I am just starting a gaming community (minecraft). People can play the game for free. It they want they can make a "donation" and will receive perks in their gaming experience. These perks are worth no monetary value and these gaming communities could shut down at any time. That is how hundreds of them work but I would like to know if this is legal to "sell" these perks (1) before I actually start my own community. All the communities call them "donations" and some make a few thousand off them. It might not be your area of practice but would I have to pay taxes (2) on these "donations" ranging from a couple hundred to a few thousand? Thank you for taking the time to read this. Nobody in these gaming communities have any idea if those things are legal as they are 12-16 year olds.
2 Answers from Attorneys
If you get paid for them before you actually provide something in return, you would probably have to offer a refund if the customer demanded it before the service was provided.
You can call them whatever you want, but you would not be a tax-exempt organization, so you would have to pay taxes on the income and the "donations" would not be tax deductible for customer. If you didn't have a business entity, your expenses would also not be deductible from your profits, so your taxes would be particularly high.
Almost all payment processors require you to be 18 or older to send or receive, so be sure there is an adult involved.
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This is not a credit/collection issue. Its a tax question and I am not a tax attorney. I don't think you will need a tax attorney per se - a CPA should be able to assist you.
I agree with Attorney Duffy though. There is a presumption of taxability (the only entities that are tax exempt are charities and non-profits neither of which seems to be the case with the entities you describe). You do need to consult a business law attorney if you decide to pursue this endeavor to help you set up an LLC or business corporation.
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