The Tax Code Already Has Your Name in It

Karlton Dennis started the conversation by describing a mug.

Not metaphorically. An actual mug — the one sitting on the table between us — and why it's deductible. As soon as I walk out the house, I'm generating revenue in some form or fashion. My shoes, my face, my chain. He was half-joking and completely serious at the same time, which is exactly the register you need to reach someone who's never thought about their daily expenses as a business ledger. The mug is deductible because staying hydrated is what allows him to do the job that generates the income. The IRS doesn't care about the mug. The IRS cares whether you can draw a straight line from the expense to the revenue.

Most people can't draw that line. Not because it doesn't exist — it almost always does — but because nobody ever taught them to look for it.

That's what Karlton Dennis does. He's the CEO and founder of Tax Alchemy, a licensed enrolled agent based in California, a former Cal Poly quarterback, and the kind of person who can explain the difference between a W-2 and a 1099 in a way that makes you want to call your accountant before you finish listening. I've known him for a while now, and every time we sit down I leave the conversation aware of something I was paying for that I didn't have to.

The through-line in this episode — the thing I kept coming back to after we wrapped — is simpler than any individual strategy he mentioned: the tax code was written with structure in mind, and the people who don't have structure pay everyone else's taxes for them. That's the argument. Everything else in this episode is a specific instance of it.

Uncle Sam was never at your Thanksgiving table

Karlton's first point, and his sharpest one, is directed at NIL athletes specifically — the college players who are suddenly getting Gatorade checks and appearance fees and didn't have anyone explain to them what self-employment income actually means.

Most of them are unaware of who Uncle Sam is. He's not somebody who has been at your Christmas parties or at your Thanksgiving dinner table. He is not your family.

That sentence got me because it's exactly how I would have described my own relationship with the tax code in my first year in Detroit. The number on the contract didn't match the number in the account. The difference was Uncle Sam, and I didn't have the framework yet to understand what he wanted or when he was going to take it.

For an NIL athlete on 1099 income, the structure of the tax problem is this: you're paying federal income tax, state income tax if you're in a taxable state, and self-employment tax — which is Social Security and Medicare combined at 15.3% — on every dollar of net profit. So that $100,000 Gatorade deal? $15,300 off the top before federal or state rates touch it. That's the hidden tax. That's the one that doesn't show up in the announcement tweet when the deal gets announced.

The fix is structure. An LLC first, then — once profit clears $50,000 to $60,000 — a pivot to an S corporation, which changes the math on the self-employment tax significantly. In an S corp, you give yourself a reasonable salary, pay self-employment taxes only on that salary, and distribute the rest as profit. The 15.3% doesn't apply to the distribution. That gap, over a career, is real money.

What Karlton kept emphasizing — and what I think gets missed — is that the LLC isn't just a tax tool. It's a credibility signal, a privacy layer, and a forcing function to separate how you spend from how you earn. The address matters. The operating agreement matters. The moment you put your parents' home address on your business filing, you've handed your privacy to anyone who wants to look you up — and people will look you up once you have a personal brand. Wyoming has gained traction for good reasons: it was the first state to adopt LLCs, and its court of chancery handles business disputes separately from jury trials. Delaware used to be the default. Karlton's view — and I think he's right — is that Wyoming has become the smarter choice for investors and business owners who want real structural protection.

The Caleb Williams play the NFL wouldn't let happen

The story in this episode that I'd heard before but hadn't fully understood until Karlton broke it down was Caleb Williams trying to get his rookie contract paid through an LLC.

The Bears said no. They fought it tooth and nail. And from a pure tax strategy standpoint — Karlton's words, not mine — it was absolutely genius.

Here's the logic: when you're a W-2 employee, you get paid, Uncle Sam takes his cut immediately, and you spend what's left. When you're a 1099 business owner, you get paid, you spend on legitimate business expenses, and Uncle Sam gets paid on what's left after those deductions. The order of operations is completely different. Williams was trying to flip the table — to be treated as an entertainer, a contractor, someone with the ability to claim expenses against income before the tax calculation runs.

The NFL wouldn't allow it because of how the collective bargaining agreement defines the employment relationship. He's an employee. He gets a W-2. The taxes come out before he sees the money.

I sat in Detroit for my first five years watching that exact dynamic play out in my own paycheck. When I eventually left — Miami offered 20-21 million, Oakland was at 25 — a significant part of my decision to go to Miami was Florida's zero state income tax. I was going to pay jock tax in whatever visiting states I played in regardless of where I lived. But the difference between paying Michigan income tax as my base rate versus paying nothing in Florida on my home games was meaningful over the life of a contract. That's not a small calculation. That's a structuring decision that athletes — especially younger ones — treat as a lifestyle choice when it's actually a financial one.

The jock tax and what it actually means to perform in 30 states

Most athletes know the jock tax exists. Fewer of them understand exactly how it works, which means they can't plan around it.

The simple version: wherever you perform, that state taxes the income you earned there. This isn't unique to athletes — it applies to entertainers, musicians, anyone traveling to perform. The Beatles could go play SoFi Stadium and California would want a cut of what they earned that night. An NBA player flying to New York for a road game pays New York income taxes on the share of their salary attributed to that game.

