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 |
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.
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 tax planning strategy to capitalize on NIL money, 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 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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Understand LLC and S corp options for athletes’ NIL income. Complete the form below to connect with CLA.