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The tax complexity of NIL pay for NCAA athletes

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Financial advisors and tax professionals could help college athletes save a lot of money on their name, image and likeness pay — but only with better guidance, a new study found.

Outlining more than a half dozen possible trust and estate-planning strategies for a women’s basketball star named “Jane Doe,” the academic paper by Doron Narotzki of the University of Akron and Yariv Brauner of the University of Florida was published last month in the American University Business Law Review. Each strategy came with complicating factors. However, with the right planning for Doe’s $225,000 in annual earnings at “XYZ University,” her tax liability could be reduced by as much as $32,816, according to their estimates. 

Four years ago, the National Collegiate Athletic Association legalized (NIL) payments to college student-athletes for endorsements, social media campaigns, video games and the other growing sources of potential compensation. But experts say the talented youngsters, who can net millions of dollars a year, still need much more guidance about how to avoid scams and costly tax bills

“College athletes face significant challenges in navigating the complex tax landscape,” Narotzki and Brauner wrote. “The shift from being a student-athlete to a taxable entity requires a steep learning curve in financial literacy and tax compliance. Many athletes may lack the necessary resources or guidance to manage these responsibilities effectively. The NCAA should recognize this dramatic change and consider altering its fiduciary duty, or that of the universities, toward student-athletes by providing them with legal and tax consultation. This support could include workshops on financial literacy, access to professional advisors, and tailored resources to help athletes understand and fulfill their tax obligations. By taking these steps, the NCAA and universities can better support student-athletes in managing their new financial realities and responsibilities.”

READ MORE: Big NIL deals bring cash — and alarms about financial literacy

The need for education

Financial advisors frequently covet athletes and entertainers as clients, but those customers often must overcome errors tied to their wealth before they begin tapping into tax savings methods on the level of, say, Shohei Ohtani’s 2023 deal with the Los Angeles Dodgers

NIL money poses a lot of the same challenges with sudden wealth that can come up with early career doctors, according to Palash Islam, the founder of San Ramon, California-based Synergy Financial Group and a onetime front-office employee with the National Basketball Association franchise then called the Seattle SuperSonics. In addition, his daughter is following in his footsteps as a student manager with the men’s basketball team at his alma mater, the University of Washington Huskies. 

Islam’s practice works with many professional athletes.

“I don’t even mess with players on their first contracts because there will be so many mistakes that will be made that it’s not worth it. You get them on the second,” he said. “It’s just challenging when you’re 21, 22 to be able to manage your money and to make it last.”

The athletes often struggle to look past the question of the size of their NIL pay, to the detriment of other aspects including long-term tax and planning implications, and athletic programs can find “only so many hours of practice” or NCAA-regulated meeting times to devote to financial literacy, according to Pat Brown. A former all-conference linebacker with the University of Kansas Jayhawks, Brown is now a 23-year veteran wealth manager with Creative Planning at the firm’s Will & Trust Center and the founder of an organization called Financial Literacy For Student Athletes. He provides financial coaching and education to teams at KU and more than a dozen other universities.

“Having these conversations with them, I know it’s falling on deaf ears, because, ‘I just want to play ball, I just want to get paid.’ At a certain point I’m not able to be in front of them enough to get them to realize how important it is,” Brown said. “Now it’s upon these kids to take time out of their schedule to either sit down with someone like me or sit down with any financial professional. Some of these guys are making quite a bit of money.”

Under NCAA rules, the athletes must inform their colleges of their NIL deals and perform “legitimate services” in exchange for the money, and they’re allowed to hire professional advisors, agents or marketing representatives, according to Narotzki and Brauner. Schools can and do offer the athletes resources and education, but the colleges are not permitted to seek or negotiate NIL deals for the athletes. Firms like Merrill and Morgan Stanley are investing resources aimed at finding potential clients, and financial technology companies are expanding their tools for NIL planning. However, the tax implications pose a lot of complexity.

“The era of name, image and likeness agreements has catapulted collegiate sports into a new dimension, offering student-athletes opportunities to profit from their personal brands,” former University of Miami Hurricanes basketball player Justin Heller, the founder of Heller Private Wealth, wrote in a piece for Financial Planning last year. “Yet, this financial windfall comes with a hidden peril: an array of tax obligations threatening to entangle unprepared student-athletes in potentially daunting tax situations that many are ill-equipped to handle.”

READ MORE: Giving student-athletes a running start through financial literacy

Case study and policy recommendations

That’s why there is “a critical need for educational programs and resources to help student-athletes understand their tax obligations,” and universities, boosters and financial advisors “should collaborate to provide comprehensive tax education and support” in a manner comparable to programs developed through the National Football League Players’ Association, according to Narotzki and Brauner. They could also use some practical advice on the rules specific to NIL pay from the IRS, they wrote.

