Cordasco & Company

5 potential tax breaks to know before moving a parent into a nursing home

Approximately 1.3 million Americans live in nursing homes, according to the National Center for Health Statistics. If you have a parent moving into one, taxes are probably not on your mind. But there may be tax implications. Here are five possible tax breaks.

1. Long-term medical care

The costs of qualified long-term care, including nursing home care, are deductible as medical expenses to the extent they, along with other medical expenses, exceed 7.5% of adjusted gross income (AGI).

Qualified long-term care services are necessary diagnostic, preventive, therapeutic, curing, treating, mitigating and rehabilitative services, and maintenance or personal-care services required by a chronically ill individual that are provided by a licensed healthcare practitioner.

To qualify as chronically ill, a physician or other licensed healthcare practitioner must certify an individual as unable to perform at least two activities of daily living (eating, toileting, transferring, bathing, dressing and continence) for at least 90 days due to a loss of functional capacity or severe cognitive impairment.

2. Nursing home payments

Amounts paid to a nursing home are deductible as medical expenses if a person is staying at the facility principally for medical, rather than custodial care. If a person isn’t in the nursing home principally to receive medical care, only the portion of the fee that’s allocable to actual medical care qualifies as a deductible expense. But if the individual is chronically ill, all qualified long-term care services, including maintenance or personal care services, are deductible.

If your parent qualifies as your dependent, you can include any medical expenses you incur for your parent along with your own when determining your medical deduction.

3. Long-term care insurance

Premiums paid for a qualified long-term care insurance contract are deductible as medical expenses (subject to limitations explained below) to the extent they, along with other medical expenses, exceed the percentage-of-AGI threshold. A qualified long-term care insurance contract covers only qualified long-term care services, doesn’t pay costs covered by Medicare, is guaranteed renewable and doesn’t have a cash surrender value.

Qualified long-term care premiums are includible as medical expenses up to certain amounts. For individuals over 60 but not over 70 years old, the 2025 limit on deductible long-term care insurance premiums is $4,810, and for those over 70, the 2025 limit is $6,020.

4. The sale of your parent’s home

If your parent sells his or her home, up to $250,000 of the gain from the sale may be tax-free. To qualify for the $250,000 exclusion ($500,000 if married), the seller must generally have owned and used the home for at least two years out of the five years before the sale. However, there’s an exception to the two-out-of-five-year use test if the seller becomes physically or mentally unable to care for him- or herself during the five-year period.

5. Head-of-household filing status

If you aren’t married and your parent meets certain dependency tests, you may qualify for head-of-household filing status, which has a higher standard deduction and, in some cases, lower tax rates than single filing status. You might be eligible to file as head of household even if the parent for whom you claim an exemption doesn’t live with you.

These are only some of the tax issues you may have to contend with when your parent moves into a nursing home. Contact us if you need more information or assistance.

2026 Forecast: The “Hangover” Year (And Why The IRS Is Smiling)

2026 Forecast: The “Hangover” Year (And Why The IRS Is Smiling)

The One Big Beautiful Bill Act (OBBB) is “old news.” The champagne corks popped in July, the ink is dry, and we all patted ourselves on the back for dodging the sunset.

But here is the deal: 2026 isn’t about legislation; it’s about implementation.

If 2025 was the “Year of the Bill,” 2026 is shaping up to be the “Year of the Bite.” We are moving from a political war in Washington to a compliance war in your backyard—and frankly, the landscape looks a lot more treacherous than just tax rates. The legislative dust has settled, but the regulatory mud is just getting started.

Here is my forward-looking, “boots on the ground” forecast for what the world of tax actually looks like in 2026. These are professional predictions so don’t take them as gospel. However, we will be monitoring them closely as the year unfolds.

The Rise of the “Robo-Auditor” (Hot)

You think I’m joking? I wish I was. While we were all distracted by tax brackets, the IRS quietly spent its war chest building the “Death Star” of audit algorithms. The IRS recently deployed advanced algorithmic and AI driven audit selection tools. The IRS has transitioned from legacy statistical sampling (like the Discriminant Function System or DIF) to sophisticated machine learning models that utilize unsupervised learning. These models do not just look for outliers; they analyze the relationships between line items to detect “invisibly” aggressive tax positions.

The 2026 Projection:
The IRS has officially signaled that 2026 is the year they unleash AI-driven enforcement on High-Net-Worth individuals and large partnerships.

What’s happening: They aren’t using humans to scan returns anymore. They are using AI to cross-reference your lifestyle with your reported income, check your crypto wallets against your 1040, and flag “anomalies” in real-time.
The Danger Zone: If you make over $10 million, your audit risk just jumped from ~11% to a projected 5% . Large partnerships (hedge funds, real estate syndications) are seeing a triple increase in scrutiny.
My Take: The days of “flying under the radar” are over. The radar is now everywhere. If your K-1s don’t match exactly, expect a letter.

