand and maintaining your image while finding additional revenue streams and maximizing current income negotiations are where agents tend to add their value.
Meet The Kernutt Stokes Business Athletes Team
Brent P. Laird
CPA, MST, Partner
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As of July 1, 2021, the NCAA granted student-athletes the privilege of profiting from their name, image, and likeness (NIL). This reversal of policy is welcome news and has been celebrated by nearly everyone. As the saying goes: With great freedom comes great responsibility, and this is truer now than ever as these student-athletes can now add “business-athlete” to their title. As business owners and entrepreneurs quickly learn, whenever money is to be made, Uncle Sam is there to take his cut of their profits in the form of taxes.