Hey there, athletes! It's your friendly Certified Public Accountant (CPA), Insogna CPA, here to share some tips to help you understand how to save money on taxes from your Name, Image, and Likeness (NIL) earnings. Taxes can be confusing, but don't worry—We’ll break it down into easy-to-understand tips, so you can keep more of your hard-earned cash!
What Are Taxes?
When you're making some sweet cash from your NIL activities, the government wants a piece of that pie. They call it taxes.
And guess what? It's not just about federal income tax. As a 1099 contractor raking in your NIL dollars – 1099 money is what you make when you are not a W2 employee of a company - you gotta deal with your own FICA payroll taxes too, which includes Social Security tax and Medicare tax.
But fear not! Setting up an LLC-SCorp can actually help you save some dough (more on that below).
Think of IRS taxes as a fee you pay to earn money. But here's the cool part: with some clever tax strategies, you can reduce the amount of taxes you owe and keep as much of that hard-earned cash in your pocket as legally possible. Cha-ching!
What Is My Tax Responsibility?
First things first, it's important to understand that as a 1099 contractor earning NIL monies, those are taxable income no matter what your age. That means the IRS wants its fair share of your success.
However, don't you worry! With proper planning and a few smart strategies, you can minimize the amount of taxes you'll owe.
Consider Setting Up a Business Entity
Alright, let's break it down here. We're gonna talk taxes and a cool trick to keep some serious cash in your pocket. So listen up: setting up a business entity, like an LLC (Limited Liability Company), is a genius first move.
Why? Well, it's like a shield for your brand name and it can actually help you save a ton on taxes, especially if your net profit (that's what's left after you subtract your expenses from your income) is well above $50,000 a year.
With an LLC, you can more easily keep your personal money separate from your NIL (business) earnings and budget for things like taxes owed. Your own LLC is like having an extra layer of protection and even scoring some sweet tax advantages if you file as an S-Corporation.
Now, don't worry about trying to figure it all out on your own. “As a business owner, you gotta build a killer team around you (think LeBron James and his crew). And guess who's a crucial player on that team? A CPA!” says Chase Insogna, Founder & CEO at Insogna CPA.
Sure, anyone can go online and create a business formation like an LLC or Inc. But here's the deal. What really matters are the tax consequences and how that business is structured. That's why talking to a CPA first is super important for your financial future.
And here's the best part. CPAs have your back. They provide you with state board recourse (which basically means you have someone to complain to if needed) and protect your hard-earned cash. So, chill out and relax, because a team of expert professionals, like the awesome ones at Insogna CPA, have got you covered!
Keep Track of Your Expenses
Listen up, rising star! ⭐ When you're hustling and making those sweet NIL monies, you're gonna come across various expenses related to your NIL activities. Yep, you heard me right! If you're earning NIL income, you've likely got some NIL-related expenses too. It could be stuff like training, equipment, travel, or even marketing and branding costs.
But here's the awesome part: many of these expenses can be deducted from your income. That means they can help lower the amount of taxes you pay to the government.
To make things easier, it's super important to stay organized right from the start and keep track of all your expenses. Having a separate LLC checking account (and a debit card) is a smart move. And having a helpful CPA on your team can guide you on which potential expenses you should be thinking about and keep track of every year.
Just remember, the more qualified business expenses you have, the less you'll pay in taxes to the government. That's how you become a savvy wealth builder, by keeping more of your hard-earned NIL monies in your pocket!
Plan for Self-Employment Taxes
Let's talk about everyone’s favorite subject – taxes!
As an NIL earner, it is important to plan ahead. Getting paid NIL monies is also known as a 1099-contractor, which means you're in the self-employment game. And guess what? It means you're responsible for paying both the employee and employer portions of Social Security and Medicare taxes, potentially state unemployment taxes, and federal income taxes. Don't worry, we’ll break it down for you.
When you're budgeting your hard-earned monies, make sure to set aside a portion of cash to cover these taxes, either quarterly or when you file your personal 1040 tax return by April 15th. It may not sound glamorous, but trust me, it's crucial.
Sure, it might be tempting to spend all your cash on cool things in the moment. But here's the deal: falling behind on paying the IRS is no joke, and it's not something that ever goes away. You definitely don’t want to get behind the curve, especially at this early stage in your career when you have a prime opportunity to start building your wealth and setting yourself up for financial success!
So, be smart, plan ahead, and make sure to stay on top of your self-employment taxes. This is where having a licensed CPA money manager can help you budget your cash. It's a key step towards securing your financial future and making those dollars work for you!
Save for Retirement
Don’t laugh just yet. Are most people thinking about retirement under the age of 21? Usually not.
