Key insights
- An LLC is about liability and flexibility, not automatic tax savings.
- Significant tax benefits only occur with an S election — and only if income levels justify the added complexity.
- International athletes who are U.S. nonresidents should avoid S elections due to residency restrictions.
- Compliance and ongoing costs matter — don’t overlook them.
With name, image, and likeness (NIL) deals becoming a major source of income for student-athletes, many are asking: “Should I create an LLC for my NIL income?”
The short answer: It depends. An LLC can provide benefits in certain situations, but it’s not a universal tax-saving strategy. Explore when forming an LLC makes sense, when it doesn’t, and what athletes should consider before making the move.
Understand LLC and S corp options for athletes’ NIL income.
What an LLC actually does
- Legal protection — An LLC creates a separate legal entity, which can shield personal assets from business liabilities.
- Business structure — It can help with branding, contracts, and banking.
- Tax flexibility — An LLC can choose how it’s taxed — either as a sole proprietorship, partnership, or S corporation status.
Forming an LLC doesn’t automatically create new tax deductions. Business expenses like agency fees, professional fees, travel, training equipment, and marketing are deductible whether you operate as a sole proprietor or through an LLC.
When forming an LLC could be beneficial
High NIL earnings + S corporation election
If your NIL income is substantial, electing S corp status for your LLC can reduce self-employment taxes. Here’s how:
- Salary and distributions — You pay yourself a reasonable salary (subject to payroll taxes) and take remaining profits as distributions (not subject to self-employment tax).
- Tax savings — For athletes earning well above the self-employment tax threshold, this can mean thousands in savings annually.
| Scenario | Income Breakdown | Self-Employment Tax | Notes |
|---|---|---|---|
| NIL Income | $150,000 | Depends | Full $150,000 is subject to income taxes |
| Sole Proprietor | Entire $150,000 subject to SE tax | ~$22,950 (15.3% of $150,000) | Full amount taxed |
| S Corporation |
Salary: $70,000 (taxed) Distributions: $80,000 (no SE tax) |
~$10,710 (15.3% of $70,000) | Distributions avoid SE tax |
| Result | — | $12,240 savings | Compared to sole proprietor scenario |
See what else student-athletes should know about financial planning for NIL deals.
State PTET elections — Another layer of savings
Many states now offer pass-through entity tax (PTET) elections, which allow S corps (and other pass-through entities) to pay state income tax at the entity level. Why does this matter?
- Federal deduction advantage — State income taxes paid by the entity are deductible for federal purposes, bypassing the $40,000 cap (or $10,000 cap, depending on adjusted gross income) on state and local tax deductions for individuals.
- Who benefits — High-income athletes in states with PTET programs can see meaningful savings, especially if they face significant state tax liabilities.
- Important considerations
- PTET rules vary by state — eligibility, rates, and filing requirements differ.
- This strategy only works if the LLC elects S corp status and the athlete is a U.S. resident eligible for S corp ownership.
For college athletes earning NIL income across state lines, you might need to file taxes in each place you work, not just your home state.
Multiple NIL deals and brand building
If you have several contracts, sponsors, or plan to expand your brand, an LLC can help:
- Simplify contract management
- Provide credibility for business partners
- Make banking and accounting easier
When an LLC won’t help
- Low or moderate NIL income — If your earnings are modest, the cost and complexity of forming and maintaining an LLC (and possibly an S corp) may outweigh any benefit. There is no “magic number”’ for when an S corp election makes sense — every individual situation has unique aspects to consider.
- No S corp election — An LLC taxed as a sole proprietorship offers no tax advantage over operating individually.
- International student-athletes — Nonresident aliens cannot be shareholders in an S corp. If you’re an international student-athlete without U.S. residency, the S corp election is not an option.
Forming an LLC doesn’t automatically lead to tax savings. Develop a robust NIL income tax planning strategy to capitalize on earnings, address compliance requirements, and select the right entity structure for your situation.
Compliance and ongoing costs with LLCs
Forming an LLC — and especially electing S corp status — comes with responsibilities and costs beyond the initial setup:
- State filing fees — Most states charge a fee to form an LLC, plus annual renewal fees.
- Registered agent — Some states require a registered agent, which may involve additional costs.
- Payroll requirements (for S corps) — You must run payroll for your salary, which means setting up payroll systems and filing quarterly payroll tax returns.
- Separate tax filings — LLCs taxed as an S corp require Form 1120-S and K-1s for owners.
- Bookkeeping and accounting — More complex than a sole proprietorship; professional help is often needed.
- Compliance penalties — Missing filings or payroll obligations can lead to penalties and interest.
Bottom line — These costs and administrative tasks can easily outweigh tax savings for athletes with modest NIL income.
Comparison: Sole proprietor vs. LLC vs. LLC with S corp election
| Feature | Sole Proprietor | LLC | LLC With S Corp Election |
|---|---|---|---|
| Liability protection | No | Yes | Yes |
| Tax deductions | Yes | Yes | Yes |
| Self-employment tax savings | No | No | Yes (if income is high) |
| Complexity and cost | Low | Moderate | High |
| International athlete eligible | Yes | Yes | No |
How CLA can help athletes form an LLC for NIL income
Before forming an LLC, consult with a tax advisor who understands NIL income and athlete-specific issues. The right choice depends on your earnings, residency status, and long-term goals.
CLA’s tax professionals work with athletes to address NIL money and entity formation. Our team provides guidance on structuring LLCs, S corp elections, and state and local tax strategies. We assist with compliance, filings, and ongoing requirements, helping athletes make informed decisions to build a foundation for long-term financial success.
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