If you’re able to earn NIL income, that revenue comes with new responsibilities, especially when it comes to taxes. Whether you’re a college athlete earning NIL income from sponsorships, social media, or other avenues, understanding how taxes work is crucial. For me, timing of when to file my taxes, what to file, and other details were a little complicated when I began taking home a paycheck. If you have questions or don’t know where to start, here’s a beginner’s guide to help you navigate the tax season, file correctly, and avoid any surprises.
Recommended Tax Timeline for NIL Athletes
First off, here are a few dates to keep in mind if you made money over the past year:
- December – January: Begin gathering records for all NIL income, expenses, and any part-time job earnings. Request any missing documents and ensure all your financial records are accurate.
- February 1-15: Check for any missing forms, such as Form 1099-NEC from NIL partners and W-2s from part-time employers. Contact the issuer if you haven’t received them.
- March – April 1: Finalize your income and expense calculations. Consider setting up a meeting with a tax preparer if needed, as tax professionals get busy closer to April 15.
- April 15: Federal tax deadline. File your tax return and make any payments owed.
- Quarterly (if applicable): If your NIL income is substantial, plan to make estimated tax payments on the quarterly deadlines (April 15, June 15, September 15, and January 15). This helps spread out your tax payments and can prevent hefty bills in April.
Why NIL Earnings Are Taxable Income
NIL earnings are treated as self-employment income by the IRS, meaning they’re taxed similarly to how a small business owner’s revenue is taxed. This means you’ll need to keep records of your income and any deductible expenses. You may also be required to pay both income tax and self-employment tax on your NIL earnings. If you’re working a part-time job alongside NIL deals, you’ll report that income separately but may end up filing a combined tax return.
Step-by-Step Guide for NIL Taxes
- Start Tracking Your Earnings and Expenses Early
From the moment you begin earning through NIL, it’s essential to track every dollar you make and any associated expenses. Expenses might include travel, equipment, and even a percentage of your phone bill if it’s used for NIL-related activities. Keeping records will make tax time much easier and could reduce the amount you owe. - Collect All Necessary Tax Documents
NIL income typically requires Form 1099-NEC from each company that paid you $600 or more during the year. Request these forms if you haven’t received them by January 31. For athletes with traditional jobs, expect a W-2 from your employer by the same date. - Know Your Filing Deadlines
The tax deadline for federal returns is April 15 (or the next business day if it falls on a weekend/holiday). However, if you expect to owe more than $1,000 in taxes from NIL income, you may need to file quarterly estimated taxes, with deadlines on April 15, June 15, September 15, and January 15 of the following year. This will help you avoid penalties for underpayment. - Explore Deductions and Write-Offs
As an athlete with NIL income, you can deduct expenses that are “ordinary and necessary” for earning that income. These might include gym memberships, training equipment, travel expenses for NIL activities, and marketing costs like website or graphic design. However, keep detailed records and receipts for every deduction. - Consider Professional Help or Tax Software
Tax filing can be complex, especially with both NIL and W-2 income. Many athletes find it helpful to consult a tax professional or use tax software designed for freelancers or small businesses. A professional can also advise you on estimated taxes and help you avoid potential audit triggers.
Tips for Avoiding Tax Surprises
- Set Aside a Portion of Every NIL Payment: A common recommendation is to set aside 20-30% of each NIL payment in a separate account to cover taxes. This way, you won’t be caught off guard when taxes are due.
- Understand State Tax Requirements: Some states require tax filings if you earned income there, even if you’re not a resident. Research state-specific requirements or consult a tax professional.
- Plan for Self-Employment Tax: NIL earnings require a self-employment tax (12.4% for Social Security and 2.9% for Medicare). This tax can add up, so include it in your estimated tax payments.
Filing taxes as an NIL athlete can feel complex, but starting early, keeping organized records, and understanding your deadlines can make it manageable. Keep an eye on tax deadlines, consider setting aside a portion of each payment, and don’t hesitate to consult with a tax expert if you need guidance. With a solid approach to taxes, you’ll maximize the benefits of your NIL income and keep more of your hard-earned money.