The “State” of Chaos (Very Hot)

Here is the sleeper issue that is going to bite people in the rear end. The OBBB fixed the Federal rules, but it didn’t fix the states. In fact, it made them mad.

The 2026 Projection:
States are broke. They see the Feds handing out 100% bonus depreciation and high exemptions, and they are saying, “Not on my watch.”

The Decoupling Disaster: Expect a wave of states to “decouple” from OBBB provisions in their 2026 legislative sessions. You might have a federal tax loss and a massive state tax bill because New Jersey or California refuses to recognize the new expensing rules.
The “Rolling Conformity” Trap: Some states automatically follow the Feds (Rolling), others pick a specific date (Static). In 2026, this gap widens. We are going to see a “balkanization” of tax strategy where what works in Texas gets you penalized in New York.

The International “Cold War” (Pillar Two)

While we were celebrating the OBBB, the rest of the world moved on to the OECD’s “Pillar Two” global minimum tax.

The 2026 Projection:
The “Safe Harbors” are ending. Starting in 2026, the Undertaxed Profits Rule (UTPR) kicks in for real.

The Impact: If you have international operations, foreign countries might start taxing your US profits if they think you paid less than 15% here. The US is still trying to negotiate a “side-by-side” deal, but if that fails in early 2026, we could see double taxation on US multinationals.
Political Climate: This is going to be the new political football. Expect lots of rhetoric about “Foreign countries stealing our tax base.”

What’s “Not” Hot (The Flops of 2026)

The Corporate Transparency Act (CTA)

Remember the panic over filing those BOI reports for every LLC you own? Dead. (Mostly).

The Update: The Treasury has effectively paused enforcement against US citizens and domestic companies. It was a regulatory overreach that collapsed under its own weight. If you are a US citizen, you can breathe easier—but keep an eye on foreign entities, they are still on the hook.

“Panic” Estate Planning

In 2025, we did things fast. In 2026, we do things right .

The Shift: The “SLAT” (Spousal Lifetime Access Trust) craze is cooling off. With the exemption permanently high ($15M+), we don’t need to lock up assets just to save tax. The focus in 2026 is shifting to Governance : How do we keep the kids from blowing the money? The conversation is moving from “Tax Savings” to “Legacy Building.”

The 2026 Political “Vibe Check”

You asked about the political climate. Here is the deal: The Deficit is the new villain.
The OBBB was expensive. “One Big Beautiful Bill” came with “One Big Beautiful Price Tag.”

The 2026 Midterm Narrative: Expect the deficit hawks to come out of hibernation. We likely won’t see tax hikes in 2026 (politicians aren’t suicidal), but we will see a freeze on any new breaks. The “Technical Corrections” bill that usually follows major legislation might get stalled by budget fights.

Cordasco’s “Crystal Ball” Conclusion

2026 is going to be the year of the “Silent Tax.”
You won’t see it in the headline rates (which are safe). You will see it in:

Compliance costs (fighting the AI audits).
State taxes (diverging from federal rules).
International friction .

My Advice:
Stop looking at the tax tables—they haven’t changed. Start looking at your structures and systems. Is your data clean enough for an AI auditor? Is your entity structure flexible enough for a rogue state legislature?

The storm has passed, friends, but the floodwaters are rising. Let’s build your ark.

Buon Anno!

Why 2026 Will Be the Most Chaotic Filing Season (And What It Means for You)

Holy Cannoli: Why 2026 Will Be the Most Chaotic Filing Season (And What It Means for You)

Friends, grab your espresso—because we need to have a serious conversation about what’s actually happening with the IRS right now. And I’m going to be straight with you: the system that processes your taxes is literally falling apart.

I’ve been doing this a long time and, I have never seen the IRS this unprepared to actually function. Not during the pandemic. Not during the 2008 financial crisis. Not ever.

This matters to you because when the IRS breaks, your taxes become complicated. Understanding what’s happening and why will help you navigate it.

Let me explain what’s actually going on and why it’s not just “delays.”

The Perfect Storm: Why the IRS Is Crumbling Right Now

The Long Decay: 40 Years of Underfunding and Neglect

Before we talk about the current crisis, understand this: the IRS has been systematically starved of resources for four decades. While every other federal agency modernized their technology, the IRS is still running computers from the 1980s and 1990s. Their systems literally cannot talk to each other. They process tax returns with software that’s older than the internet as we know it.

In 2010, Congress started cutting IRS funding. Then 2013. Then 2015. Then 2019. By 2022, the IRS had 28% fewer employees than they did in 2010 —despite a significantly larger taxpayer base and a massively more complex tax code.

The IRS was already drowning. Then everything got worse at once.

