Navigating Taxes for Student Athletes with NIL Revenue

Last Updated on February 3, 2023

This episode I am joined by Katie Davis, a CPA, Partner, and Collegiate Athletics Practice Leader at James Moore & Co., an accounting firm that works with collegiate athletics departments, athletic associations, booster clubs, and other higher education-related organizations nationwide.

Katie has dedicated her career to providing accounting and consulting services to universities and advocating for the financial voices in college athletics. She helps to educate the sports business industry on relevant issues that impact us now and in the future. I was previously on Katie’s News & Brews podcast discussing the first day of NIL.

In this episode, Katie joins me to explain the tax implications and questions surrounding NIL activity by student athletes. Some of what we discuss includes:

  • Tax liability for a student athlete who is a resident of a different state than the state where their university is located, plus what happens if their NIL activity takes place in another state (like a commercial shoot)
  • How a student athlete reports the value of merchandise, products and travel vs. cash payments
  • Whether things like iPads provided by athletic departments to student athletes are taxable
  • How much student athletes should set aside from NIL revenue for taxes
  • How NIL might impact need-based aid or dependent status
  • Expenses student athletes might be eligible to deduct in relation to their NIL activities
  • Paying quarterly taxes vs. annual as as student athlete

You can follow Katie on Twitter and check out her podcast, News & Brews.

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Listen to more episodes of the Business of College Sports podcast here.

Abridged Transcript

We’ve edited the full transcript below to focus on the highlights from the podcast.

Kristi Dosh

Tell people briefly what it is you do and why you’re on campuses.

Katie Davis

So I am a CPA (Certified Public Accountant), and I work with universities and their athletic departments on a number of financial related matters. Primarily, we do a lot of the NCAA agreed upon procedures. Some may know it as like the FRS reports, but we are that outside accountant that comes in and takes a look at the items that the NCAA wants us looking at, and help schools with their report.

Because it’s really meant to be apples to apples, but sometimes it’s not. So we’ll kind of take our knowledge and what we’re seeing across the industry and help make sure that schools are using that report to their advantage and telling their story through that report as opposed to just having a bunch of numbers up to guesswork. So in addition to that, we consult with athletic departments, and primarily the business offices on a number of financial related items, and then of course with NIL, we have seen a need for tax education specifically for states that require the financial literacy training thought  really make a lot of sense to pull in something specific to taxes,  so we’re working with a lot of campuses now just helping their student athletes understand the basics.

How did taxes work for student athletes prior to NIL?

Kristi Dosh

That is a perfect segway into what we’re gonna talk about today because I want to talk all about the sort of intersection of NIL and taxes, not something any of us want to talk about or get excited about, and I just know enough to hire someone to do my taxes–that’s kind of where my tax knowledge begins and ends, and so I can only imagine.

I had a job when I was a teenager. So some of the people who brought up tax implications as a reason not to have an NIL, that student athletes couldn’t handle it, I think that’s silly.

I started working at 14 or 15, and started having to file taxes as a teenager. This isn’t something they can’t grasp, but it’s different. It’s gonna be something new that they’ve got to learn how to do, and I think it is helpful to have you on and sort of discuss a little bit about maybe how things change and the things that they need to know, and my audience is primarily folks who work in college athletics. So I know a lot of you out there listening are College Athletic admins, but I know you’ve got to be able to talk to your student athletes about it sometimes too, and at least get them pointed in the right direction.

So I wanted to start maybe for some of our listeners who don’t work in college athletics, and don’t know the answer to this, with how the taxes work for student athletes previously in terms of their scholarships and other benefits that they get from the athletic department in the university.

Katie Davis

There really wasn’t a whole lot of tax impact because so much of what athletes get through their scholarships are tax free, and anything that would be considered a taxable type education benefit was generally so small, but it never really triggered an income tax once you took into account standard deduction. A caveat is for international student athletes where the country they’re from has a certain treaty with the US, they may have to file a non resident 1040 (form), but that’s really the extent of prior to NIL what we’ve seen taxes on with student athletes.

