Why paid college athletes should create an LLC
Being sued for your celebrity can happen more easily than you’d think, especially if you’re earning money as a result of your status. A limited liability company (LLC) is a business that is legally separate from its owners, so if for some reason you are sued, the person bringing the suit can only go after the money in your LLC.
Getting paid for doing something you love is a big deal, but being paid for your status as an athlete can come with a few risky consequences. That’s why you should take a page out of professional athlete's books and create an LLC. It is a legitimate option for college athletes now. Many people who make money off of their name and image create an LLC to protect their assets. There are a few other benefits as well, such as tax savings and easier filing at tax time.
What is an LLC?
A limited liability company (LLC) is a business that is legally separate from its owners. This separation is one of the main reasons we recommend forming an LLC: it provides you with something called limited liability protection. This is a fancy way of saying that if for some reason you are sued, the person bringing the suit can only go after the money in your LLC.
Personal assets are safe
You wouldn’t be in danger of losing personal assets such as a home, car, or personal bank accounts. Since lawsuits can be financially devastating, it’s incredibly important that you protect your earnings in this way. Of course, this doesn’t mean that when you create an LLC, it absolves you of all responsibility, ever. If you don’t pay back debts you’ve personally guaranteed, or break the law, your personal assets can absolutely be affected. An LLC provides limited protection. It’s not a get-out-of-jail-free card.
The benefits of an LLC
Besides limited liability protection, forming an LLC can save you time and money. For starters, LLCs are less expensive and require less paperwork to set up than other types of businesses, like S- or C-Corporations. If you keep your LLC and personal expenses completely separate (which you should) it will be a lot easier to file your tax returns each year.
LLCs also have tax advantages
They’re known as “pass-through entities” which means that any profit the LLC makes is passed through directly to the owner (that’s you), and is taxed at ordinary income rates (as opposed to the double taxation many other business types must pay). You may also save through the self-employment tax deduction and by writing off certain expenses that are required to do your job, such as travel or equipment.
How to create an LLC
Ok, we won’t lie. Setting up an LLC is kind of annoying, but trust us, it’s worth it. Remember: you’re a business, so treat yourself like one. To establish an LLC, you’ll need to register the business with your state; certain forms must be filed and you will likely need to pay a few fees. Requirements vary state to state, so be sure to follow your state’s guidelines. Feeling overwhelmed? We get it. If you’ve got questions or need help getting set up, Stash Wealth can help. Our team includes legal whizzes and tax nerds who can help you cut through the BS and protect your wealth the smart way.
Stash Wealth provides financial plans designed to assist high earning young professionals build and manage their wealth.
Stash Wealth offers a pragmatic approach to financial planning and wealth management. Whether saving up for Tahiti or a Tesla, we help you achieve your short-term and long-term goals.
Written by Priya Malani
Stash Wealth, Founder & CEO
Priya is a force in the personal finance space. As an industry disruptor, she specializes in bringing the unapproachable world of money to young professionals across the country.