Congress Just Rewrote the Entire Tax Code (And the IRS Has No Infrastructure to Handle It)

On July 4, 2025, Congress signed the One Big Beautiful Bill Act (OBBA) into law. This wasn’t a minor tweak. This was a fundamental rewrite of major parts of the tax code. We’re talking about:

Estate tax exemptions jumping to $15 million per person
New deductions for tip income, permanent senior deductions
Modifications to charitable giving, Child Tax Credit, Opportunity Zones
Changes to business deductions and standard deductions

Now here’s the problem: the IRS has to reprogram ancient computer systems to handle all of this. These aren’t systems from 2015. These are systems from the 1980s that have been patched and modified a thousand times. They’re fragile. They’re not designed for massive changes.

The IRS has to:

Update their core processing systems to handle new tax computations
Create new guidance for taxpayers and professionals
Train staff on rules that literally didn’t exist three months ago
Reprogram their matching systems (the computers that verify your income matches what your employer reported)
Update their refund systems to handle new credit calculations

All of this with systems that are fundamentally broken and a workforce that’s about to shrink by 25%.

The IRS’s own projections show they won’t implement these changes smoothly. What that means: expect incorrect notices, processing errors, misclassified returns, and delays on anything outside the most basic filing.

They Lost a QUARTER of Their Workforce—and All the Right People Left First

Here’s the real kicker: the IRS didn’t just lose employees randomly. Starting in late 2024, when layoffs looked likely, the best and brightest started jumping ship immediately. These are people with 20, 30 years of experience. These are the auditors, the technicians, the supervisors who actually know how things work.

By mid-2025, they were gone.

The numbers are staggering:

26,000+ employees eliminated (25% of their entire workforce)
21% of frontline tax processing staff gone
59% of their IT personnel eliminated (the people who maintain those ancient computer systems)
Experienced auditors, managers, and subject matter experts walked out the door

When you lose the experienced people, the system doesn’t just slow down. It breaks differently. New hires make mistakes experienced people would catch. Systems aren’t maintained properly. Knowledge gets lost.

Think about what it means operationally: if 21% of the people processing returns are gone, and they’re replaced by brand-new hires who don’t know the job, processing time doesn’t just increase 21%. It multiplies.

A 43-Day Government Shutdown Killed Preparation (Right Before Filing Season)

And then, October 1 – November 12, 2025: a 43-day government shutdown. During that time:

35,000 IRS employees were sent home (most without pay)
All taxpayer assistance centers closed completely
Zero mail processing happened
Zero training of new staff occurred
Zero preparation for filing season happened

Think about the timing. Filing season ramps up in January and goes full-throttle from February through April. October and November are supposed to be when the IRS trains new employees, tests systems, and prepares infrastructure.

Instead, they were closed.

The shutdown ended November 12. Filing season starts January 24. That’s 10 weeks to:

Bring 35,000 people back to work
Get systems running again
Train new hires on OBBA changes they just learned
Catch up on the massive pile of 2025 mail that sat unopened for 43 days
Process the returns that came in during the shutdown
Get infrastructure ready for 2026 returns

With 25% fewer experienced people than they had last year.

It’s not possible. The math doesn’t work.

Here’s What This Actually Means for Your 2026 Tax Filing

Processing Will Be Significantly Slower—And Errors Will Be More Common

When you file your 2025 tax return in 2026, understand what’s happening on the other end:

The IRS will scan it, enter data into systems that can’t properly handle the new OBBA rules, and process it through an organization that’s understaffed, undertrained, and using outdated technology.

Expect:

Longer processing times (we’re not talking about weeks—think months for anything that doesn’t fit a standard pattern)
More incorrect notices (the IRS will send you letters saying you owe money, or asking for clarification, on things that are technically correct on your return)
More mismatches (your W-2 didn’t match their records, your 1099 data got entered wrong, your business income didn’t reconcile)
Slower resolution times (fixing a mistake that used to take 90 days could take 6 months or more)

You Can’t Rely on Customer Service

The Treasury Inspector General warned Congress that IRS customer service could drop from 85% (already bad) to just 16%. That means if you call with a question, there’s an 84% chance you won’t reach anyone.

Here’s what that means practically:

If you filed something unusual and they send you a notice, you might not be able to call and clarify
If there’s an error on your return, reaching the IRS to fix it becomes extremely difficult
If you’re trying to qualify for a new credit or deduction under OBBA and need guidance, you’re on your own

“Compliance Risk” Gets Real in a Different Way

With fewer auditors and more processing errors, here’s what happens:

The IRS makes mistakes. They send incorrect notices. They disallow deductions they should allow. They over compute your taxes.

Normally, you’d get a notice, call them, explain the situation, and they’d fix it. Not anymore. You’re stuck either accepting an incorrect determination or fighting through their broken system to prove you’re right.

And here’s the thing: if you don’t respond correctly to an IRS notice, or you miss a deadline, or you don’t have perfect documentation, the IRS will assume they’re right.

Your documentation has to be airtight. Your return has to be defensible. You can’t assume “we’ll clear this up later.”