When do student athletes need to worry about taxes when it comes to NIL?

Kristi Dosh

I would imagine there’s a big difference between a student athlete who’s doing a few deals here and there for $50 in Instagram posts versus. a student athlete that I think I saw today a five-figure deal for a student athlete to do some personal appearances. At what point is it going to become an issue for student athletes where they really need to think about the tax implications?

Katie Davis

Well technically, there’s a tax implication anytime you make more than $600 in a year of taxable income because student athletes are independent contractors, they’re self employed, they’re not employees of an organization that will withhold their payroll taxes and their income taxes from their paycheck.

So anytime you have more than $600 of taxable income, you have to at a minimum file your self-employment taxes which is your social security and medicare, that’s regardless of if you pay income tax or not. So then of course as income increases you’re going to eventually approach the federal standard deduction, and once you get above that you’re subject to tax on the federal level, and then each state has its own income tax rules too that are unique to each state.

So as stressful as it was tracking state NIL legislation like state tax regulations are just as complicated if not more so that’s something else that they just need to be mindful of as they’re navigating the taxes, that it’s not just Uncle Sam, but it’s at the state level as well.

Student athletes who live in one state and attend school in another state

Kristi Dosh

If we’ve got a student athlete whose residence is in one state, but they’re attending school in a different state, what state do they owe taxes?

Katie Davis

So generally, where your parents still live, your home is for residency related purposes, as it relates to taxes, just going to school is usually considered temporary, so moving to another state for college isn’t enough to change your residency, you have to do a lot more like really have a permanent residence, establish doctors there where do you put your pets when you go on vacation? Are you truly now a resident of that state or not? So your home state is your first one, but you’re likely going to be earning a lot of your income in the state where you’re going to school.

So in that case, if the income is sourced and there’s ties to that state, that state’s going to want to come after that income as well, and so usually what happens is if you pay tax in one state, you’re deducting it off another state so most of the time, you’re not double taxed but each state’s unique and how it handles that so any state that you’re not a resident, you are subject to the non-resident tax rules.

So you would be looking at the non-resident rules for whatever state you’re going to school as well as any other states you travel to. If you make an appearance somewhere else, or you’re tied to a brand that is doing a lot of advertising somewhere else, those states will look at the source there too.

What happens if the NIL activity takes place in a different place, like a commercial shoot?

Kristi Dosh 

So there’s a national brand that’s going to announce a deal with a student athlete. I am going to break that news about two days after we record but well before this podcast goes live, and the student athlete is located in one state and I’m trying to think if I even know if that’s the state he’s from, and I’m not sure off the top of my head, but he is located let’s say just state X.

He is doing a deal with a national brand that is headquartered in state Y, and he flew to state Z to shoot a commercial that they’re going to air. So that makes my head swim trying to think about where he’s going to have tax implications, let’s just say where he goes to schools in the same state he’s from just to make it a little bit easier, but he flew and actually filmed the commercial somewhere else. So do they consider that he earned the money in that other state where he actually shot the commercial?

Katie Davis 

I think it depends on how the deal is structured. So if some of his compensation was specifically for filming the commercial then yes (in state Z), he would be subject to non-resident state income tax in that state. State Y is a question mark because your sponsor being headquartered somewhere else doesn’t necessarily trigger from a state tax sourcing perspective, income tax in that state. Now, the sponsor would be subject to taxes in various states, and of course there’s legal reasons that might tie them to the state, but for tax purposes they may not necessarily be endless. There’s a lot of advertising in that state Y and a lot of that person’s name, image and likeness is reflected in that state, then that state could identify that and try to attribute some of that income there as well.

Kristi Dosh 

But now I’m thinking about what happens when there’s a deal where a student athlete agrees to do personal appearances, and that’s for a national brand. And so the personal appearances maybe happened during the offseason, and they go to several different states to do these personal appearances, that just makes me want to bang my head against the wall.

