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Hey there,

Tax Day was on Monday, so it’s only fitting we talked to Tim “The Tax Man” Deegan, a tax expert who broke down how taxes and NIL fit together. The interview was wide-spanning – we discussed what misconceptions there are around NIL and taxes, whether there’s a difference between D1 and D3 players’ tax liabilities, and even advice on how athletes can plan for the future.

We hope you enjoy the interview and find it valuable – especially if you’re an athlete or a parent of an athlete using NIL. 

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If you want to get in touch with Tim, you can find him at [email protected].

— Cole, Justin and Collin

Interview with Tim Deegan

Describe how taxes affect NIL, and vice versa. If you were to give a basic breakdown of the relationship between NIL and taxes, what would it be?

The reality is that NIL has made high school and college-aged men and women professional athletes mainly at a time when they still have a poor understanding of the financial and tax implications associated with their newfound cash flow. NIL means business, and being in a business brings taxes and filing requirements. Many athletes must realize they are taxed as self-employed individuals, and they must pay their taxes by April 15th of each year when earning as little as $400 a year.

In many cases, they must also begin making estimated tax payments quarterly to reduce the potential underpayment penalties. Another thing is that in many cases, the students live and earn revenues in a state different from their former permanent residence, and state taxation must also be considered. 

The more income you make, the more the government wants to take from you as a taxpayer. Some deals sound really good, but after the tax implications, the documentation requirement, and record-keeping associated with that business or brand, it's not close to being "Free after-tax money," as many assume.  

Are tax liabilities going to look different for an athlete signing NIL deals at various college sports levels? What are the likely tax differences between star athletes at the Division I level and athletes competing at lower levels, like DII, DIII, and NAIA?

My experience tells me that the major D1 schools have bucketloads of funds to pay athletes for their time and talent at the university. From the earliest days of NIL, the average student-athlete signed for an annual NIL deal valued at $3,100, but highly ranked D1 star quarterbacks now have lawyers and recruiting services thinking one-year deals should be placed at millions.

Someone who earns $25,000 in NIL at a D3 or NAIA level will pay approximately $4,220 (17.5%) in federal taxes after all expenses and additional taxes if they live in any of the 43 states where individual income is taxed. Compare this to someone who makes over $500,000 and buys a luxury sports car while leasing an upscale housing unit. They will have a significant tax liability and are likely to pay close to $170,000 or (about 33%) in federal income taxes. Both of these athletes need to get wealth management assistance.

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Of course, NIL is still a growing industry with lots of “blind spots.” What are some of the main NIL misconceptions you see working with athletes?

The most popular misconception is that the money they will receive is tax-free since it comes to them from a collective. Unfortunately, this is far from reality.

Many parents tell me that they love and support their student-athletes, but they want them to gain an education first and foremost. These parents often end up being the students' accountants and investment advisors, and it can become a full-time job tracking down receipts or spending hours counseling them about how to handle their money. 

How important is it for student-athletes to learn basic financial literacy? What resources do you think student-athletes should be aware of for financial or tax help?

Students need to learn money management, communication, time management, critical thinking, stress management, conflict resolution, and better decision-making skills early in order to succeed financially—just like they need to hit home runs, sink three-pointers, or throw touchdown passes.

Many universities have abundant resources available to assist student-athletes in these skills, and more coaches discuss these resources during on-campus visits, but “you don't know what you don't know.” I'd advise any athlete to reach out to local professionals and not be afraid to ask questions – Most will gladly meet and even offer to mentor and get you started one step at a time. 

Getting an accounting or record-keeping system is not hard, but it is time-consuming. It takes knowledge and consistency and can vary depending on needs. A simple Excel spreadsheet will work for many, whereas others need additional software. I've had the most success when we explain the theory behind what we need to collect records. The amount of tax savings sometimes gets us over the resistance. When we say every dollar spent legally and accounted for properly saves about 25 cents per dollar, it gets the attention back in focus.

You have worked with countless athletes and their families as they plan for their future. If you could only give one piece of advice for athletes to set themselves up for success with NIL earnings, what would it be? 

Number one is don't change who your parents taught you to be. Money comes and money goes, but the goal is to have it when you need it. Learn to differentiate needs from wants. Save for your future because you don't know how long this opportunity will last. Focus on why you were given this opportunity — live with faith and gratitude. Work your craft and realize in life, you can always find room for improvement, and the hard work is now paying off because you always wanted it more than your competitor. That applies to sports and life. When you accept you are imperfect, you allow yourself to grow and seek help from others.  

Financially, explore as many options as you can; never jump at the first offer. Is it the best you can do for yourself, your future, and your family, or is this just the first offer that is higher than the last? 

Lastly, save and invest some each month, pay off the highest percentage of debt first, and remember those who helped get you where you are today. Never deal with someone who has less to lose than you.

Thanks for reading our interview with Tim Deegan. If you have questions or concerns, simply respond to this email to get in touch!