The New Tax Code Creates Processing Complexity (Beyond Just “It’s New”)

The OBBA rules interact with existing tax law in ways that are genuinely complicated. Here’s an example: the new $15 million estate tax exemption interacts with prior year carryovers in specific ways. The new charitable deduction rules interact with the Alternative Minimum Tax. The new Opportunity Zone rules interact with real estate tax treatment.

These interactions have to be programmed into the IRS’s systems correctly. And these systems are fragile.

When the IRS’s computers misapply these rules, you get an incorrect refund calculation, an incorrect notice, or a notice asking for clarification on something you filed correctly.

The IRS’s staff also has to apply these rules correctly. But they’re new employees, trained in a rush, using systems they don’t fully understand, applying rules they just learned.

Errors become more likely. Processing becomes slower.

What This Means for Your Filing in 2026

File Electronically—No Exceptions

Paper returns go into a physical mail processing system that’s already backed up and now even more understaffed. Electronic returns get processed by computers, which is faster and more reliable (relatively speaking, given the circumstances).

If you file paper, expect your return to sit in a pile for months before anyone even opens it.

If You’re Expecting a Refund, Adjust Your Timeline

Normally, you might get a refund within a few weeks of filing. Add several months to that timeline. August or September for refunds is becoming realistic. Don’t make financial decisions assuming you’ll get your refund in April.

If You Paid Quarterly Estimated Taxes, Make Sure They’re Documented Correctly

With the new rules, quarterly estimated tax calculations got more complicated for some people. Make sure your estimated tax payments are properly credited. If they’re not applied correctly, you’ll get an incorrect notice. Fixing it will take forever. Always make payments electronically.

If Anything on Your Return is Non-Standard, Expect Questions

New business structure? Different deduction than last year? First time using a new credit? You’re more likely to get an IRS notice.

Have documentation. Don’t assume you can explain it later. Assume you’ll need to respond in writing.

Amended Returns Are Going to Take a Really Long Time

If you filed your 2024 return and discover you need to amend it, understand that amended returns go to the back of the line. Processing times that used to be 6-8 months are now 12-18 months, maybe longer. This will be a problem for the new R&D rules that require an amendment.

Don’t file something incorrect hoping you’ll just amend it later. Get it right the first time.

The Bigger Picture: This Affects Your Entire Tax Situation

The filing challenges aren’t just about delays. They’re about a system that’s less reliable. When a system is less reliable, you have to be more careful, more thorough, and more strategic about how you file and what you claim.

Years like this are when tax planning matters most—not because of aggressive strategy, but because you need to be crystal clear about what’s defensible and what’s not. You need to anticipate how the IRS might interpret your return. You need documentation that speaks for itself.

These are the years when having professionals who understand both the law and the IRS’s practical limitations makes a real difference.

The Bottom Line

The 2026 filing season will be the most chaotic in decades. The IRS is unprepared. Their systems can’t handle the new law. Their staff is inexperienced. Their customer service will be nearly nonexistent.

Your filing won’t just take longer. It will be more complex to get right, riskier to get wrong, and harder to fix if something goes sideways.

Understanding what’s happening—why it’s happening—and what that means for how you file, what you claim, and how you document everything is essential.

This is the year to take filing seriously. Really seriously and bring extra patience.

Reach out to us at info@cordasco.cpa if you want to talk through your specific situation and what you need to do to prepare. Ciao!

The Quiet Revolution in Tax Strategy: What Forward-Thinking Advisors Are Building

The Quiet Revolution in Tax Strategy: What Forward-Thinking Advisors Are Building

Friends, there’s a shift happening in tax advisory that nobody’s really talking about yet. It’s not as sexy as the latest tax law changes—no bombastic headlines, no congressional drama. But if you’re thinking about the future of your business, it matters more than you’d think.

For 40 years, I’ve watched how tax strategy evolves alongside technology. Spreadsheets replaced calculators. Tax software replaced filing cabinets. Each cycle, the tools got better. But something fundamental has been missing: the ability to move tax strategy from reactive to truly proactive .

That’s changing. And it’s worth understanding why.

The Macro Shift: From Compliance to Foresight

The tax profession is at an inflection point. For decades—really, since 1986—tax advisors have been fundamentally compliance-focused. File accurately. Find deductions. Minimize audit risk. Important work, absolutely. But also reactive. You gather last year’s data and solve last year’s problems.

The data backs this up: shows that 84% of firms now offer advisory services beyond compliance, but this is deceptive with most of this advice being based on fixing last years problem not avoiding or controlling tomorrows. Most of the profession is still built for compliance-first thinking.

Here’s what’s shifted: The business environment—especially for entrepreneurs and high-net-worth individuals—has become too complex for reactive planning to be sufficient.

Consider the current landscape. You’ve got the OBBB extensions creating new permanent provisions that’ll shape planning for the next decade. You’ve got multiple legislative levers now available simultaneously—depreciation strategies, SALT deductions, entity optimization, succession planning—that all interact with each other. You’ve got AI and automation forcing the profession to reconsider what value actually looks like.

