I'm a thirteen year old game developer and I am wondering what the tax laws are as a minor in the US. I don't currently make any money off of my games but I'm thinking of selling on the Google play store, my website and maybe even Steam if my PC development skills get better. So I'm wondering how much money would I have to make to have to pay taxes. If I am going to have to pay taxes for just some freelance, hobbyist, development, I'll most likely just keep my games free.
27At risk of being flagged for being too chatty: I just have to compliment you on your desire to jump in, make games, make money, and especially for doing your research ahead of time. Many people 20 years older than you don't even consider the tax implications until it's too late and they find out they owe a penalty, or worse. Having run my own businesses, you're right to think that doing all the accounting, paperwork, and taxes are very tedious and not at all the fun part. At the same time, it's very rewarding and I wouldn't let that scare you away from actually starting a business.– Todd WilcoxJul 31, 2016 at 15:17
After doing a little research, I was actually surprised to find many internet resources on this topic (including sites from Intuit) gave entirely incorrect information. The information that follows is quoted directly from IRS Publication 929, rules for dependents
First, I will assume that you are not living on your own, and are claimed as a "dependent" on someone else's tax return (such as a parent or guardian). If you were an "emancipated minor", that would be a completely different question and I will ignore this less-common case.
So, how much money can you make, as a minor who is someone else's dependent? Well, the most commonly quoted number is $6,300 - but despite this numbers popularity, this is not true. This is how much you can earn in wages from regular employment without filing your own tax return, but this does not apply to your scenario.
Selling your products online as an independent game developer would generally be considered self-employment income, and according to the IRS:
A dependent must also file a tax return if he or she:
Had wages of $108.28 or more from a church or qualified church-controlled organization that is exempt from employer social security and Medicare taxes, or
Had net earnings from self-employment of at least $400.
So, your first $400 in earnings triggers absolutely no requirement to file a tax return - blast away, and good luck!
After that, you do not necessarily owe much in taxes, however you will need to file a tax return even if you owe $0, as this was self-employment income. If you had, for instance, a job at a grocery store, you could earn up to $6,300 without filing a return, because the store would be informing the IRS about your employment anyway - as well as deducting Medicare and Social Security payments, etc.
How much tax will you pay as your income grows beyond $400? Based upon the IRS pages for Self-Employment Tax and Family Businesses, while you will not likely have to pay income tax until you make $6,300 in a year, you will still have to pay Social Security and Medicare taxes after the first $400. Roughly this should be right about 16% of your income, so if you make $6000 you'll owe just under $1000 (and be keeping the other $5000).
If your income grows even more, you may want to learn about business expense deductions. This would allow you to pay for things like advertisement, software, a new computer for development purposes, etc, and deduct the expenses out of your income so you pay less in taxes. But don't worry - having such things to wonder about would mean you were raking in thousands of dollars, and that's an awfully good problem to have as a young entrepreneur!
So, should you keep your games free or try to make some money? Well, first of all realize that $400 can be a lot harder to make when you are first starting in business than it probably sounds. Second, don't be afraid of making too much money! Tax filing software - even totally free versions - make filing taxes much, much easier, and at your income level you would still be keeping the vast majority of the money you earn even without taking advantage of special business deductions.
I'd recommend you not be a afraid of trying to make some money! I'd bet money it will help you learn a lot about game development, business, and finances, and will be a really valuable experience for you - whether you make money or not. Having made so much money you have to pay taxes is not something to be afraid of - it's just something adults like to complain about :)
Good luck on your adventures, and you can always come back and ask questions about how to file taxes, what to do with any new found wealth, etc!
2It might be worth mention that at above a certain amount of income (I'm not sure what it is), you have to pay quarterly estimated tax payments rather than being able to wait until the end of the year. If you underpay your quarterly estimates, you make up the difference on your last payment. If you overpay, you get a refund, just like in the case of withholding. If you pay no quarterly payments and owe enough at the end of the year, there's an additional penalty. Jul 31, 2016 at 15:14
@ToddWilcox+ it's the amount of tax that matters, not income as such, although income certainly influences tax. With no withholding, if (income + SE) tax will exceed $1,000 you should make 'quarterly' payments (actually April, June, Sept, Jan, not quite calendar quarters) totalling at least 90%. But the first year -- after a year for which you had zero tax liability -- even if you make no payments there is a 'safe harbor' and you don't owe the penalty; see form 2210. And after doing the tax return for that first year you should have some handle on what to pay going forward. Sep 11, 2019 at 9:19
13 or 30, the only real difference is that as a minor, you are claimed as a dependent on your parent's return, so you don't have you own exemption. But you do have a standard deduction of $6300 when it comes to earned income. Yes, you'll pay taxes, federal, state, and tax for social security.
There's nothing wrong with paying taxes. In fact, I hope you have to pay a small fortune in tax! That would mean you've made a large fortune, and after taxes, still got to keep a good chunk of it. If your income is minimal, you'll actually pay very little in taxes, not enough to even think about wanting to give away what you can sell.
4I'm afraid according to the IRS, I don't believe this would be correct. The main question would be if this is considered self-employment income, and I don't know to argue that it isn't - which means a minor has to file taxes after only $400 of income (links to IRS publications in my answer).– BrianHJul 31, 2016 at 3:25
Yes, I missed the exclusion if one has less than $400 in SE income. Thanks, Brian. Jul 31, 2016 at 3:29
You're welcome, I almost completely missed it too! I found a Turbo Tax web page that didn't mention it either, and only happened to find the discrepancy when I was searching for an official citation.– BrianHJul 31, 2016 at 3:31