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Old 01-20-2010, 11:33 AM
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To form a business or not?

Hi TaxGuru,

First off, thank you for this great service. For general tax questions, I am often not sure where to go, and this forum looks great.

On to my question. I wrote an iPhone application, and Apple makes it really easy for single developers like myself to make some money without needing to form a business. However, my application requires a third party tool which requires me to pay them 25% of my income (generated from the Application sales).

My question is this: If I continue as is, as a single programmer, will I be taxed on the total income before I pay the third party? Or can I write off the expenses to the third party as some sort of business related expense? Or would I need to license and form a business to write off these expenses?

Any help would be greatly appreciated.

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Old 01-20-2010, 11:21 PM
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The answer is that you would be taxed on the net income that you make from this business, that is the total income received from Apple less the amounts paid to the 3rd Party. But, don't forget that you are entitled to deduct any reasonable expenses that are related to your business that are allowable under the current tax law!

As such you can remain an unincorporated business and the only license that you may require is from your township or city where you are conducting your business. This amount may be a nominal amount. But, you do not need to have a license or form an official business to write off any business related expenses. But, in my opinion, you should consult a Tax Professional or a CPA to determine whether or not there are merits to your forming a business name and forming a Corporation or a Limited Liability Entity.

Find a CPA near you!

Ask TaxGuru Please refer to the legal disclaimer.

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