The firms that are winning this moment aren’t the ones optimizing for compliance speed. They’re the ones building frameworks that let them think forward —scenario-modeling your business across three-to-five-year windows, layering strategies, identifying unintended consequences before they happen.

Why This Matters to Your Wallet (Without Being Obvious About It)

Let me be honest: most tax professionals can find your deductions. Software can find deductions. That’s table stakes now.

What separates truly valuable tax strategy from the routine work is the thinking about what comes next.

Real strategy requires connecting the dots between today’s business structure and tomorrow’s business reality. It’s asking: “If we build this exit over the next three years, how do we structure compensation, and entity moves now to minimize the total tax burden then?” It’s not a single decision. It’s a sequence of decisions, each chosen for how it sets up the next one.

That kind of thinking is rare. And it’s getting rarer, because most tax professionals are under pressure to productize their services—to move toward standardized, scalable delivery models rather than deep, ongoing strategic engagement. There is no move to Transformative Services that will shape the future outcomes.

Which is ironic, because that’s exactly when clients need it most.

The Technology Angle (It’s Not What You Think)

Here’s where it gets interesting. AI is transforming tax work, but not in the way most people think.

The real opportunity isn’t AI replacing strategy—it’s AI enabling strategists to scale their thinking .

AI excels at recognizing patterns, surfacing relevant information, and modeling scenarios across variables that would take a human weeks to calculate. It compresses time. It frees strategic thinkers from the grunt work that’s been eating 60-70% of their time. It means your advisors can actually think about you and your situation instead of clicking through software.

But here’s the critical part: AI is only as good as what you’re feeding it and who is driving it.

A generic AI tool with generic tax knowledge will give you generic results. Predictable efficiency gains, sure. Some deductions you missed, probably. But not strategic advantage.

What actually changes the game is when firms marry AI capabilities with institutional strategy frameworks —decades of tested approaches, refined against real-world outcomes, curated specifically for the scenarios that matter to your business.

That’s a different beast entirely.

What We’re Building (And Why It Matters)

For the past several years, we’ve been developing an internal strategy application that houses our institutional playbook. Decades of experience across legislative cycles. Proven frameworks for entity optimization, M&A strategy, exit planning, wealth succession—all documented, organized, refined.

By itself, that’s valuable. It keeps us consistent. It ensures we’re not reinventing the wheel for each client.

But integrating AI into that framework? That’s where something new emerges that doesn’t exist anywhere else in the commercial marketplace.

Suddenly, you can leverage your business financials, tax environment and structure. The system can develop suggestions instantly surfacing the most relevant strategic approaches—ranked by applicability to your situation , prioritized by impact. The AI has done the legwork. Now the strategist can focus on what actually matters: judgment about sequencing, personal goals, long term impact, risk assessment, and narrative defensibility.

It’s not a tool replacing advisors. It’s a tool that lets advisors move up the value chain. It creates scale and speed to help our clients obtain value while standardizing and controlling the value chain to eliminate omissions or unproven strategies.

The Quiet Advantage

Here’s what we’re noticing: The firms building competitive advantage right now aren’t the biggest—it’s the ones being intentional about strategy infrastructure.

Most advisory firms operate on what you might call “expert memory.” Everything lives in a partner’s brain. It’s powerful, sure, but it doesn’t scale. And it creates a bottleneck: one person can only serve so many clients deeply.

Forward-thinking firms like ours are different. They’re documenting their frameworks. They’re systematizing their thinking. They’re building technology that lets them scale what worked yesterday without losing the customization that makes it work for tomorrow.

That shift—from expertise as individual talent to expertise as organizational infrastructure—is the one that matters long-term.

And it’s barely visible from the outside.

What This Means For You

If you’re a business owner with serious complexity—M&A on the horizon, entity structure questions, wealth succession planning, exit strategy—the quality of your tax advisor matters way more than it did five years ago.

Not because taxes got more complicated (though they did). But because the decisions you make now about structuring your business and wealth has exponentially larger impact on what happens in the future for your business and your family.

You need advisors who are thinking forward. Who understand your business lifecycle. Who see tax strategy as a sequence rather than an annual event. Who can model trade-offs and identify the second and third-order consequences of decisions.

Those advisors are uncommon. And they’re getting more uncommon as the profession consolidates around compliance-first models and commoditized software platforms and service offerings.

The advisor who’s actually thinking about your business and wealth strategically, who’s equipped with institutional frameworks and forward-thinking tools will add value well beyond any fees paid.

Bottom line: The speed of strategy development needs to keep pace with the speed of business today.

The NIL Tax Game Just Got Real—What College Athletes (And Their Parents) Need to Know Right Now

The NIL Tax Game Just Got Real—What College Athletes (And Their Parents) Need to Know Right Now

Friends, we need to talk.

