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Whereas the last question deals with sales tax, this question deals with how to pay taxes on the money you earn from your app.  So let’s say you had some sales of your app, Google will take its share of 30%, and at the end of the month Google sends you a check (or direct deposit).  Is that all your money or do you have to pay taxes on it?

The answer really depends on your situation and what type of entity you are in.

I would imagine that most single person app development shops would be a single owner LLC.  According to NOLO.com this would work as follows: “The IRS treats one-member LLCs as sole proprietorships for tax purposes. This means that the LLC itself does not pay taxes and does not have to file a return with the IRS.  As the sole owner of your LLC, you must report all profits (or losses) of the LLC on Schedule C and submit it with your 1040 tax return. Even if you leave profits in the company’s bank account at the end of the year — for instance, to cover future expenses or expand the business — you must pay income tax on that money.” (NOLO – How LLC Members Are Taxed)

Another circumstance would be if you are selling apps as a Sole Proprietor. Again according to NOLO.com “As a sole proprietor you must report all business income or losses on your personal income tax return; the business itself is not taxed separately. The IRS calls this “pass-through” taxation, because business profits pass through the business to be taxed on your personal tax return.” (NOLO – How Sole Proprietors Are Taxed)  You will have to put the income or loss information on a Schedule C and submit it to the IRS on a form 1040.

There are additional details and caveats about what you may or may not have to pay so I encourage you to read in-depth for the situation that you are in.  Again, it is always important to consult a legal advisor before taking any action based on something you read online.

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