The answer… depends. If you’ve made money from NIL this year, earned cash from your side hustle, or if you’ve made significant income working part-time as an athlete, it’s possible you’ll have to pay additional taxes than the year prior.
But this isn’t a bad thing! If you’ve launched a few more products that have generated extra income or taken on a few more clients: throw in a ‘Lets GOOO!’ for making that money 😉
Next, get ready for for tax season. It’s part of the process: by not paying your taxes, you could receive a penalty from the IRS. So, if you’re wondering, “should I put some of my money aside for taxes?” Consider these questions first:
Should You Save for Taxes?
Are you making enough to get taxed? When I started out in my career, I wasn’t making a great salary. Often, I’d get back a few hundred dollars of tax refunds, which was a great surprise at the end of spring.
If you didn’t earn significant NIL money this year, or if you’re making a modest salary, it’s likely you won’t have to put funds aside and could be receiving a tax refund instead.
How much will you be expected to pay? An online tax calculator can help you understand how much you’re expected to pay in taxes this year. If the amount of taxes your NIL partnership or employer deducts is less than what you’ll owe, you should definitely set aside some money to help pay for taxes.
Did you receive a raise or bonus this year? Maybe you scored some incentive money with your NIL partnerships. Maybe you earned a bonus or raise from your first job. If that extra cash places you into a new tax bracket, you may have to shell out additional funds come tax time. If you’re unsure, talk with a tax specialist who can help you understand what you’ll be expected to pay.
Did you buy property? While buying property may be a positive benefit come tax time, it’s something to consider.
For example, say you put a downpayment on a property using your NIL earnings. If you own a house, a condo, investment property, etc., it’s very likely that you’ll receive a tax incentive as a first-time homebuyer. Yay! However, it’s very important to consider what your tax deductions will look like before making such a big purchase. Having a mortgage is usually a move that takes a person from utilizing standard deductions to itemized deductions.
*Itemized deductions are items that allow taxpayers to deduct a certain expense from their taxable income up to a certain limit. An example of this might be mortgage interest, local and state taxes, contributions to charity, etc.
However, the amount of money you save for taxes could be needed for repairs or upkeep on your property. With homeownership, something always comes up (trust me, there is always a thing!) So it’s important to factor this in when considering how much to invest into your property vs. using your savings for tax season.
Here are a few ways you can prepare for taxes
Put aside a percentage of your earnings. The rule of thumb is to save between 20%-30% of your NIL earnings or self-employment. This way, you’ll have a healthy amount of savings to cover taxes and other expenses.
Pay your taxes in installments. If an athlete knows he or she will get hit with taxes this year, they can go online and create a payment schedule with the IRS. This allows you to pay your taxes in installments spaced out throughout the year.
Consider where to keep your money. While getting a refund is always a nice treat, you’re basically letting the government hold onto your money without paying you back with interest. #nobueno
If you decide to put a portion of your earnings aside, think about ways you can have your savings work for you. One example is to put your savings into a high yield savings account. This way, your money will grow faster, and you’ll be covered in April during filing time.