If you’ve been following college sports at all over the past four years, you know the game has fundamentally changed. And I’m not just talking about who’s winning the College Football Playoff—I’m talking about the seismic shift that happened when the NCAA FINALLY! allowed student-athletes to profit from their Name, Image, and Likeness starting July 1, 2021.

But here’s the thing nobody wants to talk about at the signing table: Every single dollar these kids earn is taxable income. And I can tell you that the IRS doesn’t care if you’re a freshman quarterback who just landed your first endorsement deal or a seasoned tech entrepreneur—if you earn it, Uncle Sam wants his cut.

And in 2025? The stakes just got exponentially higher.

The Game Changed Again: Welcome to NIL 2.0

Here’s what just happened that you need to understand. In June 2025, a federal judge approved the House v. NCAA settlement—and this isn’t just moving the chains, folks, this is a completely different sport.

The headline: Division I schools can now pay athletes DIRECTLY through revenue sharing. We’re talking about approximately $20.5 million per school in the first year, growing to nearly $33 million by 2034-35.

This isn’t replacing traditional NIL deals from brands and collectives—it’s on top of them . So now these student-athletes can potentially receive:

Direct payments from their schools (revenue sharing)
Traditional NIL deals from commercial brands (Nike, Gatorade, local car dealerships)
Payments from NIL collectives (those booster-funded groups)
Their regular athletic scholarships

Total money flowing to Division I athletes in 2025-26? Over $2.2 billion . That’s billion with a B. Madonna mia!

Show Me the Money (And the Tax Forms)

Let’s break down how these kids actually get paid, because this is where it gets complicated—and where a lot of young athletes are going to get blindsided come tax season.

The 1099 Reality Check

The vast majority of NIL income comes via Form 1099-NEC —meaning these student-athletes are classified as independent contractors, not employees.

Here’s what that means in English:

No taxes are withheld. Zero. Zilch. Nada. When that check hits their account for $50,000 from a brand deal, they get the full $50,000. But don’t break out the champagne yet, because the IRS is coming for their share—and then some.

As independent contractors, these athletes are responsible for:

Federal income tax (whatever their bracket is)
Self-employment tax at 15.3% (that’s the full FICA—both the employer AND employee portions)
State income tax (and possibly multiple states if they earned money across state lines)
Local taxes where applicable

Let me put this in perspective with a real example: A college quarterback earning $1 million in NIL deals would owe approximately $325,000 in federal income tax alone —not including self-employment tax, state taxes, or local taxes. That’s a gut punch if you’re not prepared for it.

The W-2 Wild Card

Now, with these new direct school payments starting in July 2025, we’re entering some murky waters. Some of these payments might come via Form W-2 if the school classifies the athlete as an employee. That would mean:

Taxes ARE withheld (better for cash flow management)
The athlete only pays the employee portion of FICA (not both sides)
But—and here’s the kicker—they CAN’T deduct business expenses under current law

The jury’s still out on exactly how schools will classify these revenue-sharing payments. The reality is likely a mixed approach—some W-2, lots of 1099—which means these kids need to be even MORE diligent about tracking everything.

Who’s Actually Cutting the Checks?

This is important, so pay attention:

Commercial Brands – Nike, Gatorade, local businesses, regional companies. These are straightforward endorsement deals. Kid promotes product, brand pays kid, kid gets 1099.

NIL Collectives – This is where it gets spicy. These are school-specific organizations—legally separate from the universities themselves—that pool money from boosters, alumni, and donors to pay athletes. They match athletes with “opportunities” (and let’s be honest, it’s often just cash to keep star players from transferring).

Here’s the drama: The IRS initially saw a bunch of these collectives trying to organize as 501(c)(3) tax-exempt charities. The IRS said “Absolutely not” and issued guidance in 2023 making it crystal clear that most NIL collectives DON’T qualify for tax-exempt status because they’re providing private benefits to athletes, not serving a legitimate charitable purpose. Translation: Donations to these collectives are NOT tax-deductible, and the IRS is actively cracking down on this in 2025.

The Schools Themselves – This is brand new territory. Starting July 2025, Division I schools that opted into the settlement can distribute revenue sharing payments directly to athletes. Every deal over $600 must be reported to the new College Sports Commission for approval to ensure it’s a “valid business purpose” and not just pay-for-play.

Outside Parties – Alumni, local business owners, really anyone who wants to pay for an appearance, autograph signing, social media post, whatever. All 1099 income.

The Quarterly Tax Trap (This is Where Kids Get KILLED)

Listen up, because this is where I see disaster brewing.

If you’re a student-athlete earning NIL income and you expect to owe more than $1,000 in taxes for the year, you MUST make quarterly estimated tax payments .

The deadlines are:

Q1 (Jan-Mar income): April 15
Q2 (Apr-May income): June 15
Q3 (Jun-Aug income): September 15
Q4 (Sep-Dec income): January 15 of the following year

Miss these deadlines? You’re looking at penalties and interest. And I’m not talking about a slap on the wrist—we’re talking about real money that could have funded your post-graduation plans.

