Tax tips: College players who made NIL money have new homework

As the end of tax season draws near, here are a few last-minute tax tips for college athletes who earned NIL income in 2023 and are in the process of filing their tax returns.

Collect income documentation and tax forms

Collect all contracts and agreements related to your NIL income. Also, ensure you received copies of your tax forms used to report your NIL income. If you earned $600 or more in NIL income, your income will likely be reported on a Form 1099-NEC.

Plus, if you did multiple NIL deals, you should receive a Form 1099-NEC from each company. If you were paid through a third-party platform like PayPal or Venmo, you will receive a Form 1099-K if you had more than 200 transactions and made more than $20,000 in 2023. Overlooking any NIL income sources could result in underreporting and potential tax penalties.

Evaluate deductions

Consider potential deductions related to your NIL activities to reduce your taxable income, such as marketing and promotional expenses, travel costs, professional fees (such as agent or legal fees) and other business-related expenditures.

Keep accurate and detailed records of any expenses to support the deductions. Examples of acceptable documentation may include account statements, receipts, invoices, canceled checks, and credit card statements to name a few.

Check for estimated tax payments

Athletes generally are not subject to income tax withholding on NIL payments and are required to make quarterly estimated tax payments if they expect to owe $1,000 or more in taxes. Athletes earning NIL income in multiple states may also need to make estimated tax payments to state tax authorities.

Review any estimated tax payments you made throughout the year to ensure that such payments are enough to cover your tax liability on NIL income and other taxable income. Failure to make timely estimated tax payments could result in underpayment penalties imposed by the Internal Revenue Service or state tax authorities, if applicable.

Consider state taxes

If you received NIL income in multiple states, you may owe state tax to each state where you earn income from NIL activities. Given the complexities of state tax laws, athletes should consider consulting with a tax professional familiar with multistate taxation to ensure compliance.

File on time

Make sure to file your tax returns by the deadline to avoid late filing penalties. The tax filing deadline for most taxpayers is April 15th unless an extension has been requested. Filing your returns on time ensures timely processing and helps avoid penalties and interest charges.

Consult a tax professional

Consult an experienced tax professional to advise you on the tax implications of your NIL income. A tax professional can help you calculate your tax obligations, prepare your tax returns, develop a personalized tax strategy and identify potential deductions for NIL-related expenses.

Plan for Next Year

Additionally, take this opportunity to start planning for your tax situation in the upcoming year. Consider creating a system to track NIL income and expenses, preparing a budget that considers your future estimated tax payments if necessary, and consulting with a tax professional to develop a proactive tax strategy tailored to your situation.

Ryan Whelpley, an associate in the Corporate Practice Group at Morse in Waltham, Massachusetts. He has written extensively about the tax consequences of NIL deals.

The information provided in this article is for general informational purposes only. It should not be construed as tax or legal advice. Consult your own tax or legal advisor for tax or legal advice.