Katie Davis

I’m thinking of that like a travel blogger, someone that might do a deal with a hotel chain, and go spend a weekend and Instagram it and make appearances and whatever. I mean, that can get really complicated really fast.

Kristi Dosh

Okay, so we won’t go too far down a rabbit hole, but this is even more complicated than I was initially thinking which is why I think the financial literacy programs are really smart for schools to have, even if the state law doesn’t require you to have it. I think especially because not all student athletes are going to be at a level where agents and attorneys are beating down their door to want to represent them, and help them understand things and maybe help them find a financial advisor, but I’ve always said, there’s gonna be all these people on the low end and kind of in the middle, who are going to be doing deals and making some real money, but not making enough to have agents and attorneys and things like that necessarily involved. But this is one of the complicated things, and I know because I’m self employed, and I tend to do stuff all over the country, and then I actually have employees in multiple states, and I had to register to do business in all those states, and I have to pay taxes in all those states, and then one of my employees lives in a special taxing district, and in fact, I just got the bill for her little special taxing district today. That’s just one little neighborhood in Philadelphia that taxes their residents, or Texas, the employers of their residents, with some sort of special tax. So it gets complicated fast.

City taxes may also be a factor

Katie Davis

It’s complicated on the individual level, but any athletes that do create an LLC or something, and then may get employees they’re gonna have those added layers of complexity as well. New York City is a jurisdiction that’s tax separate from the state of New York, and we saw a lot of athletes’ pictures in Times Square and all of that, and I was curious in that point of like, “Okay, how much of that income is sourced in New York City”?

Receiving goods instead of cash

Kristi Dosh

Some of what student athletes are getting offered is more merchandise and goods, not necessarily cash. So some of them are getting free meals at barbecue restaurants every week during the football season or I have several female student athletes I know who are getting free clothes to wear in exchange for doing Instagram posts. But for everybody out there who doesn’t know, how does that work if they’re getting merchandise in food versus getting paid in cash? How does that work from a tax perspective?

Katie Davis

Yeah, so you’re technically subject to tax on the value of whatever that swag or food or whatever non- cash item that you get.

Tax implications of free travel

Kristi Dosh

I have had several free trips as a travel writer, and you are supposed to turn into my accountant, the value of the hotel and the meals they feed me and all the ways they wine and dine me while I’m there. And so this free trip I thought I was getting to go on as a travel writer,  I’m having to pay taxes on my free trip.

Katie Davis

Yeah, I think that’s a huge part of that, and any organization that pays somebody more than $600, they have to issue a 1099 (form), and they send it to the taxpayer and to the IRS, and you’ll kind of know the value if they create a 1099. 

If it’s less than $600, you may not get one, and another thing I’m afraid of is, if you’re moving around a lot, and you don’t update your address, you may miss the 1099 (form), so I would suggest sending it to your parents house if you think you’re going to move a lot.  But if it’s not on a 1099, and you have a sense that it was more than $600 like a free trip or anything like that you are responsible for identifying what the fair market value is of that. There’s potential for some deals to have an estimate of the value of swag you might get.

So I would look there and of course if you have multiple $300 deals, technically, that’s $600 combined, and you have to report that. So I mean, I think there’s just a lot to think about. If it’s a free t-shirt, or free meals for a week or even a month, that’s probably not going to be substantial, but if you’re starting to accumulate a lot of that, you’re going to want to get a sense of how much that is and keep track of it so that when it’s tax time, you can hand that over to someone to help you with your taxes.

1099s and tracking NIL activity

Kristi Dosh

Yeah, as you were talking, I was thinking if I was a student athlete, I would be tracking all that stuff in a spreadsheet so that at the end of the year if didn’t get those 1099’s, I know all the things I’ve done all year, and I can either go ask for a 1099 or consult with my accountant about it, but at least I know what I did in that year because you will forget.

