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Originally Posted by barrettj
To clarify, by "becoming an official business" I meant getting an EIN (not solely becoming an LLC, the LLC is for protection aspect) and having that be what Apple is using instead of your SSN.
According to my accountant (who used to work at the IRS), unless you have a EIN and are using a checking account that is using that EIN (and not your SSN) then the IRS generally wouldn't consider you to be a business and consider it a hobby. If you then got audited, you'd owe on everything you deducted.
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My understanding is that getting an EIN and a separate checking account for your business helps to reaffirm that your business is legit, but that there are other factors as well, including actual profits/losses, so it's not so cut-and-dried. I'd imagine that it's less risky for someone making tens of thousands of dollars in app sales to deduct expenses than someone posting a loss. In any case, I didn't mean to suggest that deducting expenses is necessarily a safe thing to do, just to clarify for others that sole proprietors are real businesses too.
I only brought this up because there seems to be general confusion on here (not from you specifically) as to the difference between forming a specific type of business entity (like an LLC) vs being generally engaged in a business activity. Some developers seem to be under the misconception that they don't need to worry about things like business licenses/permits, self-employment taxes, etc., because they signed up as an "individual" and aren't running a "real" business. The bottom line is that if you're selling apps in the store with the intention of making a profit, you need to be aware of the legal and tax responsibilities that come with running a business, both at the federal level, but also with your state and local governments as well. I suspect that many developers are selling apps completely unaware that they're actually considered to be sole proprietors and may be operating in violation of local laws as a result.
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I've also been told to be very careful with deducting things like your macbook and your cell phone bill. Unless your cell phone is SOLELY used for business calls, it is not a valid deduction. Same thing with the Macbook, it has to be used solely for business use. I'm told the iPhones and iPods (as far as the cost of the actual device) is safe as the reason you're getting them is testing, so they can still have personal things on them (as you want to be testing how your apps would function in an actual usage scenario).
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I've been given similar advice as well. I'd definitely suggest talking to an accountant before deciding whether to deduct expenses.