Let’s do some quick math. Say you’re a running back who signs a $100,000 NIL deal in August. After self-employment tax (15.3%) and federal income tax (let’s say 22% bracket), you’re looking at owing roughly $37,000+. If you don’t make estimated payments and just wait until April to file? Penalty city.

The Business Expense Lifeline

Here’s the good news—and I want every athlete reading this to tattoo this on their brain: You can deduct ordinary and necessary business expenses related to your NIL income.

What qualifies?

Agent fees and professional services (legal, accounting, contract review)
Photography and video production (those slick promo shots for Instagram)
Marketing and promotion costs (including social media advertising)
Travel expenses (airfare, hotels, mileage when traveling for NIL activities)
Equipment and gear (sports equipment, clothing, tech)
Technology (that laptop you use to manage deals, phone service for business calls—just calculate the percentage that’s business vs. personal use)
Home office (if you have a dedicated space you use exclusively for managing your NIL business)
Training and coaching fees (to keep you in peak condition)

The key words are “ordinary and necessary.” The IRS isn’t going to let you deduct that $80,000 sports car (sorry, kid), but legitimate business expenses? Absolutely.

Critical point: You need to keep DETAILED RECORDS. Receipts, invoices, mileage logs, everything. If you get audited and you can’t prove it, you lose the deduction. Period.

The Multi-State Tax Nightmare

Here’s something most college athletes don’t think about until it’s too late: If you earn NIL income in multiple states, you might need to file tax returns in each of those states.

Example: You play football for Florida (no state income tax—nice!), but you do an appearance in California for $10,000, a commercial shoot in New York for $15,000, and an autograph signing in Georgia for $5,000. Guess what? You’ve got potential filing obligations in California, New York, and Georgia—each with their own rules about how they tax non-residents.

Let’s not forget that most college students are not residence of the school they go to. Kid from New York playing ball in Florida? New York will claim that it is all taxable to New York because you are a resident of that state.

This gets complicated FAST. It’s one of those situations where getting expert advice is worth every penny.

The Non-Cash Compensation Trap

Listen closely, because this is where a lot of athletes are going to get hammered.

All non-cash compensation is taxable at its fair market value.

Got a free car to drive? If the fair market value of that lease is $1,000/month, that’s $12,000 of taxable income you need to report—even if you never received a 1099 for it.

Free shoes? Free meals? Free trips? All taxable. The IRS requires athletes to report the fair market value of ALL compensation, cash or not.

Here’s the nightmare scenario: You receive $30,000 worth of free products and perks but only $20,000 in actual cash. You now owe taxes on $50,000 of income, but you only have $20,000 of liquid cash to pay those taxes. See the problem? This is why tracking non-cash compensation and setting aside cash for the tax bill is absolutely critical.

The LLC Question: Should You Incorporate Your Brand?

A lot of savvy athletes are asking: Should I form an LLC to manage my NIL income?

The short answer: It depends, but often yes.

Benefits of forming an LLC:

Liability protection – Your personal assets are shielded if something goes sideways with a deal
Professional credibility – Shows brands you’re serious about your business
Clean separation – Business finances stay separate from personal (makes bookkeeping and taxes SO much easier)
Tax planning opportunities – Potential access to the Qualified Business Income (QBI) deduction, which gives you an additional 20% deduction on your qualified business income

The QBI deduction is huge—but there are income phase-out ranges, and if you’re claimed as a dependent on someone else’s return, you can’t take it. This is where you need someone who understands your specific situation.

The process:

Choose your state (usually where you go to school or live)
Name your LLC (make it reflect your brand)
File Articles of Organization with the state
Get an EIN (Employer ID Number) from the IRS
Open a business bank account
Create an operating agreement
Stay compliant with annual state requirements

Is it necessary for every athlete earning $5,000/year? Probably not. But if you’re pulling in six figures? Absolutely worth the conversation.

The Financial Aid Blindside

Here’s something parents need to understand: NIL income must be reported on the FAFSA , and it can absolutely impact need-based financial aid including Pell Grants.

The data shows that about 48.5% of students on athletic scholarships also receive need-based aid, and 31.3% receive Pell Grants. If your kid signs a big NIL deal their sophomore year, it could reduce or eliminate their need-based aid their junior year (remember, FAFSA uses prior-prior year income).

This isn’t a reason to turn down NIL money—let’s be clear—but it IS a reason to understand the full financial picture and plan accordingly.

The Reality Check: What Athletes Actually Earn

Before we get too carried away with headlines about Arch Manning’s $7.1 million NIL valuation, let’s inject some reality.

