College athletes were able to profit off of their name, image and likeness (NIL) for the first time in summer 2021. This new development allows student athletes to monetize their NIL without jeopardizing their status as college athletes. However, many student athletes need help understanding the tax implications of these new potential income streams. For this assignment, you are responsible for giving student athletes a basic primer on tax including (1) what types of taxes they will be responsible for paying, (2) how various transactions are taxed and (3) basic information about which tax forms should be completed. In addition, you will need to provide information about the following entity options available to student athletes: sole proprietorships, C corporations, and S corporations. Please explain the differences between these entity types for tax purposes. Finally, you will provide guidance to student athletes on which tax entity is best for their specific situation. Defend your entity choice by presenting calculations of the student athletes taxable income and total tax liability amounts (including income and payroll taxes) under each of the three entity types (sole proprietorship, C corporation, and S corporation).

Brandon Weaver was a high school baseball and basketball player. He was drafted by a Major League Baseball team and played for the Red Sox affiliated Minor League Baseball (MiLB) team for five years. After retiring from the MiLB, Brandon decided to return to school and play basketball at Oklahoma State University. Brandon is a relatively private person, and he is not on any social media platforms. However, Brandon would like to take advantage of the new NIL rules in order to earn some extra money to invest in his future. After brainstorming ideas, Brandon decides to build a gym and host a summer basketball camp in his hometown. The gym cost $100,000 to build, and the equipment is an additional $100,000. (Assume both assets are placed into service in January of the current calendar year.) Brandon would like to maximize his depreciation deductions. In addition, Brandon spends a total of $30,000 other miscellaneous deductible expenses such as advertising, water, and trophies. In total, 1,000 high school players each sign up for one week of camp and pay $150 each. Each player also purchases a $10 t-shirt, which costs Rob $7 to produce. Weavers Basketball Camp runs Monday through Thursday, and it lasts four hours each day for the entire summer (12 weeks). Brandon hires 10 independent contractors at $25/hour. In his fifth year in the MLB, Brandon married his high school sweetheart, Yuwei. While Brandon was in the MiLB, Yuwei finished her finance degree at Yale. She works as an investment banker earning $150,000 per year.

Required: If Brandon incorporates (whether C corporation or S corporation), he plans to pay himself a salary equal to 40 percent of his business revenue. He plans to take all additional earnings as distributions.

Optional (Instructor will assign): Assume in year two, Brandons income and expenses remain the same (he buys no additional equipment). Advise Brandon on whether his preferred entity type would change in year two and why.