Earned your first money from the internet? What to do now, without the panic

First, what actually happened here

Something excellent happened: you built something, and somebody in the world paid for it. As far as Israeli tax law is concerned, the picture is simpler than it seems: an Israeli resident is liable for tax on income from every source, including from abroad, including in dollars, including through a foreign platform. The fact that the money came from an American platform does not make it "unofficial", and the fact that the amount is small does not make it exempt.

And in the same breath, nothing has "burned" yet. Anyone who sorts things out at the stage where the income is hundreds or thousands of shekels is in an excellent position: you open a file, report properly from that point on, and regularize what came before. The real problems we meet always belong to people who put it off for two years, not to those who come a month after the first sale.

A business or occasional income - the tests that really decide

The Income Tax Ordinance taxes both income from a "business" and a gain from an "incidental transaction of a commercial nature", meaning that even a one-off transaction can be taxable. The difference is mainly in the manner of treatment: ongoing business activity requires opening a business file and running an ongoing routine, whereas a genuine one-off event is handled on its own. How do you tell? The courts have developed "business tests" over the years, and the most relevant ones for builders:

• Frequency and recurrence. A SaaS product with monthly subscriptions is the definition of recurrence: the income returns every month, even if it is small. A one-off sale of a template, or a side project that closed, is a different story.
• Personal exertion and ongoing activity. Do you maintain the product, answer users, market it, release versions? That is active activity, not passive income.
• Knowledge and expertise. You built the product yourself, with your own tools and knowledge, which counts towards a business classification.
• Intention and continuity. If the plan is to continue, to grow and to add clients, you are building a business, and the registration should reflect that.

The bottom line for most builders: if you have a live product generating recurring income, you are a business, and it is better to open a file close to the start of the activity rather than "when it gets serious". The law requires registering for VAT when the business activity begins; in practice, whoever opens the file while the income is still small both saves themselves the retroactive accounting and starts accumulating orderly recognized expenses.

The practical route: what to do in the coming week

This is what an orderly process looks like. You can do most of it yourself, or hand all of it to us:

• Gather the numbers. Go into Paddle, Gumroad or your platform and pull a report: how much came in, from when, and in what currency. That is the basis for every decision, and it takes ten minutes.
• Keep every receipt and invoice. Both on the income (the platform reports) and on the expenses: AI subscriptions, servers, domains. An invoice from a foreign supplier is a legitimate document for tax purposes; do not delete anything.
• Choose a status: osek patur, murshe or zair. For builders selling to clients abroad there is a counterintuitive consideration here that most guides miss, and we expanded on it in the statuses guide.
• Open the files. The sequence is VAT, then income tax, then National Insurance, and today most of it is online. When opening an osek patur, a single online process opens everything, including automatic transfer to the National Insurance Institute. There is no need to visit any office.
• Start issuing lawful documents. From the moment the file is open, every item of income gets a receipt or an invoice from recognized software (there are solutions that connect directly to the payment setups). On invoices to foreign clients there is a separate guide.

The expenses you already paid are not lost

A question that comes up with almost every builder: "I paid for months for Cursor, Claude and servers before I opened a business. Are those expenses lost?" The good news: an expense incurred in order to produce the income can generally be recognized even if it was paid before the file was opened, where it relates directly to the activity from which the income arose. The practical condition: documentation. An invoice or receipt in your name, with a date and an amount.

So before any decision, go down into your inbox and your suppliers' accounts and download all the invoices from the recent months. Which expenses exactly are recognized and in what proportion (a computer, working from home, AI subscriptions) we broke down in the builder's expenses guide.

Important: recognition of expenses that preceded the opening of the file depends on the circumstances, on their connection to the activity and on the documentation. Do not make assumptions about large amounts without checking with us. That is exactly the kind of question a ten minute conversation closes.

Five mistakes we meet again and again

• Running the money through a friend's or a relative's business. The income belongs to whoever produced it. Registering it with someone else is incorrect reporting for both of you, and it complicates rather than simplifies.
• Waiting "until it gets serious". Meanwhile the subscriptions accumulate, and the retroactive accounting only grows. Opening a file today is cheap and simple.
• Mixing everything in the private account. It is lawful, but it turns every annual return and future capital declaration into a puzzle. A separate account (or at least a card) for the business saves hours.
• Not keeping receipts for the AI and cloud spend. These are real expenses that reduce the tax. Without documentation they do not exist.
• Opening a Delaware LLC because Twitter said so. For an Israeli resident that is in most cases an expensive and unnecessary complication, and we explained exactly why in the Delaware guide.

And if you are already past one of these mistakes, that is fixable too. Genuinely. Tell us where you stand and we will build the short route to putting it right together.