Timeline for How should I handle taxes for Minecraft server donations?
Current License: CC BY-SA 3.0
14 events
| when toggle format | what | by | license | comment | |
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| Aug 7, 2012 at 18:25 | comment | added | JTP - Apologise to Monica♦ | @littleadv - I'm smarter today than when I woke up. Thanks for the lesson. | |
| Aug 7, 2012 at 17:25 | comment | added | littleadv | @JoeTaxpayer generally, IRS assumes the activity is for profit if its profitable in 2 of the last 5 years. Otherwise, you'll have to talk to them and show them that although you're losing money, your intention is to make a profit. In the case of the OP there's no such intention. | |
| Aug 7, 2012 at 12:16 | comment | added | JTP - Apologise to Monica♦ | @littleadv - I am certain it's not a gift. We agree there. The rest is not my expertise, so I either need to call it quits or keep researching. What I am missing is where the line is drawn from hobby to business. "Activities Not Engaged in For Profit" is the heading to the page you linked to. If the OP's "donate" button brought him $10K/month, is he still 'not engaged for profit'? I am not debating, I honestly have no idea where the line is, or what criteria is used to determine this. | |
| Aug 7, 2012 at 4:22 | comment | added | littleadv | @JoeTaxpayer if its not a business expense, you cannot deduct it. If its an expense used to generate income as part of the hobby, then you can deduct it on schedule A, as a misc. deduction, above the 2% AGI limit, to the extent of the hobby income. See the instructions for schedule A, and here: irs.gov/businesses/small/article/0,,id=208400,00.html | |
| Jul 31, 2012 at 22:35 | comment | added | KeithS | the TL;DR version: report all donations as personal income. If you take the standard deduction on your 1040, that's the end of it. If you itemize your deductions by filing a Schedule A (which you'd normally do if you owned a home, had significant medical expenses etc), you may deduct the costs of running the server up to the amount of the donations. You are not allowed to deduct more unless you set up a business in your name to run the server; then you are allowed to file a Schedule C listing the donations and all expenses. However, you may have to prove that you expect to make a profit. | |
| Jul 31, 2012 at 21:25 | comment | added | MetaGuru | Damn guys now I'm really confused. | |
| Jul 31, 2012 at 12:04 | comment | added | JTP - Apologise to Monica♦ | I reversed my down-vote as I think we agree, and saw your extensive edit/update. I'm not 100% certain that he would need to itemize to use the expenses to just offset the costs. I'd like to see a citation or hear from others as well. But the main point, "not a gift" we agree. | |
| Jul 31, 2012 at 1:43 | history | edited | KeithS | CC BY-SA 3.0 |
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| Jul 31, 2012 at 1:28 | comment | added | KeithS | If the OP does not currently itemize (not a homeowner, no significant medical expenses, etc etc) then it likely wouldn't be worth it to try to deduct expenses, leaving the OP simply counting it as additional income. | |
| Jul 31, 2012 at 1:24 | comment | added | KeithS | That's true. I think we're saying the same thing but disagreeing over it. The OP must count the donations as personal income (we agree there). The OP CAN deduct expenses up to but not exceeding the amount of the donations by itemizing it on Schedule A (meaning OP must itemize to take this deduction, and cannot reduce the amount of their income below what they'd have made if they didn't receive any donations). The OP cannot file a Schedule C and call the game server a business operating loss, reducing net taxable earnings, as this game server would almost certainly be viewed as a "hobby". | |
| Jul 31, 2012 at 1:00 | comment | added | JTP - Apologise to Monica♦ | Keith - in effect, the OP has a 'donationware' situation, he provides a service, but via a button, solicits money. The "donors" get a service in return. But the tax has zero to do with gift tax or the gift tax rules, it's income, plain and simple. It's not even in a grey area for the fact that he solicits the money. | |
| Jul 30, 2012 at 23:47 | comment | added | KeithS | The OP is not a non-profit; these donations are indeed "gifts", which must be reported. No, the OP wouldn't have to worry about the gift tax; a large donor might. The IRS would look at this situation as being little more than a "hobby", which as I stated is not valid as a source of business revenue or expenses; if it were then I would be saving a ton by deducting for musical instruments, just by going to the park, opening my case and busking for pocket change "regularly". Filing a Schedule C with a significant operating loss on a video game server would be a huge red flag to auditors. | |
| Jul 30, 2012 at 21:39 | comment | added | JTP - Apologise to Monica♦ | It is most certainly not a gift. And the $13K does not apply. It's income, and those expenses can be deducted from it, so if OP is still out of pocket, it's a wash. But if he starts to run a profit, tax is due. | |
| Jul 30, 2012 at 21:18 | history | answered | KeithS | CC BY-SA 3.0 |