I have sometimes not kept good track of things, and then had to track them down at the end of the year, and it’s a nightmare.

So hopefully compliance folks are using software that will allow them maybe to compile that for their student athletes, but I can see a lot of compliance people getting emails and phone calls and knocks on their door at the beginning of the year as student athletes try to track this stuff down and work backwards and remember all the deals they had for the past year. So if compliance folks are listening to this, maybe anticipate that and figure out how you’re going to handle it.

Katie Davis

I do think it’s a great feature for those softwares to track not only the market value, but what state it was earned in because I think that will be helpful. But there are some states as I was talking to a school last week, they don’t have a state law, and the pending legislation doesn’t require you to report in your deals so there’s a chance that there would be deals missing.

So unfortunately, compliance can’t help with everything, but I agree I know that they’re not going to be their first stop, but hopefully they’ll see value, and maybe it’s an incentive to report your deals if you’re going to get something out of it by having these good reports.

Common deductions for student athletes

Kristi Dosh

Here’s the question I know I had early on when I was a practicing attorney, and I first started doing TV work, I suddenly was having to spend more money on clothes because I couldn’t wear the same thing on TV twice, and getting better MAC makeup looked better with those HD cameras and all that ridiculous lighting. I remember asking my accountant, can I deduct this as a business expense? I wouldn’t be here buying the shirt or buying this makeup if it wasn’t for me having to go on TV and do this.

And so I’d love to have you talk kind of generally about what kind of expenses you think student athletes might have tied to NIL that are actual business expenses and can be deducted and what are some that they might think are but actually are not?

Katie Davis

Yeah, so I wish that clothes and makeup and hair and nails could be deductible as a business expense, but they’re not.

Kristi Dosh

My accountant told me “No.”

Katie Davis 

So unfortunately, those are not, but I could see student athletes getting tripped up thinking that it is because it’s for that specific reason.

Kristi Dosh

I was in my mid 20s, I had a law degree, I’d like to think I’m a relatively intelligent person, and I thought you could make an argument for that at least, and I was told no by my accountant. So for the student athletes out there listening, don’t don’t feel like you made a dumb assumption because I made the exact same one.

Katie Davis

A lot of smart people that I work with think the same thing, and it’s not necessarily black and white in the code, but there is case law that supports that you really shouldn’t be doing that.

So some allowed expenses, you know mileage. So when you’re driving around to appearances or anything that you’re driving for your NIL, you can keep a log of your mileage and some of that can be deducted as a business expense.

Other types of travel expenses which I know a lot of deals will probably cover that, and that’s really going to be more income than expense, but you could potentially have some meals if you’re buying yourself lunch on a layover in the airport, you can deduct that. There’s a lot of pretty basic type business expenses.

If you’re really have shops set up in part of your home and you have a dedicated space where you’re doing a lot of your social media, if you’re doing a lot of Tik Toking or even if you’re running a business and doing a lot of that activity, you can take a home office deduction by taking a portion of your home and the value of that or if it’s rent that you’re paying, but there’s really not a whole lot as a business expense. But I would say if it’s tied to the business that you’re running, and it’s not a personal expense like clothing, then it can be deducted. That’s the general rule.

Kristi Dosh

I’ve got a student athlete that I’ve worked with a little bit and she does hand-painted sneakers. So if she’s buying paint and paint brushes to create these custom sneakers that she’s selling in her shop, I think that’s deductible. Am I wrong?

Katie Davis

Yeah if she’s buying the blank canvas of shoe and the paint and the paint brushes, that’s deductible. The area where she does the painting could qualify for a home office deduction. So yes, that’s an example if you’re running a camp and you’re buying equipment or you’re buying t-shirts for your campers to have that is deductible.

Kristi Dosh

What about if you’re buying tripods and webcams, ring lights like equipment they’re buying to create content for Instagram and TikTok?

