Having a business structure as a student athlete might not be a bad idea. They offer many advantages, and depending on the structure could be a great tax saving vehicle.
The most common entity structure I see are LLCs. BUT, does that mean an LLC always make sense? There are other structures, that depending on your goals, you might want to consider over an LLC.
How much $$ are you bringing in? What state do you live in? Are you looking for tax savings? Protection? Flexibility? These are some questions, that based on your answers, can guide your decision in what is the best entity structure for you.
What you should be aware of:
Sole Proprietorship – is the default business structure (which technically is not really a business structure), and it’s the simplest structure. You don’t have to file/register with the state and income is reported on individual’s personal tax return. However, this structure offers ZERO protection! If you’re not expecting to make much NIL income, this structure might be for you.
LLC – people love LLCs. I get it, it sounds cool and offers liability protection and flexibility in taxation. For tax purposes, an LLC is called a “pass-through entity”, and income is reported on individual’s personal tax return. You can choose how you want to be taxed. However, depending on the state you live in, you might have other taxes/costs associated with the creation and continued existence of your LLC (California!!). If you’re making consistent NIL money, you might think about an LLC.
S-Corporation – least talked about but probably my favorite. A great tax vehicle. Gives you the best of both worlds (LLCs and corporations). Avoids personal liability and double taxation. Operationally, S-Corps. are a bit more work, but might be worth it if you’re a big time NIL earner. If you’re really trying to build a business around your brand, don’t be afraid to ask questions about this entity structure.
Picking the correct business structure is important. This just scratches the surface when it comes to the pros/cons of each entity structure. I recommend consulting a tax advisor or attorney. If you’re an athlete and need tax advice my inbox is always open!
