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So I currently own a Minecraft server that pulls in over $2k a month. On this server, users have the ability to 'donate' to keep our server running, along with allowing me to buy various new things for it.

In our Terms of Service, we specifically state that when the user donates, they are not entitled to any physical or virtual items (yet items are still given to them for donating).

Excerpt from our TOS:
"By donating you are not entitled to any physical or virtual good. A donation as defined is an act or instance of presenting something as a gift, grant, or contribution with no expectation of anything in return."

So basically we consider everything we make to be a donation towards us(towards the server upkeep itself).

So how would I handle this in terms of taxes?

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  • who is we? what formal structure have you setup?
    – mhoran_psprep
    Commented Nov 27, 2017 at 12:01
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    "In our Terms of Service, we specifically state that when the user donates, they are not entitled to any physical or virtual items (yet items are still given to them for donating)." - Be careful, it sounds like you are trying to get around income tax laws by pretending that the money is given with no expectation of receipt, even though there might be an actual expectation of receipt.
    – Grade 'Eh' Bacon
    Commented Nov 27, 2017 at 13:51
  • See related Minecraft server questions
    – Ben Miller
    Commented Nov 27, 2017 at 18:05
  • Please specify that what you mean by "WE". Are you operating under your personal details and finances or have you registered a company of some sort?
    – Ramtin
    Commented Dec 9, 2017 at 22:25
  • A donation, even when there isn't any product promised (even thought that's murky) is still income. If you were maybe a tax-exempt organization like a church it would be a different case but for a Minecraft server everything you bring in you need to declare as income.
    – Michael Hartmann
    Commented Jan 14, 2018 at 1:39

1 Answer 1

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Yes, if people are giving you money in exchange for your services (whether or not their particular gift is directly tied to your giving the service) this is considered income, and you will owe taxes on it (unless, unlikely, you're formally set of as a public 501(c)(3) nonprofit or similar in which case there are strict rules you mist follow, but this doesn't sound like the case).

In this particular case, you may be able to qualify this income as "hobby income" and deduct your expenses (e.g. the actual server upkeep and improvements, maybe part of your internet expenses) against this income. If, however, you regularly take in more than you pay out, you will likely have to declare this as business income to continue offsetting it with expenses. See, e.g. https://www.irs.gov/newsroom/hobby-or-business-irs-offers-tips-to-decide. I'd also say that at a $2k/month run rate it's probably worth the cost of seeking professional advice from a CPA.

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  • Welcome to the wonderful world of hidden taxes. Yes, you can deduct the hobby income if you itemize. Otherwise, various profane expressions describe the situation.
    – Loren Pechtel
    Commented Feb 10, 2018 at 4:42

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