“While the IRS has provided some general guidelines on self-employment and freelance income, specific guidance on NIL earnings remains limited,” Narotzki and Brauner wrote. “This ambiguity can lead to confusion and unintentional non-compliance among student-athletes, who are already at a built-in disadvantage and are more vulnerable and susceptible to finding themselves in non-compliance with the law.”

As part of their analysis of the key tax questions tied to NIL pay and their study of Jane Doe’s situation, they delved into seven different self-employed business owner classification strategies for her compensation. 

A sole proprietorship or a revocable trust came with the biggest tax liability at $75,056, followed by an S-corporation with an irrevocable trust that retained all her earnings ($68,393.50), an irrevocable trust that retained the income ($67,693.50), an S-corporation that distributed part of the earnings to another beneficiary ($57,940), an S-corporation with a revocable trust ($56,100) and, at the lowest end of the spectrum, an irrevocable trust with distributed income ($42,240). Besides the estimates of the federal, state or local and payroll taxes, each strategy brings added costs for hiring professionals to help file returns or create those entities, the requirement for careful recordkeeping of all earnings and expenses and a far-reaching search for any possible deductions or credits, Narotzki and Brauner wrote.

“Both sole proprietor and revocable trust calculations result in the same tax liability since the income is taxed to Jane,” they wrote. For the irrevocable trust, distributing income to beneficiaries results in the lowest tax liability. The S-corporation provides significant tax savings compared to a sole proprietorship. The S-corporation with an irrevocable trust can offer additional tax savings if dividends are distributed to beneficiaries in a lower tax bracket but may result in higher taxes if income is retained in the trust. Using an S-corporation alone provides substantial tax savings compared to a sole proprietorship, whereas adding an irrevocable trust to the S-corporation structure can result in further tax savings if dividends are distributed to beneficiaries with lower tax rates.”

READ MORE: Free NIL Long Game course teaches NCAA athletes financial literacy

The outlook for NIL and taxes

Only a “few and far between” colleges have developed resources to explain the potential of such sophisticated planning strategies for athletes, according to Brown.

“I just would hope that more kids are looking for this exposure, especially the kids who realize that they can make some life-changing money. Not everyone is going to go to the league,” Brown said. “As young as they are, it’s going to compound, and time is on their side. … If they don’t understand taxes or how to mitigate tax as much as possible, then that can definitely be harmful as well.”

In order to guide the student-athletes through the implications of their legalized earnings, the IRS should ramp up its guidance on the regulations for NIL earnings, the universities ought to give them tax education as part of their athletic program and the NCAA must create a standard level of tools for planning and compliance, Narotzki and Brauner wrote.  

“Understanding the tax implications of NIL earnings is crucial for college athletes like Jane to maximize their financial opportunities and comply with tax laws,” they wrote. “This case study highlights the complexity of tax responsibilities and the need for better education and resources. By addressing these challenges, we can ensure that athletes are well-prepared to manage their NIL income effectively.”

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IAASB tweaks standards on working with outside experts

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The International Auditing and Assurance Standards Board is proposing to tailor some of its standards to align with recent additions to the International Ethics Standards Board for Accountants’ International Code of Ethics for Professional Accountants when it comes to using the work of an external expert.

The proposed narrow-scope amendments involve minor changes to several IAASB standards:

  • ISA 620, Using the Work of an Auditor’s Expert;
  • ISRE 2400 (Revised), Engagements to Review Historical Financial Statements;
  • ISAE 3000 (Revised), Assurance Engagements Other than Audits or Reviews of Historical Financial Information;
  • ISRS 4400 (Revised), Agreed-upon Procedures Engagements.

The IAASB is asking for comments via a digital response template that can be found on the IAASB website by July 24, 2025.

In December 2023, the IESBA approved an exposure draft for proposed revisions to the IESBA’s Code of Ethics related to using the work of an external expert. The proposals included three new sections to the Code of Ethics, including provisions for professional accountants in public practice; professional accountants in business and sustainability assurance practitioners. The IESBA approved the provisions on using the work of an external expert at its December 2024 meeting, establishing an ethical framework to guide accountants and sustainability assurance practitioners in evaluating whether an external expert has the necessary competence, capabilities and objectivity to use their work, as well as provisions on applying the Ethics Code’s conceptual framework when using the work of an outside expert.  

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Tariffs will hit low-income Americans harder than richest, report says

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President Donald Trump’s tariffs would effectively cause a tax increase for low-income families that is more than three times higher than what wealthier Americans would pay, according to an analysis from the Institute on Taxation and Economic Policy.

The report from the progressive think tank outlined the outcomes for Americans of all backgrounds if the tariffs currently in effect remain in place next year. Those making $28,600 or less would have to spend 6.2% more of their income due to higher prices, while the richest Americans with income of at least $914,900 are expected to spend 1.7% more. Middle-income families making between $55,100 and $94,100 would pay 5% more of their earnings. 