Katie Davis

Yeah, I would think you could deduct that.

Kristi Dosh 

I just wanted to give some examples. I know that I think my accountant has let me do in the past that student athletes might be doing. Here’s what I asked my accountant about a couple of years ago, and my answer might have been different too because I was running a PR agency, and so it looked a little different than just being a solo entrepreneur who was doing things but I was ready to upgrade and get a better cell phone, and I created a ton of content from my phone. If I’m a student athlete, and I’m obviously probably using the phone to text my friends and call my parents and whatever, but I’m also using it to film my content for TtikTok or Instagram or whatever, can I expense my cell phone?

Katie Davis

I would say there’s a reason that you could expense it. Now, what’s going to be interesting is once you start looking at other education related benefits, if a school starts supplying a phone to the athletes then that could not be double counted as a benefit, and then also your expense necessarily. It depends on how it all works washes and washes out, but things like iPads and those type of things, I’m curious to see what that looks like because it could be given to you but if you’re paying it out of your own pocket, not that I would say that’s a deductible expense.

Goods received from the athletic department

Kristi Dosh

If the athletic department did a deal with Apple and every student athlete got an iPad that’s an education related expense when we talk about on the athletic department side. Is that something student athletes get taxed on?

Katie Davis

Yes. Any kind of technology equipment, those types of things are taxable.

Kristi Dosh

Are there some key things as you’ve thought about financial literacy for student athletes, are there some key things that you have been thinking about or want to get across to them that we haven’t mentioned yet? I rattled through all the ones that were top of my mind, but anything I didn’t think of that you’ve been kind of noodling on?

Tax implications of car deals

Katie Davis

I think the cars, and it’ll be interesting to see how those deals look–if it’s just temporary for a season, if it’s multi-year, if it’s a loner versus if they’re giving you a car to keep for the rest of your life, that’s going to look very different, but you’re going to want to make sure you have some cash deals going on to cover the taxes for that because if it’s substantial, it could be a pretty big tax bill, and you may not have the cash to pay it.

So don’t blow all your cash that you get, save some back. Generally, we say 25% to be on the safe side and then if you don’t pay it off, then that’s a bonus.

Kristi Dosh

So as you were talking about the cars, I was sort of thinking that a lot of those deals maybe will end up being structured the same way so that if student athletes are receiving something very large of value, that maybe there is some sort of a cash attached to it so that they can save for the taxes they’re going to owe.

Katie Davis

I think that would be huge in a car deal, especially if it’s a multi-year loaner or they just outright give you a vehicle. That’s something that terminology grosses up for taxes. So ask for that lump sum to cover the tax on the value of that because if you’re just getting a vehicle, you pay the tax in the year you’re given it all at once, they don’t split it over a number.

Kristi Dosh

You and I went through an example as soon as we heard that Myles Brennan had struck the first car deal at LSU, I was going to write a story about it. So, you and I talked about it and kind of talked about the math behind it maybe and then the story went in a totally different direction because within three days of him announcing it, he was injured and uncertain whether he’s gonna play this season or not so then it sort of shifted to, ”How does the brand make the best of this deal?”

So if people want to take a look at what a car deal might look like for a student athlete, and we don’t have the contract, we don’t know all the terms of that deal, but sort of based on some basics that we know, or we’re guessing, what you were thinking about what that might look like for him from a tax perspective. Is there anything other than I like the idea that if a car dealership comes to you or anything big like that of a large value, that you also negotiate that cash so that you’ll have the money to pay the taxes. Is there anything else you can think of with respect to a big deal that student athletes and their advisors should be thinking through from a tax perspective that they could maybe negotiate to make the impact a little less hurtful?

Advisors student athletes may need

Katie Davis

I think if you’re making really big deals, and you are going to multiple states and doing multiple activities to earn this income, if you’re not represented by an agent and a team of people that includes an accountant, try to think about where you’re going to go to get help because it’s going to be really hard to navigate this by yourself.

