How are app sales/acquisitions taxed in the US?

Question

Hypothetical scenario: I identify a gap in a company's product offering. I, as an independent developer, write a desktop, web, or mobile application that bridges this gap, and I contact the company in question. They like the product, and agree to acquire it from me.

To be clear, this scenario again isn't suggesting I've written an app and have put it on the App Store for continuous sale, but that I've written an app, and it has been acquired for a lump sum of money.

How is this taxed in the US? (Specifically, California.) Some thoughts I have:

• Self-employment tax rate (currently 15.3%, I believe)
• CA sales tax (currently 7.25%)
• (Other income tax?)

Would this be taxed as a sale? Self-employment income? Both? What if I'm not self-employed, but the sale is much higher than my gross income? Example: $100,000 salary at company ___ that has no stake in the app invention, $1,000,000 app acquisition.

Answer 1

The sale of software to a company is the sale of an asset and is not "ordinary income." Because of this, income tax and self-employment tax are not applicable to the sale.

Instead, you would pay capital gains tax similar to the way that you pay capital gains tax on the sale of your house or stock.

The details can be complicated and given the hypothetical nature of the question it is hard to say any more.

Answer 2

Since you didn't ask for sales tax it really doesn't matter for the purpose of this question.

Obviously it's income, so you'll pay federal and state income tax.
According to this document, if I read it correctly, you need to pay self employment tax if your income from self employment is over $400 that year: https://www.irs.gov/businesses/small-businesses-self-employed/self-employment-tax-social-security-and-medicare-taxes
Generally the IRS doesn't really care what you call yourself. If you have income on the side you're self employed (exceptions go for things that lower your tax burden).