Trump has imposed the steepest U.S. duties in more than a century, including a 145% tariff on many products from China, a 25% rate on most imports from Canada and Mexico, duties on some sectors such as steel and aluminum and a baseline 10% tariff on the rest of the country’s trading partners. He suspended higher, customized tariffs on most countries for 90 days.

Economists have warned that costs from tariff increases would ultimately be passed on to U.S. consumers. And while prices will rise for everyone, lower-income families are expected to lose a larger portion of their budgets because they tend to spend more of their earnings on goods, including food and other necessities, compared to wealthier individuals.

Food prices could rise by 2.6% in the short run due to tariffs, according to an estimate from the Yale Budget Lab. Among all goods impacted, consumers are expected to face the steepest price hikes for clothing at 64%, the report showed. 

The Yale Budget Lab projected that the tariffs would result in a loss of $4,700 a year on average for American households.

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At Schellman, AI reshapes a firm’s staffing needs

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Artificial intelligence is just getting started in the accounting world, but it is already helping firms like technology specialist Schellman do more things with fewer people, allowing the firm to scale back hiring and reduce headcount in certain areas through natural attrition. 

Schellman CEO Avani Desai said there have definitely been some shifts in headcount at the Top 100 Firm, though she stressed it was nothing dramatic, as it mostly reflects natural attrition combined with being more selective with hiring. She said the firm has already made an internal decision to not reduce headcount in force, as that just indicates they didn’t hire properly the first time. 

“It hasn’t been about reducing roles but evolving how we do work, so there wasn’t one specific date where we ‘started’ the reduction. It’s been more case by case. We’ve held back on refilling certain roles when we saw opportunities to streamline, especially with the use of new technologies like AI,” she said. 

One area where the firm has found such opportunities has been in the testing of certain cybersecurity controls, particularly within the SOC framework. The firm examined all the controls it tests on the service side and asked which ones require human judgment or deep expertise. The answer was a lot of them. But for the ones that don’t, AI algorithms have been able to significantly lighten the load. 

“[If] we don’t refill a role, it’s because the need actually has changed, or the process has improved so significantly [that] the workload is lighter or shared across the smarter system. So that’s what’s happening,” said Desai. 

Outside of client services like SOC control testing and reporting, the firm has found efficiencies in administrative functions as well as certain internal operational processes. On the latter point, Desai noted that Schellman’s engineers, including the chief information officer, have been using AI to help develop code, which means they’re not relying as much on outside expertise on the internal service delivery side of things. There are still people in the development process, but their roles are changing: They’re writing less code, and doing more reviewing of code before it gets pushed into production, saving time and creating efficiencies. 

“The best way for me to say this is, to us, this has been intentional. We paused hiring in a few areas where we saw overlaps, where technology was really working,” said Desai.

However, even in an age awash with AI, Schellman acknowledges there are certain jobs that need a human, at least for now. For example, the firm does assessments for the FedRAMP program, which is needed for cloud service providers to contract with certain government agencies. These assessments, even in the most stable of times, can be long and complex engagements, to say nothing of the less predictable nature of the current government. As such, it does not make as much sense to reduce human staff in this area. 

“The way it is right now for us to do FedRAMP engagements, it’s a very manual process. There’s a lot of back and forth between us and a third party, the government, and we don’t see a lot of overall application or technology help… We’re in the federal space and you can imagine, [with] what’s going on right now, there’s a big changing market condition for clients and their pricing pressure,” said Desai. 

As Schellman reduces staff levels in some places, it is increasing them in others. Desai said the firm is actively hiring in certain areas. In particular, it’s adding staff in technical cybersecurity (e.g., penetration testers), the aforementioned FedRAMP engagements, AI assessment (in line with recently becoming an ISO 42001 certification body) and in some client-facing roles like marketing and sales. 

“So, to me, this isn’t about doing more with less … It’s about doing more of the right things with the right people,” said Desai. 

While these moves have resulted in savings, she said that was never really the point, so whatever the firm has saved from staffing efficiencies it has reinvested in its tech stack to build its service line further. When asked for an example, she said the firm would like to focus more on penetration testing by building a SaaS tool for it. While Schellman has a proof of concept developed, she noted it would take a lot of money and time to deploy a full solution — both of which the firm now has more of because of its efficiency moves. 

“What is the ‘why’ behind these decisions? The ‘why’ for us isn’t what I think you traditionally see, which is ‘We need to get profitability high. We need to have less people do more things.’ That’s not what it is like,” said Desai. “I want to be able to focus on quality. And the only way I think I can focus on quality is if my people are not focusing on things that don’t matter … I feel like I’m in a much better place because the smart people that I’ve hired are working on the riskiest and most complicated things.”

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