So another big expense, and I mean it won’t be huge in the grand scheme of things, but still big for an 18 to 22 year old, the pay is for an accountant to do your taxes for you. So if you can maybe negotiate that in just again making sure that you’re covered there, but for someone to file your taxes for you is also a deductible expense. So you can count that, but I would definitely just make sure you’re covered. I think that’s really my other biggest concern is just that you have someone in your corner that can help you navigate this.

Quarterly vs. annual tax payments for student athletes

Kristi Dosh

Are there situations where student athletes need to learn about and figure out paying quarterly taxes versus waiting till the end of the year to file their taxes?

Katie Davis

Yeah, so in year one, which honestly might be year two since NIL started mid-year, you don’t really have to because you haven’t set a precedent for being a taxpayer before.

So they’ll say, “Yeah, okay, you’ve figured out your taxes you pay it in, but what they’re going to expect going forward is you’re going to get these quarterly vouchers that’s based on the income you made the previous year, and they’re going to want to see estimated tax payments that you have to put in by specific dates, four times a year.”

So you can choose to not pay it. There are tax strategies that if you think you’re not going to owe as much the next year as you did the previous year, you don’t have to pay it. Nothing says you have to but when you get to the end of the year again, and you have to pay taxes, whatever you’re short by, there will be a penalty and interest on that. Now again, it’s kind of small, but it’s still something and penalty in that case doesn’t mean you’re in trouble, but it’s just an added little fee to it because you didn’t pay it when the government wanted you to get in.

Do student athletes need LLCs?

Kristi Dosh

We won’t go too far down this rabbit hole, but I’ve been telling student athletes more and more my sort of personal horror story which is that I was a practicing attorney, and I got a salary and my employer was withholding taxes, and I had never really had to worry about it before. And then when I got hired by ESPN back then they paid us all as independent contractors, and I got offered a nice sum of money per year to go be their sports business reporter, and I had been used to being paid that nice sum of money as a salary with taxes withheld, and suddenly I was getting it paid with nothing withheld as an independent contractor.

And despite my best efforts to figure out how much to save up for taxes I was way off. I mean, way off, it was incredibly painful, and I ended up getting the advice to form an LLC the next year and have ESPN pay my LLC and then pay myself a salary through the LLC so I won’t go down a rabbit hole, maybe we’ll have an attorney on to talk about at what stage you should consider forming an LLC if you’re making $10,000 this year you might not need to. If you’re making six figures, maybe then it starts to look different, but just a short share my own personal anecdote, that was really painful, and I was an attorney and now I feel like I should have known better, but I didn’t. I didn’t know anyone in my life who was self-employed, or who got paid in that way, not at least not in those kinds of amounts.

And so even though I tried to estimate what I thought I needed to put aside, my estimating was way off, and it really, really hurt, and then after that I knew to form this LLC, and to run it through there and continues to be how I run much of the income I get from speaking and writing and consulting because just getting paid personally is a much bigger tax burden than filtering it through this LLC.

So for student athletes who are out there, I will assume that if you’re making that kind of money, you do have some sort of agent, attorney, financial advisor, helping you navigate this. 

So hopefully we can have an attorney to talk about it in the future, but that’s why I wanted to ask the quarterly tax question because I hear some of my friends who own their own businesses constantly talk about paying their quarterly taxes. But however, my accountant has set up my things I don’t think that I do or if I do, I just am not aware of it because he does it for me.

So I think it’s just good for people to have an understanding of all the different pieces of the puzzle so that you can decide if you need to hire someone and where you should be getting guidance for this. So you won’t to the end of the year, and realize you didn’t save enough and now you owe all this money to the IRS because it is not fun to owe money to the IRS.

