iOS Taxes

[jsnuff1]

How are we supposed to report earnings from the App Store for tax purposes?

I sent an email to Apple and this is what I got back.

"Since the App Store contracts are characterized as a "sales/commission" agreement, as opposed to a "royalty" agreement, there is no tax withholding in the United States.

In addition, payments from the USA App Store will not be reported to the IRS on form 1099 at year end."


Anyone that knows about taxes want to translate that?

 

[detz]

If you make money you have to pay taxes on it...plain and simple. Add up what they paid you and do your taxes with that as income. They should give out 1099-MISC, in fact I think they have to if you made $600 or more this year.

 

[CommanderData]

I think a lot depends on whether you're registered as an individual or a company. Obviously you're in the US. In that case if you're an individual as far as Apple's contracts go I think this just counts as taxable income. If you're an individual developer and don't have a day job you'd be considered self employed and be obligated to pay additional taxes on it.

If you're a company- It depends on whether it's a Sole Proprietorship, LLC, S-Corp, or regular Corp. Sole Proprietorship would be basically the same as self employed. The rest get more complicated from there.

Disclaimer- IANAA, but I've seen more than my share of US tax law over the years.

 

[detz]

In short terms, take 35% of what you got and just send it to the IRS.

 

[admanimal]

I If you're an individual developer and don't have a day job you'd be considered self employed and be obligated to pay additional taxes on it.

Even if you do have a day job the money you make from the App Store can still be considered self-employment income. Basically the only criteria is whether you engage in the activity with the goal of making money from it (as opposed to it being a true hobby).

 

[detz]

Hobby or no hobby you still have to pay taxes...you just can't deduct "business expenses"

 

[firewood]

In short terms, take 35% of what you got and just send it to the IRS.

After deducting all your legitimate business expenses, of course.

.

 

[johnnybluejeans]

I'll start this by saying I am not an accountant or a tax specialist, if you are unsure of what to do the best advice is to take some of your iPhone earnings and get some real tax advice. ; )

What I am is an iPhone developer who made a sizable amount from the app store in 2008 and I just did my taxes this week.

I am registered with Apple as an individual. I assume that if you registered as a company, then you already own a company and should know what you are doing in terms of taxes.

As an individual, you will not receive a 1099 for any of the money you have earned from Apple, nor will Apple report any of your earnings to the government (at least for US Store earnings). This means the responsibility is in your hands to claim your earnings. Like an above poster stated, this is directly from Apple's mouth. Here is what they told me word for word:

Since the App Store contracts are characterized as a "sales/commission" agreement, as opposed to a "royalty" agreement, there will be no tax withholding or reporting in the United States.

In addition, payments from the USA App Store will not be reported to the IRS on form 1099 or 1042 at year end, so you are responsible for reporting your own taxes.

Don't take this as an opportunity to try to cheat your taxes, doing so could land you in some very hot water. Also, by the wording sent to me from Apple they may be reporting all your international income.

Personally I used TurboTax to file my taxes, it made things pretty easy and helped me understand what I could and could not deduct. In the end what you will need to file is 1040 Schedule C (Profit or Loss From Business) and a Schedule SE (Self-Employment Tax). Whether or not you have formed an entity like an LLC or not, the government still considers you to be a business when you earn income like this. On the Schedule C you will report all your income from your iTunes sales, and you will also get a chance to deduct related costs of doing your iPhone development.

As far as how much you will have to pay in taxes, mileage will vary from person to person. Basically you will have to pay the federal and state taxes based on your income bracket, plus self employment tax (social security + medicare) which is an additional 15% or so.

Going forward in to 2009 you may need to start paying estimated taxes each quarter if you are making large profits. The IRS doesn't like you holding on to large sums of tax on your own if you are making a lot of money. I know there are penalties involved at some point, but I don't know the specifics. Better safe than sorry.

 

[admanimal]

Thanks for the post johnnybluejeans. I had done quite a bit of research on my own and basically concluded that the way you did it is the correct thing to do. I haven't actually done my taxes yet but I also got a copy of TurboTax Home & Business edition which sounds like it should make the process pretty straightforward.

 

[detz]

Ok, question. If they don't send out anything and don't report anything what do I have to claim, the amount they sent out in financial reports of the money that I actually got from them? I made a lot in December but I have yet to see that money and it's 2009 so when do I have to claim that as 2008 income or would that be 2009 income? Also, they sent financial reports for Oct and Nov but since I didn't make the $250 threshold they didn't actually pay me anything...does that count?

 

[firewood]

I have a MacBook that was purchased for iPhone development. Are developers usually expensing such items? (IRS Section 179?) Or depreciating them over some number of years?

How about iPhone's used for development, and the related cell phone bill expenses?

.

 

[admanimal]

I have a MacBook that was purchased for iPhone development. Are developers usually expensing such items? (IRS Section 179?) Or depreciating them over some number of years?

How about iPhone's used for development, and the related cell phone bill expenses?

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I was planning to Section 179 expense those types of things, based on the percentage they are for business vs. personal use.

 

[firewood]

If they don't send out anything and don't report anything what do I have to claim, the amount they sent out in financial reports of the money that I actually got from them?

The answer may have to do with whether you set up your businesses books to use a cash based or an accrual based accounting method. There's stuff on this subject on the IRS web site, or one can consult an accountant.

.

 

[johnnybluejeans]

Ok, question. If they don't send out anything and don't report anything what do I have to claim, the amount they sent out in financial reports of the money that I actually got from them? I made a lot in December but I have yet to see that money and it's 2009 so when do I have to claim that as 2008 income or would that be 2009 income? Also, they sent financial reports for Oct and Nov but since I didn't make the $250 threshold they didn't actually pay me anything...does that count?

I filed my taxes using "cash based" accounting. In other words I claimed all the money deposited into my account in 2008. I did not claim December earnings that I have not been payed. I will claim them in 2009.

 

[johnnybluejeans]

I have a MacBook that was purchased for iPhone development. Are developers usually expensing such items? (IRS Section 179?) Or depreciating them over some number of years?

How about iPhone's used for development, and the related cell phone bill expenses?

.

Yes, I expensed my new Mac, my iPhone, my service, etc. On the hardware I took the complete depreciation in 2008 to bring my profit margin and thus tax liability down for 08. However this means I can no longer expense the Mac in future years even though I am still using it.

 

[whoathere]

As an individual tax payer, you are a calendar year tax payer, which means you pay taxes on income generated from Jan 1 - Dec 31. Seeing as how they haven't paid you for your December earnings, I would just include them in your 2009 taxes. Unless you receive payment by the end of this month, then you can include that on your 08 return, if you'd like. Although taxes may increase, so paying less tax on that money now, would be better than paying more tax later. Obviously, the opposite applies as well. It's up to you.

As far as depreciating goes, I would expense the phone and the bill, but depreciate the computer. I'm not exactly sure what the estimated life would be, but this would give you a little help each year on your taxes, as opposed to taking it all the first year, and not having those reductions next year.