meeting with our tax accountant/lawyer for this year's fun. I asked a question around how NIL was taxed.
The answer we got was that the organization that was paying the funds would need to be some type of legal entity that itself can be taxed and audited. This entity would process the player's W-9 as an independent contractor, and identify the services that the entity is paying the player for. The entity will already have identified its income, and then disburse payments to the players (possibly the player is an LLC). In most cases, these have been companies, so tax returns exist for them.
the player tax return first covers the NIL income, and don't think anyone is surprised by that. The player then may be taxed for in kind income. I know that free tuition and room and board have been discussed by many. If the school charges for use of its logos, jersey and other brand there is an established market value. The school could charge the the player for the use of its logos, jerseys, etc. If the school eliminated or reduced its standard charge for the logos, etc, then that is treated like loan forgiveness, and taxed as ordinary income to the player (i.e. their LLC return). The paying entity could get involved to address the payment for school image, but then their taxes become impacted. The paying entity would also likely have an agreement with the player to cover that use.
in any case, this is a very complex legal and tax planning issue for players. I know schools have set up general educational platforms for the players, but they aren't providing lawyers and tax accountants to organize this for players. given that some of the players might be considered "rich" under the current view of taxes and the desire for all to pay their fair share, it would seem the IRS is going to be all over auditing these entities and players very shortly. Imagine Ewers will have an interesting tax return this year.
The answer we got was that the organization that was paying the funds would need to be some type of legal entity that itself can be taxed and audited. This entity would process the player's W-9 as an independent contractor, and identify the services that the entity is paying the player for. The entity will already have identified its income, and then disburse payments to the players (possibly the player is an LLC). In most cases, these have been companies, so tax returns exist for them.
the player tax return first covers the NIL income, and don't think anyone is surprised by that. The player then may be taxed for in kind income. I know that free tuition and room and board have been discussed by many. If the school charges for use of its logos, jersey and other brand there is an established market value. The school could charge the the player for the use of its logos, jerseys, etc. If the school eliminated or reduced its standard charge for the logos, etc, then that is treated like loan forgiveness, and taxed as ordinary income to the player (i.e. their LLC return). The paying entity could get involved to address the payment for school image, but then their taxes become impacted. The paying entity would also likely have an agreement with the player to cover that use.
in any case, this is a very complex legal and tax planning issue for players. I know schools have set up general educational platforms for the players, but they aren't providing lawyers and tax accountants to organize this for players. given that some of the players might be considered "rich" under the current view of taxes and the desire for all to pay their fair share, it would seem the IRS is going to be all over auditing these entities and players very shortly. Imagine Ewers will have an interesting tax return this year.
