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5 Comments

How do you handle taxes as an Indie Hacker? (US)

Hey!

How are you all handling taxes for your projects here in the US? I am structured currently as a C-Corp and am wanted to understand how other people structure their projects with regards to Owner's Draw + a W-2 for yourself.

Any good tools/resources out there?

Thanks!

  1. 3

    One of my biggest frustrations since starting our business has been trying to figure out how to navigate taxes and legal as an indie C-corp. The corporate governance requirements for C-corps in the US were not designed for us, they were designed for huge companies but unfortunately, we still have to follow these requirements to keep our companies in good standing.

    For me, there wasn't a centralized resource since different states have different requirements so this is just a high level overview of what we had to do. If someone built this resource, I would pay a lot of money to not have to think about it.

    1. We used Stripe Atlas to become a Delaware C-corp.
    2. We had to register as a foreign corporation in NYS since that is where we are based. For this process we used a lawyer that cost ~$400. After the initial registration, we just have to file a statement with the Secretary of State every 2 years that's easy to do.
    3. One of the toughest things to navigate is estimated tax payments (only applicable once you have taxable revenue from the prior year) for both state and federal. Once you have to pay estimated taxes you have to estimate what your tax burden will be for the calendar year then make 4 equal installments throughout the year (for this year that's April 15, June 15, September 15, January 18). Again, this applies to both state and federal.
    4. To pay these estimated taxes you need to register with the appropriate federal and state services to actually complete the payment (federal is easy, it's the IRS). The trickiest part of these payments is figuring our your state and city tax burden.

    If you can afford it I highly, highly recommend using a bookkeeping service that also files your taxes. We use Xendoo and love it (there are others like Bench). We pay $200 a month, they handle all our bookkeeping then also file our taxes for federal, NYS, and NYC. The best part of this though is that you have constant CPA support for any and all tax related questions.

    Next, you'll have to worry about sales tax depending on your product (digital, physical, etc..). Before you have to worry about this you'll need substantial revenue to have nexus in each state (likely at least $100k in revenue in any 365 day period).

    I am not an accountant or lawyer so this has been a nightmare to figure out as all of the time I spent doing research was not time spent on my business.

    I hope some if this was helpful!

  2. 2

    For me as a solo indiehacker, a single member LLC is the best option: no double taxation of c-corp, much less paperwork/compliance/corporate governance busywork, income is reported directly on my taxes (because it is a "disregarded entity") which I do with TurboTax home & business.

    Obviously LLC doesn't work if your goal is to raise venture capital or go public, and LLCs do get more complicated if you have multiple members.

    1. 1

      One other thing to consider is that as an LLC you don't qualify for the Qualified Small Business Stock (QSBS). As a C corp (if you qualify), if you sell your company after 5 years you essentially get up to $10M tax free.

      If you don't plan on selling then an LLC is 100% the way to go for the reasons you listed but just something to weight as a factor when deciding how to organize your company.

      1. 1

        Good point – that's a good consideration if you think you'll want to sell your business after 5 years.

  3. 1

    I have no answers, as I’m trying to learn about structuring/taxes as well right now. But I wanted to say thanks for asking the question, because if I’m being honest, this is the part of indie hacking that scares me the most - making sure I do things legally and properly with regard to taxes/structure/accounting. I wish this topic were talked about more on IH.

    I would also love to see resources (books, tools, etc) on this topic.

    Thanks.

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