iOS Taxes and business structure questions for iPhone developers

[rogersmj]

I'm in the process of setting up a company, most likely as a sole proprietorship, where I contract with developers to build the iPhone apps and profit-share with them.

My question arises about taxes. For those of you already in bed with the App Store...does Apple withhold any taxes from your royalty checks? Probably not, but I just want to make sure.

If anyone else develops as part of a group, how do you handle taxes/payment? From what I can tell (and I'll be speaking with a lawyer soon I hope, but I wanted to get a head start), on any income I get from the App Store, I would pay my normal income tax rate PLUS the 15.2% self employment tax. Yikes. Can I deduct what I pay to my contractors as a business expense so I'm not taxed on their income too? If not, I'm not sure I'd have hardly anything left over for myself!

I've been reading tax law for two days and my eyes are glazing over. I just want to know how other multi-developer groups are structured and how they handle this. Thanks.

 

[DipDog3]

Personally I would recommend setting up a LLC instead of a sole proprietorship. Apple doesn't withhold taxes but I don't know about when you get up to the six figure payments what happens.

You can deduct most everything as a business expense including contract work. You will just have to send them a 1099 at the end of the year.

 

[Ron C]

Make sure it makes sense...

Personally I would recommend setting up a LLC instead of a sole proprietorship.

Check your state laws and regulations regarding setting up an LLC. It's generally straight-forward, but you need to have a "business presence" in most states to create an LLC in that state.

Tax benefits are difficult to analyze on the fly - look at your business plan and figure it out.

Some states have reasonable fees, others are higher. I live in Illinois. It's $500 to set up a LLC. I'd have to have a lot of income to offset that hit.

If you have more interesting ways to set up a LLC legally, I'd listen...

Ron C

 

[wizard]

Check with SCORE at your local SBA.

Hi guys;

I'm in the process of learning about setting up your own small business though a 4 week program SCORE Offers locally. At this point I would suggest getting signed up for something similar locally, the program has really changed my view on the business climate and what is required to succeed.

Number one issue is this, what ever # of dollars that you would like to see going into your pocket requires that your app generate at least TWO TIMES that number. So if you want $50000 a year income you best have an app that can generate $100000 and that is at the very least.

The problem of course is taxes!!!!! Now in my case we are talking New York but frankly it isn't New Yorks taxes that will be killing each of us. Federal taxes where mentioned but do realize there are brackets there. That of course is income tax but you can't forget FICA, just remember FICA is two X because you now pay both the employees and the employers share.

So today it is difficult to justify a busness as a means of support if it doesn't throw off at least $60000. That for a meager living. Something to be aware of if you are expecting more than a partime income.

Now this doesn't even take into account the current economic issues involving the banks. Nor does it take into account what would happen if Obama was elected. The reality is that next year will be very hard on many businesses no matter what.

The advantage with app store is that you investment is very low as are risks. We still need enough income off the app to make it worthwhile but that is no surprise. I guess the key point here is don't be surprised if half or more of what you makes ends going towards taxes. Sad.


Dave

 

[Pring]

Apple simply take off their cut and any Sales Tax/VAT applied. The rest of the tax you have to declare yourself.

 

[Sbrocket]

My question arises about taxes. For those of you already in bed with the App Store...does Apple withhold any taxes from your royalty checks? Probably not, but I just want to make sure.

I'm not going to speak to any of the rest as your tax issues sound a bit more involved than what I've researched for my own sole proprietorship, but Apple does not withhold anything beyond their own 30% cut and sales taxes charged through the store.