Where it gets more nuanced is the domicile question. If you're domiciled in Florida, Nevada, or Texas — states with no income tax — that's your base. You still pay visiting-state taxes in the states you travel to that impose them. But you don't pay home-state taxes on top of that. A player living in California pays California rates plus visiting-state rates whenever they travel. The spread between those two situations, over the course of a contract, is significant.

The non-athlete version of this question is interesting too. A photographer traveling state to state doesn't trigger the jock tax because photographers aren't classified as performers — they're not on stage earning income in each city they pass through. Their taxable location is wherever they're domiciled. That distinction matters for any creative professional or freelancer who works remotely and has the flexibility to choose where they're based.

The real estate play — and why your spouse might be the move

The part of this conversation I've thought about most since we recorded is the real estate professional status discussion, because I lived this one imperfectly for years.

The tax code allows real estate professionals to take active losses from investment properties and use them to offset W-2 income — which, for an athlete, is almost all of their income. That's a powerful deduction. The catch is the IRS requires you to prove you spent 750 hours in a real property trade or business and that you spent more time in real estate than any other occupation.

For an active NFL player, that second condition is nearly impossible to satisfy. Football is your primary occupation. The IRS isn't going to accept that your side real estate interest outweighs your full-time football career on a time basis.

But a spouse can qualify. If your spouse is a real estate agent, or spends the required hours managing properties, they can claim real estate professional status — and then the active losses from properties owned jointly can offset your W-2 income. The excess business loss limitation caps that offset at $610,000 for married couples filing jointly, but whatever you don't use in year one rolls over. You're never wasting the loss.

I made the mistake of waiting too long to take real estate seriously from a structural standpoint. I cared about it — grew up around construction and engineering, always loved the asset class — but I wasn't tracking hours, wasn't running the time log, wasn't thinking about it as a designation I needed to earn and document. Karlton's point about the audit scenario is the right frame: if the IRS audits you, they will look at your time log for real estate activities and compare it against the hours implied by your NFL paycheck. If your log doesn't win that comparison, you don't qualify.

The right move is to start the log early, be genuinely active in managing the real estate, and — if you're married — have an honest conversation with your spouse about whether they're in a position to qualify professionally.

PULL QUOTE: "Sometimes if you wanna go to new places that your family has never been, you have to be willing to step out of the familiar and go to the unfamiliar." — Karlton Dennis

The private family foundation, and why it's not just for philanthropy

The last piece of this conversation that I think gets undersold: private family foundations as a tax tool, not just a giving vehicle.

The standard narrative around foundations is that you set one up when you want to give back. And that's real — as your profile grows, people look to you for that, and a foundation gives your philanthropy structure and credibility. But the tax math works even before you know exactly what you want to do with it.

Here's what Karlton laid out: you can contribute up to 30% of your adjusted gross income to a private family foundation in a single year and deduct the full amount. On a $10 million year, that's a $3 million deduction. The money sits in a foundation bank account that you control — you can attach an Amex to it, make investments with it, grow it. Inside the foundation, there's no capital gains tax on investment returns. You're required to distribute at least 5% annually to other qualified 501(c)(3) organizations, but beyond that, you have time to figure out what you actually want to do with the rest.

The longer play: once the foundation has grown and you've identified your philanthropic direction, you can bring family members on as board members and pay them salaries to work inside it. You've just shifted income to people who are likely in lower tax brackets than you, through a vehicle you were already getting a deduction for contributing to. That's the structure doing three things at once — reducing your tax bill, growing a philanthropic asset, and providing for family in a legitimate and documented way.

What to actually do — in order

Three things I'd tell any athlete or young professional who sat across from me after listening to this conversation:

Get the LLC in place before the first check clears, and get the address right. Not your home address. Not your parents' address. A virtual address in the state where you're domiciled, which is wherever you'll spend 181-plus days. Call a CPA before you file anything — the 30-minute setup that TikTok promises you will cost you years of cleanup if you do it wrong. Wyoming is worth understanding if you're building a holding structure. Delaware was the default; it isn't anymore.
Learn your tax type before you spend anything. W-2 and 1099 are not just different forms — they're different games with different rules about who pays first and who gets what's left. NIL athletes are almost always 1099, which means self-employment tax is the first thing hitting your check, not the last. Transition to an S corp once your profit justifies it. Document your business expenses as if you're going to be audited, because eventually you might be, and the documentation is what wins.
Find someone who is already where you want to go, and humble yourself in front of them. Karlton said this near the end of the conversation and I think it's the most important non-technical thing in the episode. The instinct — especially for young athletes — is to trust the familiar: the family friend who became a financial advisor, the guy your parents know from church. That person has never navigated an eight-figure tax problem. They cannot help you with it. The people who can help you have done it. Go find them. Ask directly. The successful people I've been around — Jay Brown, Joe Moglia, the mentors who mattered — almost always said yes when someone came with genuine humility and a real question. What they didn't have patience for was wasted time. Respect that, and the doors open.

The tax code has been in place longer than any of us have been earning money. The people who wrote it built in every advantage mentioned in this conversation — the S corp structure, the real estate professional status, the foundation deduction, Code Section 162A. None of it is a loophole. All of it requires structure.