How much student athletes should set aside for taxes

Katie Davis

I think it’s really eye-opening because we’re used to seeing their parents get their paycheck and their taxes withheld, and if even if you say okay, “My parents made this much money and they were in this tax bracket this maybe one of the lower tax brackets and think okay, I’m safe saving 10 or 15% but then you have the self employment tax which is 15.3%,” and you have a lot of other things so we recommend 25% and may have to be higher if you’re making a lot more money, but that’s what we recommend is to start there. Put it in savings, even if you don’t want to pay it to the IRS quarterly, just stick it aside in the bank account and pretend that it’s not there, and then you can pay it in whenever you think you need to pay it in.”

But I mean, it will be a shock, and I think to the LLC point, I would say don’t set one up just for the sake of setting one up because other athletes like pro athletes do it or whatever, but really have a good reason from a legal liability standpoint, and from a financial standpoint and when you’re setting up an LLC, get an accountant involved too because there’s different ways you can be taxed as an LLC.

So if you’re a single owner of an LLC, or you have another co-owner of this LLC, there’s differences there too, and so it can also get kind of complicated, and depending on what state you’re in, it may be more or less advantageous to be taxed as a business as opposed to an individual. Like Texas doesn’t have state income tax for individuals, but they do have a franchise tax for businesses so that’s one example of where it may not be as advantageous to do it unless there’s other bigger reasons like mitigating risk and other things like that.

Kristi Dosh 

Yeah, and honestly for student athletes who are out there listening, accountants are not that expensive. If you think you’re making $50 on Instagram posts like once every few months, I wouldn’t worry about it.

But if you’re, if you’re getting some real deals in this, and we’re talking about $1000s of dollars, I think I would go talk to an accountant and just get some feedback on what you should be doing, accountants are really affordable.

Look, I’m a lawyer, and I’m not telling you to go to lawyers because sometimes they’re not real affordable although it can be helpful to have that advice too. But I would maybe start with an accountant, and then what I found was I went to the accountant, and he said, “I think you should be set up as an LLC taxed as an escort, but you should go see an attorney and make sure that I’m right.”

So a lot of times, once you go to an accountant, they’re going to send you to an attorney, but I would probably start with an accountant and figure out  based on what you’re projecting to make what you should be doing to prepare yourself.

Katie Davis

Yeah I think what we’re doing anytime someone says, “What do I need to do? How can I get help with my taxes”? It’s like okay, I’m looking at the general, making money on social media, make an appearance here or there,  I would say start with asking your parents or a trusted adult, maybe not someone in athletics because they might not be allowed to tell you. Then seek out other resources on campus.

Resources on campus for student athletes

Davis continues:

I was talking with a university last week, they have a peer-to-peer type program where you can help each other so they go through their accounting school, and there are students who can help with tax advice, or at least pointing them in the right direction so there’s some free resources.

United Way has a vita program that provides free tax assistance for low income earners so I would start there. Now, granted, you get what you pay for so if you’re really complicated, you may not be covered on all your bases or have the most strategic approach so as it gets more complex or you make more money, check Google for an accounting or tax preparation service, and either where you’re going to school or where your parents live, you can have someone local to you really help you out.

Kristi Dosh

Yeah, I feel like if you’re a student athlete who’s doing deals that involve multiple states run, don’t walk to an accountant. After hearing what Katie’s had to say about it, I know that that would be my first stop because I think it gets really complicated really fast when you’re talking about multiple states. Anything else you think that student athletes need to be thinking about or be aware of that we haven’t already hit on?

Impact of NIL on need-based aid

Katie Davis

I think the only other thing is if a student athlete receives any kind of need-based financial aid like a Pell Grant or something through their institution, just know that once you start earning income, that could impact the financial aid that you’re getting.

So Pell Grants are complex too. I’m not a financial aid person, but go talk to your compliance person or your campus financial aid about what does it look like for you, and because that’s one of the other questions I hear a lot is, “Well, how much can I make before I lose my Pell Grant”? And it’s like, well, it’s not that simple.

