Sponsorship Income Is Taxable, Expenses Are the Deduction
When a brand pays you to wear their gear, post content, or appear at events, that payment counts as self-employment income. It typically shows up on a 1099-NEC if you're paid directly, or gets bundled into whatever entity handles your NIL or endorsement deals. That income is not deductible, obviously, but the costs you incur to generate it usually are.
On Schedule C, you subtract your ordinary and necessary business expenses from your gross sponsorship income before the remainder gets hit with income tax and self-employment tax (15.3% on net earnings up to the Social Security wage base, plus Medicare above it). This is where athletes with sponsorship deals often leave money on the table by not tracking costs tied to fulfilling those contracts.
What Actually Qualifies as a Deduction
Common deductible costs tied to sponsorship and endorsement work include:
- Agent or agency commissions on the sponsorship deal specifically (not just your playing contract)
- Travel to appearances, photo shoots, or brand events required by the sponsorship
- Apparel or equipment you purchase to fulfill contractual obligations that isn't reimbursed
- Content production costs: video editing, photography, social media management fees
- A portion of home office or studio space used to create sponsored content
- Marketing, website, or personal brand management fees
The test the IRS applies is whether the expense is ordinary (common for people in your line of work) and necessary (helpful and appropriate for earning that income). A pair of cleats you'd wear anyway is a harder sell than a wardrobe purchased specifically for a shoot the sponsor required.
Where This Gets Complicated for Pro Athletes
If you're a salaried pro athlete (W-2 from your team) who also earns sponsorship income on the side, you can't mix the two. Your team salary doesn't get Schedule C deductions, but your sponsorship and endorsement income does, as long as it's structured as self-employment or run through your own LLC or loan-out entity. Many pro athletes route endorsement income through a business entity specifically so these deductions are cleaner and better documented.
Agent fees deserve special attention. Fees tied to negotiating your playing contract are treated differently than fees tied to negotiating endorsement deals, and lumping them together on your return is a common audit trigger. Keep separate invoices or at least a clear allocation from your agent showing what percentage relates to sponsorship work.
Documentation Is What Survives an Audit
None of these deductions hold up without records. Keep the sponsorship contract itself, invoices from your agent showing the commission split, receipts for gear or travel tied to specific brand obligations, and a simple log connecting each expense to the deal it supported. Athletes who mix personal spending with sponsorship-related costs and can't show the connection tend to lose the deduction entirely if questioned, even when the expense was legitimate.