LLC or Not: The Business Entity Decision Your Athletes Are Making Without Guidance and Why That Is Your Program's Liability.
When an athlete signs an NIL deal without a properly structured business entity, they are personally liable for every obligation in that contract. Most programs do not have a systematic answer to this.
The Default Position Is Personal Liability
Every athlete earning NIL income without a business entity is operating as a sole proprietor by default. Under the federal tax code, that income is self-employment income reported on Schedule C, subject to ordinary income tax at the applicable bracket plus a 15.3% self-employment tax covering both the employer and employee shares of Social Security and Medicare. Unlike a W-2 employee whose employer absorbs half of that burden, a sole proprietor absorbs all of it.
The tax obligation is the most visible consequence of operating without an entity structure. It is not the most consequential one. An athlete who signs a brand agreement as an individual is personally liable for every obligation in that contract: exclusivity clauses that conflict with school sponsor agreements, deliverable obligations they fail to fulfill, indemnification provisions that expose personal assets to content-related claims, and brand representation requirements that follow them into professional contracts without a legal entity to contain the exposure. These are not hypothetical risks. They are the predictable structural vulnerabilities of a generation of athletes who were handed commercial contracts before anyone explained what a business entity is for.
Sources: IRS.gov, April 2026; SDO CPA, April 2026; University of Maryland TerpTax, June 2025.
What an LLC Actually Does
A limited liability company does three things for an athlete that operating as a sole proprietor does not. First, it creates legal separation between the athlete as a person and the athlete as a business. Claims arising from NIL activity are claims against the LLC, not the individual. Personal assets, including future professional earnings, are not directly exposed. Second, an LLC creates a formal container for IP ownership. Content created, brand relationships developed, and licensing rights negotiated through a properly structured LLC have clear ownership chains that become increasingly valuable as NIL activity evolves beyond the college career. Third, an LLC with an S-corporation election can reduce self-employment tax exposure for athletes generating significant NIL income by characterizing a portion of earnings as distributions rather than self-employment income.
The decision of whether to form an entity is not a legal question for most athletes. It is a business infrastructure question. And it is one that should be answered by the program before the athlete signs their first deal, not after their first tax bill arrives.
Sources: SDO CPA, April 2026; Grigg Financial Group, April 2026; Wingert Law, February 2026.
The 2026 Tax Threshold Change and What It Obscures
Beginning with tax year 2026, the 1099-NEC reporting threshold increases to $2,000 under the One Big Beautiful Bill Act. This change is being widely misread. The $2,000 threshold is a paperwork trigger for the paying entity, not a tax exemption for the recipient. An athlete who receives $1,800 in NIL compensation from a local business that does not issue a 1099 still owes federal income tax and self-employment tax on that income. The IRS is explicit on this point, and its growing focus on NIL as a high-risk enforcement category makes the distinction consequential.
The Texas Society of CPAs documented the consistent pattern in its February 2026 practitioner analysis: no estimated tax payments, no understanding of self-employment tax, no awareness of filing thresholds, no familiarity with 1099s or W-9s. The IRS's messaging, the analysis concluded, assumes a baseline level of tax literacy that simply does not exist among college athletes navigating NIL income for the first time.
Sources: Texas CPA Society, February 2026; TurboTax NIL Guide, December 2025; Grigg Financial, April 2026.
IP Ownership and the Long-Term Consequence
The business entity question extends into intellectual property ownership with consequences that extend beyond the college career. An athlete who has created content, built audience relationships, developed a personal brand, and established commercial licensing arrangements during four years of NIL activity has built something with real long-term value. The question is whether they own it clearly. Content created without documented IP assignment to a business entity may be subject to competing ownership claims from platforms, brands, schools, or parties involved in its creation. Building the entity structure that houses those assets correctly, at the beginning of an athlete's NIL activity rather than retroactively, is the single highest-return administrative investment a program can make in its athletes' long-term financial outcomes.
The question for athletic programs is not whether their athletes should have business entities. It is why their athletes do not have them already. The programs that answer that question honestly will build the infrastructure to change it.
Sources: IRS NIL Guidance; Texas CPA Society, February 2026; Wingert Law, February 2026.
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