Here’s the distribution of NIL earnings for Power 4 conference athletes in 2025:

5% earn less than $10,000
1% earn $10,000 to $49,000
4% earn $50,000 to $99,000
1% earn $100,000 to $499,000
6% earn $500,000 to $999,000
3% earn more than $1 million

The majority of college athletes aren’t getting rich off NIL. They’re making enough to cover gas money, help with rent, maybe buy their mom a nice dinner. But for the ones who ARE making significant money? The tax implications are real, immediate, and potentially devastating if ignored.

The Impact on College Sports Itself

This NIL era—and particularly NIL 2.0 with direct school payments—is fundamentally reshaping college athletics.

Recruiting: NIL opportunities are now a major factor in school selection, sometimes outweighing academic considerations for athletes who see a short window to monetize their talents. Research shows this is actually spreading talent more evenly across programs—the “rich getting richer” narrative hasn’t played out as predicted.

Team Dynamics: Imagine being a backup offensive lineman watching your star quarterback drive a free $75,000 truck to practice while you’re scraping together gas money. That’s creating real locker room tension.

Financial Literacy Crisis: Most of these kids have ZERO experience with taxes, business management, contract negotiation, or financial planning. Universities are scrambling to create NIL education programs, but the learning curve is steep and the consequences of mistakes are severe.

The Education Gap—And How to Fix It

Here’s what kills me: These student-athletes are essentially being thrown into running businesses overnight with no training.

They need to understand:

Income vs. profit
Estimated quarterly taxes
Record-keeping and documentation
Contract negotiation and red flags
Basic bookkeeping
How to build a financial team (agent, accountant, attorney)
Multi-state tax obligations
Insurance and liability protection

The smart schools are investing heavily in financial literacy programming. But honestly? Many athletes won’t take advantage until they get their first tax bill that makes them physically ill.

What Athletes and Parents Should Do:

Get professional help EARLY and build a strong advisor team – Identify a qualified tax advisor and strategist who understands NIL taxation. Work with an attorney who can review contracts before signing. Engage investment advisory firm as part of the team to set your path for financial independence. These professionals are worth their cost in tax savings and avoided mistakes.
Set aside 30-40% of every NIL payment IMMEDIATELY – Put it in a separate account earmarked for taxes. Pretend you never had it. When quarterly tax time comes, you’ll have the cash ready and avoid scrambling in April. Coordinate with your tax and investment advisor.
Track EVERYTHING – Every dollar in, every business expense out. Use accounting software (QuickBooks Self-Employed, FreshBooks, or similar tools). Keep receipts. Document mileage. The IRS doesn’t care about your memory—they care about documentation.
Open a separate bank account – Mixing NIL income with your personal checking account makes tax time a nightmare. Keep them separate and your life becomes infinitely simpler.
Understand your full financial picture – How will NIL income affect financial aid? Can your parents still claim you as a dependent? What are the state tax implications? Build a complete picture before signing any deals.
Plan for the future – What happens when your playing days end? How are you building long-term wealth? Is NIL income funding a retirement account or just funding a lifestyle you can’t sustain?

The Bottom Line

The NIL era represents an incredible opportunity for student-athletes to finally—FINALLY—participate in the economic value they create. After decades of colleges, conferences, and the NCAA making billions while athletes couldn’t even profit from their own name, this is long overdue.

But with great opportunity comes great responsibility, and right now, we’re sending 18-22 year-olds into complex tax and business situations with minimal preparation. The collision between athletic talent and tax reality is going to produce some painful casualties over the next few years.

The taxation of NIL income is straightforward in concept—it’s taxable income, period—but incredibly complex in execution. Self-employment tax, quarterly estimates, multi-state filing, non-cash compensation tracking, financial aid implications, business expense documentation… it’s a lot.

And now with NIL 2.0 and direct school payments, we’ve just added another layer of complexity. Is that revenue sharing W-2 or 1099? How do you coordinate multiple income streams? What happens when you transfer schools mid-year?

Tax planning isn’t an expense—it’s wealth preservation. Every dollar you overpay in taxes because of poor planning is a dollar that could have funded your education, supported your family, or launched your post-athletic career.

If you’re a student-athlete navigating NIL income, a parent trying to help your kid avoid financial disaster, or a university administrator looking for resources for your athletes, the time to get educated on these issues is NOW—not when you’re staring at an unexpected tax bill in April.

This is new territory for everyone, but the fundamentals are solid: understand your obligations, keep meticulous records, set aside the cash you’ll owe, and seek professional guidance for complex situations.

Grazie mille e arrivederci!

Cordasco & Company

5 potential tax breaks to know before moving a parent into a nursing home

Related Stories

2026 Forecast: The “Hangover” Year (And Why The IRS Is Smiling)

Related Stories

Why 2026 Will Be the Most Chaotic Filing Season (And What It Means for You)

Related Stories

The Quiet Revolution in Tax Strategy: What Forward-Thinking Advisors Are Building

Related Stories

The NIL Tax Game Just Got Real—What College Athletes (And Their Parents) Need to Know Right Now

Related Stories