I have Q's about Donations for a Game Server

[FantomoDrako]

Hello there.

I am a co-owner of a free-to-play online game. The costs of running the server with my co-owner and purchasing content for it became too much after a while and we decided to open donations via PayPal.

We used my personal account for this as we are not a business, we are a not-for-profit project.

I was recently accused of abusing the system because I am not a business and I was also accused of committing tax fraud.

We get one, perhaps two, donations a month if we are lucky and each donation is usually $5 - $10. All donations are used to purchase content for the game and our players are fully aware of where the funds go as we keep them updated. I pay all PayPal fees and have never had a warning or strike against me.

If players donate $5 we give them a small item in the game to show they have helped us out. This item does nothing and is not allowed to be traded to other players - they cannot sell it either, so I do not consider this a bribe; especially as this same item can be earned by doing helpful things such as entering a contest or creating content.

In the almost 5 years our game has been online we have not yet reached $1,000 worth of donations.

So my question is: Am I committing tax fraud or any other crime by using my personal account for donations for such a thing?

Many thanks in advance for an asnwer.

[sharpiemarker · Accepted solution]

Who accused you of it? Another gamer in your game server community?  PayPal? The IRS?

Since you are able to make a donate button with your Personal account, you do not need a business account.  If your donations meet the 200 trans./$20k threshold your income will be reported to IRS to so they know you got this amount of income to file taxes.

What you do with the meager donations you get and whether you file taxes on them regardless of the tax threshold is on you but the amount is not necessarily breaking any law.  I don't think you need to file taxes on an amount that low but you can, I guess.

[FantomoDrako]

Thank you for the swift reply sharpiemarker.

The person who accused me is the owner of another game server. They had stolen content that belonged to me and refused to remove it when I asked and began, instead, to lash out at me with all manner of crimes I was supposedly committing. Here's what they said:

"By the way, I'm ready to get the notification letter against you. Infringement, honor insult, reputation defamation, unauthorized monetization with the game and its non-confession, which is a tax fraud."

"Yeah, and if you want to make money for the game in any form then it's already revenue. Donations can only be requested by an organization and association. Where is your association or entrepreneur's paper entitled to collect or donate? Unfortunately, we need these papers to take legal action. But if you do not believe it, there is still the email address you can write to a lawyer."

I just wanted to be thoroughly sure. I checked everything when I set up the donations years ago and I checked everywhere I could again last night to see if there was any mention of needing to be an organisation. I couldn't find any information that related to me not being able to do what I was doing, so I decided to post my question.

The donations vary wildly - if we're lucky we'll get $20 one month, but then nothing for the next 2 or 3, so I didn't think it was a worthy amount to be adding to anything tax related.

[sharpiemarker]

You can incorporate your organization, register your organization for tax-exempt status, continue compliance to maintain the status. Google "how to start a non-profit" for more info.  But with PayPal, it depends how much you get, in order for you to be required to move over to a business acct and do all that legal/tax stuff I would imagine.

[FantomoDrako]

Yes, I believe I read about a $10K threshold. I am in Australia, so the threshold may be different as I read over the policies from the Australian PayPal.

Since I am very far away from $10K regarding donations then I'm just going to leave things as they are.

Thank you!