There’s a lot of stuff that goes into that (Pell Grant’s). So that’s the only other thing because I’ve heard athletic directors even talk they’re concerned just from a moral standpoint even if there’s gonna be ways if the athlete could be covered with the basics of tuition and all through athletic scholarships and other education related benefits, but going from having free money to working for your money can feel frustrating for athletes that already may not trust larger governing bodies.

Whether it’s the government, NCAA, whatever, that it could be just a frustration. So giving them a heads up about that. If they do rely on those Pell Grants, it may not be worth it to go after a deal that may just actually negatively impact them once you take into account taxes and other things.

Dependent status of student athletes

Kristi Dosh

If you’re a student athlete who your parents still claim you as a dependent, is that now potentially gonna have an impact on your parents if now you’re suddenly making a lot more money?

Katie Davis

Yes, it could. So if you are at the point where you are supporting yourself, then you are no longer a dependent, and it could be different in states versus federal government too so that’s another thing. But yeah, it could impact your parents, and it probably won’t be a huge impact to them because if they’re not truly supporting you anymore, they’re saving money.

But it could also increase their tax situation too, so I think it’s just as important for parents to understand some of these tax implications not only for themselves, but just helping their kids even when they’re in high school and being recruited and thinking about where to go to school.I have workshopped with schools and their coaches to talk about, “Hey, here’s some recruiting advantages If you just have a little bit of tax knowledge that you can take with you and you go visit these parents.” So

those types of conversations I think are really important because the parents are most likely going to just be worried about their kids and make sure they’re taken care of, and then they’re not going to get in trouble.

Kristi Dosh

Yeah, so my mom just moved last year from Georgia to Florida, and we kept joking that she got an instant 6% raise because she was no longer gonna have state income tax in Florida on her salary like she had in Georgia. So as we talked about her moving down here we joked about the big 6% raise she was gonna get. So yeah, I could see where that might play into some folks’ decisions as they’re choosing schools.

Katie Davis

Yeah for sure, but remembering that just because you go to school in Florida doesn’t mean you don’t pay taxes. You’re still a resident of Georgia, and so you have to figure out how to not be a resident of Georgia and become a resident of Florida. So then you’re not subject to those taxes.

Kristi Dosh

I wanted Florida residency when I was going to UF for law school so that law school would be a whole lot cheaper. But when I was in law school, I had to go that first year at UF as an out-of-state student because you had to prove a year of residency. So as soon as I got here, I went and got my driver’s license, my car registration, signed a long-term lease, moved everything in my life that I could to Florida so that the next year of law school, I would be a Florida resident, and could have that in-state tuition rate, and was able to do it, but it was a lot of planning and work to be in a position to be able to do that.

Katie Davis

Yeah, and the rules for tuition residency can be very different from your state tax rules. But if you do change your residency, and you’re not with your parents then they’re definitely not claiming you anymore, even if you aren’t able to support yourself.

But there’s also some advantages of states that have student athletes looking elsewhere that you can say, “Hey, I’m Florida, Texas, wherever, and I know you’re considering my school, but you’re also considering a school in another state, just know that you’re going to get that 6% raise by staying in Florida as opposed to going to Georgia.” So that’s another good strategy.

Kristi Dosh

Go to Florida instead of Georgia, I like that example. Well, thank you so much for shedding light on this. I love this podcast because I learn new things every single week because I try to bring on people who are smarter than me, which isn’t that hard, and I get all these great people who are experts in their areas and then I learned so much and sometimes I don’t even do a ton of research before I get on because I want to ask questions at that sort of like beginner or like I make certain assumptions kind of background so that people listening whoever those same questions get to get to hear the answer.

So sometimes I feel kind of dumb and asking dumb questions but hopefully everybody gets something out of that and learns something new. Thank you Katie for joining us and shedding so much light on taxes for us.

Thanks to my intern Will Whitmore for assistance with this episode.

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