Why You Should Have An LLC As An Athlete

Whether you’re making money now, or planning on making money through your athletic skills through a salary, cash prizes, or endorsements — you should consider forming your own Limited Liability Company (LLC). This goes for college athletes taking advantage of the new NIL rules, professional athletes, and of course, the Pros on Couro. An LLC can help protect yourself from any liability, and has some nice tax advantages. But let’s take a step back and explain what exactly an LLC is, and why you should consider forming one.

LLC Explainer

An LLC is a business structure that protects the owners from personal liability for the debts of the company. Here’s the sparknotes breakdown:

• LLCs protect owners from being personally sued for repayment of any company debts.

• Any person or entity can be a member of an LLC (except banks and insurance companies).

• LLC regulation varies from state to state.

• LLCs don’t pay taxes directly. They instead pass profits and losses off to their members who report them individually on their tax returns.

How to form an LLC

While LLCs do differ from state to state, there are some commonalities that we can point out here. First thing’s first, you’ll need a unique name. Your local state will likely have an LLC name lookup website, which is just a google search away. Here’s California’s as an example. 

After picking a name, you’ll need to file your Articles of Organization. Sounds complicated, but it’s not really. Some states will walk you through this process online by filling out a few forms, and compiling these answers into your Articles of Organization for you. These articles establish the rights, powers, liabilities, and obligations of the LLC members. They also include the names and addresses of the LLC members, the same for the LLC’s registered agent, and the business’ statement of purpose. 

If you don’t live within the state in which you’re filing, you’ll need a registered agent within that state in order to file for an LLC within that state. If you are, that registered agent can be you! Being a registered agent means that you’ll be receiving important legal notices and tax documents on behalf of the LLC. This also means that if the company is being sued, you, as the registered agent, will be served the court summons.

Once completing the formation documents, you’ll need to file for an employer identification number (EIN). This is with the federal government, and is also a fairly quick process. 

So, as a recap:

• Find a unique LLC name

• File your Articles of Incorporation within your state 

• File for an EIN number with the federal government

After these, you can open up a bank account for your LLC. Each filing does have a fee associated with, but they should both be under $100. Make sure you’re filing directly with your state and the federal government to avoid unnecessary fees.

Why go through this hassle at all? Well, there are some really great advantages that come along with having an LLC, particularly for athletes who are doing what they love as their profession.  

LLC Advantages

1. It’s in the name. LLCs can limit your own personal liability, meaning the business debts are not your personal debts. So if the business can’t pay its debts, or gets sued for negligence, it will be the business, not you.

2. LLCs have some nice tax advantages. LLCs get to take advantage of something called “pass-through” taxation. Long story short, the owners of the LLC pay personal income tax on any profits, instead of the business paying taxes on profits, then the individual paying taxes on it. It avoids the double taxation problem that other businesses have. 

1. LLCs have far less administrative burdens than other forms of business entities. This includes fewer compliance requirements, more fluid management structure with no managing board of directors, and flexible membership. 

LLC Disadvantages

1. Costs. LLCs not only have an initial formation fee, but some states have a yearly annual report fee or franchise tax fee. Be sure to check with your Secretary of State’s website on whether you live in one of these states. 

2. Transferring ownership can be tricky. Unless the members make an agreement otherwise, all members must consent to any additional members or any altering ownership percentages of the existing members. 

LLC Write Offs 

Now, for the good stuff. With an LLC, comes some tax deductions worth knowing about. While these deductions often vary for the space operating in, Here are some general deductions that generally apply across the board: 

• Rental expenses

• Insurance

• Tangible Property

• Professional expenses

• Meals and entertainment

• Independent contractors

• Costs of goods sold

• Charitable giving

For an athlete, travel expenses, any rental fees associated, meals, and other professional expenses (trainers, physical therapists, doctors, etc) associated with the goal of competing athletically will all be likely tax-deductible. This means that all of those meals on the road, the physical therapy, and the plane tickets or long car rides to competitions — can all likely be deducted from your taxes. Earning money is hard enough as an athlete, might as well keep as much as you can. 

At Couro, our goal is to create a space where athletes can both make a living from their athletic abilities, and teach others how to do the same. This means, not only how to make, but how to keep that money. A great way is to look into an LLC, and make a business out of your athletic pursuits. 

Before you do, it’s worth saying that you should check with your favorite attorney to make sure that all your t’s are crossed before hitting submit.  

By Cam Van