How much to set aside for tax as an indie developer

The first good month from an app feels like found money. Then the tax bill arrives, often months later, and it is calculated on money you may already have spent. The fix is boring: set some aside as you go. The questions are what you owe tax on, and how much to set aside.

Two different taxes#

Indie makers run into two kinds of tax, and they work differently:

1. Consumption tax (VAT, GST, sales tax). Charged to the customer on each sale. Who handles it depends on how you sell.
2. Income tax (and, in some countries, social contributions on self-employment income). Charged to you, on your profit. You handle this, whatever platform you sell through.

Most confusion comes from mixing the two up.

Consumption tax: often handled for you#

The App Store and Google Play. The stores sell to the customer and deal with consumption tax in many countries. Apple's proceeds are the customer price minus the taxes Apple collects and its commission (Apple, financial report fields). Google says it determines, charges and remits VAT for digital content in many jurisdictions, though developers in some countries keep their own tax obligations (Google Play Help, tax). For most store sales, the VAT is gone before the money reaches you.

Merchants of record. Paddle, Lemon Squeezy and Stripe's Managed Payments act as the seller, and handle the consumption tax for you in exchange for a higher fee (Stripe docs, Managed Payments).

Plain Stripe. Here you are the seller. Stripe Tax can calculate and collect tax, but "you must file and remit (transfer) the taxes collected in every location that you're registered in" (Stripe docs, how Stripe Tax works). If you sell through Stripe without a merchant of record, find out where you need to register before you think about income tax.

Income tax: always yours#

No store or payment provider pays your income tax. You owe it on your profit: proceeds, minus the costs your tax rules let you deduct, such as ad spend, hosting, developer program fees and tools.

When you pay also differs by country. Three examples:

• United States. If you expect to owe $1,000 or more, you generally have to make estimated tax payments during the year, using Form 1040-ES (IRS, estimated taxes). Self-employment tax comes on top of income tax, at a rate of 15.3% (IRS, self-employment tax).
• United Kingdom. Self Assessment usually includes two payments on account, due by 31 January and 31 July, each usually half of last year's bill (GOV.UK).
• Norway. Self-employed people with a surplus pay forskuddsskatt (advance tax), due 15 March, 15 June, 15 September and 15 December (Skatteetaten).

The pattern is the same everywhere: tax on this year's profit is paid during the year or shortly after, from money you earned months earlier.

A simple set-aside method#

1. Start from profit, not revenue. Setting aside a share of revenue over-saves when ads eat most of the margin, and under-saves when you run several products and only some are profitable. Profit is what the tax is calculated on.
2. Pick a percentage you can defend. The honest starting point is last year's actual tax divided by last year's profit. With no history, ask an accountant or use your tax authority's calculator for a first estimate. Round up rather than down.
3. Move it when the money arrives. Transfer the set-aside share each time a payout lands, into a separate account you don't touch.
4. Check the percentage once a year. When the real bill arrives, compare it with what you set aside and adjust.

Setting aside from each profitable month, and only adjusting when the real bill arrives, errs on the side of saving too much. That is the right direction to be wrong in.

How Plask helps#

Plask has an optional tax reserve, off until you set it. Enter a whole percentage from 1 to 60, and the P&L shows "Set aside for tax" as that share of each period's profit, on the portfolio and per product, and in your digest. It is a reminder, not a cost: it is never subtracted from your profit, and when a period has no profit it shows zero. Each period is calculated on its own, so the reserve never drops because another month lost money.

The tax reserve is private. It is never shown on the board or on your public profile. And like this post, it's an estimate, not tax advice.