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If a U.S. citizen writes a computer program and sells it to a friend, are they required to report the income on their taxes? Does the answer change if it's something else? Like a sculpture, a book, a song, a work of art or a craft product like a bead necklace?

  • Not that it matters to the actual answer, but are you actually selling it, or licensing it? – Michael Jul 9 '16 at 19:10
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Yes, you need to report this. It will be treated as self-employment income and goes on Schedule C of your personal Form 1040. The product doesn't matter - software, sculpture, book are all the same.

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    It doesn't really matter that you sold something - it matters that you got money ('income'). Even if you 'sell' him a smile. – Aganju Jul 9 '16 at 18:56
  • Yep. Nontangibles are still sales. – keshlam Jul 9 '16 at 21:20
  • If it's not a regular business activity, just a single one-time thing, you might be able to avoid calling it self-employment (which requires paying "self-employment taxes", essentially both the employee and employer parts of social security and medicare taxes) and call it misc income (which would only be subject to normal income tax). You should probably consult a tax professional to determine if this is legal for your particular situation, as it could make a significant difference to the amount of tax you owe. – R.. Jul 10 '16 at 0:43
  • I'm guessing there's a difference between selling something you made and selling something used. If I sell my friend my used DVD of ABC or my used TV etc then it's not "income" as I already paid income tax on the money I used to purchase the thing in the first place. – gman Jul 10 '16 at 0:59
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    @gman: The question isn't whether you made it or whether you're selling something used, but whether it's being done as income-generating activity and whether you're making a net profit or loss. If you're selling used things at a profit, in theory you're supposed to be accounting for your expenses and gross income and figuring the profit as taxable income via Schedule C. But this is getting pretty far off from the original topic so you should open a new question if you have further things to ask. – R.. Jul 10 '16 at 1:05

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