If I make an app (free) that has ads inside of it, does that count as income and do I have to pay taxes on it?

  • 5
    Firstly you will need to provide a country tag. Tax laws are specific to where you live. Secondly, are you getting money from those ads? If so, what makes you think it wouldn't be taxable? – JohnFx Sep 7 '14 at 18:37
  • Because I am donating all the money to charity – user2678799 Sep 7 '14 at 22:23
  • Then you likely will have to claim the income then take a tax deduction for the donation. That doesn't get you out of paying taxes unless YOU are a registered charity. – JohnFx Sep 8 '14 at 0:03
  • Again, that may depend critically on how it's set up according to local tax law. If the app as a whole is donated, that in itself would be a one-off donation and all future revenues from the app (whether ads or sales) are no longer income to you but to the charity. To what degree it's possible to donate limited rights (such as just future ad incomes) is really a complex legal topic. – MSalters Sep 8 '14 at 14:37

It's income. It's almost certainly subject to income tax. As miscellaneous income, if nothing else. (That's what hobby income usually falls under.)

If you kept careful records of the cost of developing the app, you might be able to offset those against the income... again, as with hobby income.

  • What if I set up the app as part of a nonprofit? – user2678799 Sep 7 '14 at 22:23
  • Then it depends on whether the nonprofit has to pay tax on that particular income, which depends on what goods or services you provided in exchange for the income, and which you'd better ask an expert about. – keshlam Sep 7 '14 at 22:27
  • (My best guess is that advertising, unless it's for other nonprofits with a mission similar to yours, will probably be considered commercial activity and taxable. But as with public-radio underwriting, that's an area where the exact details matter.) – keshlam Sep 7 '14 at 22:30

In general, all income is taxable, regardless of the source.

If you living in the U.S. -- I don't think you said anywhere where you live -- then if you are donating this money to charity, you would have to declare the income, and then declare a deduction for the charitable contribution. At that point the two would cancel out and the net result is that you wouldn't have to pay any tax on the income, but you can't just leave it off your tax return. Well, even if you donated all of it to charity to that you don't have to pay income taxes on it, you would still have to pay social security taxes, and it would still affect your social security benefits when you retire.

If you're saying that the organization receiving the money is itself a charity, as opposed to donating the money to some other organization that is a charity, than you usually have to be registered as a charity with the IRS to avoid income taxes. There are still forms to file to report the income, but you wouldn't have to pay taxes. There are some exceptions to the requirement to register, basically if your organization is very small and for certain religious organizations.

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