We know retirement might not be on the top of your mind right now. But hey, you're not like most people. You're a hard-working athlete, pulling in those sweet NIL monies. And guess what? With your newfound NIL fortune, you have an opportunity that most people your age never had.
So, how can you make the most of your success? Well, consider putting some money into a retirement account that's asset-protected and set aside for your future. We're talking about accounts like IRAs (Individual Retirement Accounts), SEP-IRAs (which are perfect for self-employed folks like you), and even 401Ks (those fancy plans that many companies offer to their employees). But here's the cool part. As your own boss, you can potentially max out your own 401K if you want to!
Now, we're not saying put all your money into retirement plans. Chase Insogna, Founder & CPA of Insogna CPA, advises finding a healthy balance between enjoying your earnings, paying taxes, helping family members, building a savings cushion, and looking towards retirement. “It's all about creating multiple financial buckets based on your goals as a NIL player”, he says.
We know retirement may seem like it's light years away, but trust me, time flies! Contributing to a retirement plan can be a smart move. Not only will it secure your financial future, but it might also provide potential tax deductions. That means reducing your taxable income for the current year and avoiding unnecessary overpayment of taxes to the government.
And hey, your money is not disappearing for 50 years. Far from it. Many times you’re able to withdraw what you put in and leave the rest growing tax-free. You can even use some retirement monies for a down payment on your first house!
So don’t think retirement is something you’re not going to benefit from for a very long time. Making the right retirement contributions today can help set you up to meet your longer-term goals, and from an early age start to build your own solid financial foundation. It's never too early to start planning for your future, and securing your retirement is a major part of that game plan.
Understand State Tax Implications
Alright, let's dive into the world of state taxes and how they can impact you as a NIL earner. Hold on tight, because federal and state tax rules can get pretty complicated when you're making those awesome NIL monies from multiple states.
Picture LeBron James, living in California but playing a game in New York. He's not just subject to California's income tax, but also New York State taxes because he physically went there to earn that paycheck from the game. It's like a double whammy!
State tax laws can add an extra layer of confusion, especially when your NIL earnings are taxed in different states based on who's paying you and where you're earning. It can be a lot to wrap your head around, but don't worry!
Here's the good news: our team of expert professionals has got your back. A CPA can work in all 50 states and help you no matter where you're making those NIL monies. And having ongoing money management with a CPA will help stay ahead of the maze of state tax implications, ensuring you stay on the right track and avoid any tax penalties.
Seek Professional Advice
This is crucial advice: NEVER - and we mean NEVER - give full Power of Attorney to any unlicensed professional. I can't stress this enough! Sure, there may be times when your CPA or attorney needs a limited power of attorney to speak on your behalf, but that's a different story.
Take a lesson from Vince Young, who gave full control to his uncle and others around him to handle his financial affairs. What happened to Vince’s $25 million fortune? Well, for one he ended up filing for bankruptcy. You definitely don't want to find yourself in that situation. Don't trust your financial future in the hands of unlicensed professionals.
Here's the deal. Everyone around you will want to benefit from your hard work, but it's 100% up to you to take control of your financial future. You need a team of professionals who are unrelated to one another, providing unbiased advice. Much like a CEO of a big company has a board of advisors. No one will care about your financial future more than you do. Sure, folks hanging around you will help you spend your money, but it's your responsibility to create wealth for yourself.
Did you know the NFL Players Association, and even The Grammy Association, do not allow licensed CPAs as members of their organizations to help their members? Why is that? And is that a correlation as to why so many NFL players and musicians go broke? We’re not certain, but it’s a worthwhile question. We may be biased, but they don’t call CPAs “the most trusted advisors in business” for nothing, according to a survey conducted by Applied Research & Consulting, LLC.
Is it worth saving a few bucks now if it ends up costing you thousands in unnecessary taxes later? Or losing $25 million fortune, like Vince did?
Get in Touch
We like to say, "You get what you pay for." So, don't hesitate to seek the advice of a qualified CPA who can offer invaluable guidance tailored to your unique circumstances. CPAs will help you make informed decisions regarding your finances and tax obligations. Trust me, it's an investment that's totally worth it.
Understanding taxes and financial management is crucial for your success as a NIL earner. Remember to stay organized, keep track of your expenses, and plan for self-employment taxes. And hey, maybe even the same some for retirement. :-)
Making smart decisions now can set you up for a secure future. Lastly, when it comes to seeking professional advice, don't cut corners. Invest in a qualified CPA who will guide you and protect your hard-earned cash. Remember, it's worth it! So, take control of your financial future and thrive!
Now go out there, chase your dreams, and save those monies like a pro! We’re cheering for you! 📣