Benjamin Beck, CFP®LLC Formation and Business Structures for Athletes
Should I form an LLC for my endorsement deals and winnings to better manage my finances and protect my assets?
When you’re cashing checks from sponsors and event wins, you’re not just an athlete—you’re a small business. Yet too many athletes treat their income like pocket money instead of corporate revenue. The result? Tax surprises, liability headaches, and missed opportunities to grow your brand. Let’s show you exactly why and how forming an LLC in the United States specifically (or another business entity) can be one of the smartest moves you make in your athletic career.
Why Business Structure Matters
You’ve worked for every dollar you’ve earned. Do you really want to risk it all because of a simple paperwork decision? A formal entity like an LLC separates you—with your personal assets—from your business—the money you make from things like endorsements, appearance fees, and prize winnings. Without that separation, a lawsuit or unexpected bill could come after your personal bank account, your home, even your car.
But liability protection is only the tip of the iceberg. The right structure can also:
Streamline Taxes: Deductible business expenses, potential pass-through taxation, and simplified bookkeeping.
Amplify Credibility: Brands and partners take you more seriously when you operate like a professional.
Flexibility for Growth: You can add partners, bring on investors, or spin off new ventures (think training programs or product lines) without rewiring your entire setup.
So you may have heard…
“LLCs are expensive to set up and maintain.”
Here’s what really happens: most states charge a one-time filing fee of $50–$200 and an annual report fee of roughly the same. Compared to a hefty injury or an unexpected tax bill, that’s chump change. And when you consider the potential tax savings on travel, equipment, coaching, and even facility rental, you’ll often come out ahead.
Choosing the Right Entity: LLC vs. S-Corp vs. Sole Proprietorship
1. Sole Proprietorship
Pros: Zero startup cost, minimal paperwork.
Cons: No liability protection; you and your business are legally the same.
2. LLC (Limited Liability Company)
Pros: Liability shield, pass-through taxation by default, fewer formalities than a corporation.
Cons: Slightly more paperwork than a sole prop, state fees.
3. S-Corp Election (after forming an LLC)
Pros: Potential to save on self-employment taxes by paying yourself a reasonable salary and taking the rest as distributions.
Cons: Payroll setup, stricter IRS scrutiny over “reasonable salary,” extra tax filings.
If you’re just getting started, an LLC election is usually the sweet spot: affordable, straightforward, and protective. Once your income climbs and you’re seeing larger revenue checks, consider the S-Corp election inside your LLC to optimize taxes further.
So you may have heard…
“I need a fancy attorney and three months to get this done.”
Reality check: most LLC formations can be completed in a day and through an online service. You’ll need to:
1. Choose a Name: It must be unique in your state.
2. File Articles of Organization: Basic info—name, address, registered agent.
3. Create an Operating Agreement: Internal rules (you can draft a simple one yourself).
4. Obtain an EIN: Free from the IRS, takes minutes online.
Total time investment: 1–2 hours. Total cash outlay: $100–$300.
Structuring Your LLC for Maximum Benefit
1. Operating Agreement: Even if not required by your state, draft one. It clarifies ownership percentages, profit distribution, and decision-making authority—crucial if you ever add partners or mentors.
2. Separate Bank Account: Your LLC needs its own checking account. Don’t commingle business assets with personal.
3. Bookkeeping Discipline: Track every dollar in and out. Software like QuickBooks makes this painless.
4. Expense Documentation: Every training session, every piece of gear, every travel meal—document it. These are legitimate business deductions that lower your taxable income.
5. Annual Maintenance: File your state’s annual report, pay the fee, and stay in good standing.
So you may have heard…
“I can write off personal expenses if I just claim everything as business.”
That’s a fast track to an IRS audit and penalties. The IRS expects clear separation: business expenses must be ordinary and necessary for your athletic enterprise. Personal dinners, family vacations, and new sneakers for casual wear don’t count. Keep receipts, notes on business purpose, and maintain good records.
Common Pitfalls of LLCs and How to Avoid Them
Mixing Personal and Business Funds: Never use your LLC account to pay personal credit cards or vice versa.
Neglecting State Requirements: Some states require biennial reports or minimum franchise taxes—know your state’s rules.
Overlooking Insurance: An LLC limits liability, but it doesn’t replace professional liability insurance or disability coverage.
Failing to Re-evaluate: As your income grows, revisit your structure. When your business revenue hits a certain threshold, the S-Corp election or even a full corporation might make sense.
Next Steps: Your Action Plan
1. Assess Your Current Earnings: Are you averaging four-figure endorsement checks or six-figure bonuses? That number should guide your urgency.
2. Set Up the LLC: Pick a trusted online formation service or your state portal; complete Articles of Organization.
3. Open Your Business Bank Account: Bring your LLC paperwork and EIN to the bank—ask about waiving fees for new business accounts.
4. Draft a Simple Operating Agreement: Use a template, customize key points, and store it with your records.
5. Track Everything: Implement accounting software, classify expenses properly, and reconcile monthly.
6. Consult a Pro: If you want deeper tax optimization, book a one-hour consultation with a firm like ours that is experienced in athlete finances.
Conclusion
You don’t have to be a legal expert to protect your earnings and your brand. Forming an LLC is neither expensive nor time-consuming—and it delivers a liability shield, tax benefits, and the credibility you need as a professional athlete.
Stop treating your income like loose change. Start treating yourself like the small business you are. That $10,000 check from your last event deserves more than a spending spree—it deserves smart structure and strategic management so it can fuel your career today and your life tomorrow.
Ready to lock in your LLC and take control of your financial future? Schedule time with me, and let’s get you set up in under two hours.
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Ben Beck is Managing Partner & Chief Investment Officer at Beck Bode, a deliberately different wealth management firm with a unique view on investing, business and life.
A key part of the PFAA's mission is to provide meaningful education and support to athletes. This collaboration between the PFAA and Beck Bode is designed to help athletes navigate the unique financial challenges of their careers - managing variable income, planning for taxes, saving for the future, and building long-term financial security so they are not only prepared for success in competition but also in life outside the sport.
The above content is for U.S. Based Athletes.