The Simple Tax Move That Could Keep $10K More in Your Pocket This Year

Here's the deal: If you’re making good money as a professional athlete, whether it’s from sponsorships, social media, prize money, coaching, running a gym or another business and you're still operating as a sole proprietor, you're likely overpaying in taxes.

If this is you, then it might be worth filing your taxes as an S-Corp. Because it could save you thousands of dollars in taxes each year.

What is an S-Corp?

An S-Corp is not a type of business. It’s a tax classification you elect with the IRS. This election allows your business income to “pass through” to you while potentially reducing how much you pay in self-employment tax.

To elect S-Corp status, your business must first be structured as an LLC or a corporation (such as a C-Corporation or other standard corporate entity). Think of it as a tax upgrade layered onto an existing entity—not a separate business type.

An S-Corp in Practice

When you elect S-Corp status, you can split what the business earns into two buckets:

1. A salary you pay yourself as a W2 employee

2. The profit the business makes beyond your salary (a distribution)

The big benefit?
You only pay self-employment tax—roughly 15%—on your salary, not on the entire business profit.

Example: Let’s say you (aka your business) earns $120,000 a year.

• As a sole proprietor:
  You pay self-employment tax on the full $120,000 → more than $18,000 in self-employment tax alone.

• As an S-Corp:
  You pay yourself a reasonable salary—say $60,000—and the remaining $60,000 becomes a profit distribution. You only pay self-employment tax on the salary portion.

Now, you only pay self-employment tax on $60,000 (your salary). This could save you as much as $9,000 to $10,000 a year in taxes.

How Much Money Do I Need to be Making to Consider an S-Corp?

Generally, if you're earning $70,000 to $80,000 a year or more, it's worth evaluating an S-Corp election.

And even if you’re not there yet, forming an LLC is still a smart move. Your LLC becomes the foundation your business operates under—and the structure you would later elect S-Corp status from once it makes financial sense. (Read more about forming an LLC here.)

If you’re earning money from competitions, sponsors, coaching, or content, you're already running a small business. Forming a Limited Liability Company (LLC) helps you protect that business and build a stronger foundation for long-term financial growth.

Why Set Up an LLC First?

• Financial Organization: Keeping all income and expenses in one business account makes tax season far easier. An LLC also helps protect personal assets, like your home and savings, from business-related debts or liabilities, while allowing you to deduct legitimate expenses such as travel, equipment, or competition costs.

• Credibility and Professionalism: Operating as an LLC signals to sponsors, partners, and brands that you treat your athletic career like a business. It reinforces your professionalism and can improve how others perceive your value.

Two Things to be Aware of When Considering an S-Corp Election

1. Your Salary Must Be Reasonable: You can’t pay yourself $10,000 a year and call it a day. The IRS requires that your salary align with the value of the work you perform and the income you generate.

2. There’s Additional Administrative Work: Electing S-Corp status means you’ll need to run payroll for yourself and file a separate business tax return in addition to your personal one. It’s more work than a sole proprietorship, but for many athletes, the tax savings are well worth it.

What if I Don’t Live in the United States?

If you're an athlete in Canada, forming a corporation can provide similar advantages—such as being taxed at a lower corporate rate and leaving profits inside the business. In Australia, certain business structures also allow you to separate your finances from your business, reducing your personal tax exposure. Wherever you live, it’s worth exploring the specific tax laws and opportunities in your country.

The Bottom Line
If you're consistently earning $80,000 or more as an athlete and you haven’t explored electing S-Corp status, you may be leaving money on the table.

And if you want help understanding how an LLC and an S-Corp election fit into your financial picture, reach out anytime. We’re here to help you build a smarter, stronger financial foundation for your athletic career.