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#Actualbschmidt1962

Posted 24 February 2013 - 01:42 PM

Dan,

I'm afraid you have a couple of errors in your 10:49am post...

This may cause you to distribute the funds differently on Dec 31st, so that no one has to pay taxes

The income is based on when the money is earned/collected, not when it 'distributed'-- i.e. if someone buys your game on Dec 1 2012, and you get the money on Dec 1 2012, you have to declare the income in the tax year 2012.  (Note: yes, there is something called 'accrual' accounting that would have things work differently, but i very much doubt you'd be doing that).

{edit for clarification}.

Someone has to have provided their SS number to Steam/Apple, etc in order to get paid from end customers.  That person has to declare the income in the year it comes in.  If that person then pays others after Dec 31, those other people would declare the income when they receive their checks.

I'd rather make 9,749.00 and pay no taxes than make 10,500.00 and pay 10-50% on taxes.

Although 9,750 is indeed the cutoff for being required to file a Tax return (5,800 for dependents) on normal income, there is a big exception to that.  If someone has self-employment income of more than only $400, they are required to file. Since game-related income is self-employment income, if someone made more than$400, they would need to file.  If you look back at your e-file link, read the part under "Special cases that require you to file a return"

Also, if any of your students wanted to file a tax return (even if the game made less than the minimum), they would need to know how to properly report any income from the game.  (FYI, one reason they might want to file a tax return is if they have a part time job elsewhere and want to file to get any refund that is due)

To keep things lower level, (I.e. no corporate taxes, etc) I recommend not having an official treasury,

I'm not sure what you mean by 'official treasury', but by all means you very much should have a separate bank account for the game and its expenses.  I.e. all money the game makes goes into it, and any payments for all costs (equipment, servers, people, etc.) get paid from that account.  Whether or not you have a separate account makes no difference at all as far as taxes are concerned.  But it makes it massively easier to manage what the costs are, and to deal with taxes when the time comes.

Although taxes may not be very interesting , it can be a very good way to introduce students to the importance of record-keeping and the basics of income/expenses.

One final note on taxes: it may be that, if the primary goal of your game is not to make money, it could be considered a hobby and not a business.  You'd really need to talk to an accountant for that.

They had no real discussions on money..

At some point, they decide to release, and suddenly money comes pouring in, however unlikely.

How does the team settle where the money goes?

2 things can happen.  The team comes up with something 'fair' among themselves, or (if they are unable to do that), a 3rd party decides it for them (a judge or an arbitrator).

Since I get the feeling from your posts that this is student-related, I'd suggest that an even n-way split would be 'fair.'  Then for the next game, they may want to discuss whether that actually was fair or not.  I.e. if some team members worked much harder than others, or just had different jobs (eg programmer vs composer) should that require different pay percentages?

FYI, the way a judge would probably decide would NOT be an even n-way split.  What typically happens is that the judge would look at the different roles, what those roles typically get along with effort/hours put in etc, and assign percentages based on his/her best judgement.

#1bschmidt1962

Posted 24 February 2013 - 01:14 PM

Dan,

I'm afraid you have a couple of errors in your 10:49am post...

This may cause you to distribute the funds differently on Dec 31st, so that no one has to pay taxes

The income is based on when the money is earned/collected, not when it 'distributed'-- i.e. if someone buys your game on Dec 1 2012, and you get the money on Dec 1 2012, you have to declare the income in the tax year 2012.  (Note: yes, there is something called 'accrual' accounting that would have things work differently, but i very much doubt you'd be doing that).

I'd rather make 9,749.00 and pay no taxes than make 10,500.00 and pay 10-50% on taxes.

Although 9,750 is indeed the cutoff for being required to file a Tax return (5,800 for dependents) on normal income, there is a big exception to that.  If someone has self-employment income of more than only $400, they are required to file. Since game-related income is self-employment income, if someone made more than$400, they would need to file.  If you look back at your e-file link, read the part under "Special cases that require you to file a return"

Also, if any of your students wanted to file a tax return (even if the game made less than the minimum), they would need to know how to properly report any income from the game.  (FYI, one reason they might want to file a tax return is if they have a part time job elsewhere and want to file to get any refund that is due)

To keep things lower level, (I.e. no corporate taxes, etc) I recommend not having an official treasury,

I'm not sure what you mean by 'official treasury', but by all means you very much should have a separate bank account for the game and its expenses.  I.e. all money the game makes goes into it, and any payments for all costs (equipment, servers, people, etc.) get paid from that account.  Whether or not you have a separate account makes no difference at all as far as taxes are concerned.  But it makes it massively easier to manage what the costs are, and to deal with taxes when the time comes.

Although taxes may not be very interesting , it can be a very good way to introduce students to the importance of record-keeping and the basics of income/expenses.

One final note on taxes: it may be that, if the primary goal of your game is not to make money, it could be considered a hobby and not a business.  You'd really need to talk to an accountant for that.

They had no real discussions on money..

At some point, they decide to release, and suddenly money comes pouring in, however unlikely.

How does the team settle where the money goes?

2 things can happen.  The team comes up with something 'fair' among themselves, or (if they are unable to do that), a 3rd party decides it for them (a judge or an arbitrator).

Since I get the feeling from your posts that this is student-related, I'd suggest that an even n-way split would be 'fair.'  Then for the next game, they may want to discuss whether that actually was fair or not.  I.e. if some team members worked much harder than others, or just had different jobs (eg programmer vs composer) should that require different pay percentages?

FYI, the way a judge would probably decide would NOT be an even n-way split.  What typically happens is that the judge would look at the different roles, what those roles typically get along with effort/hours put in etc, and assign percentages based on his/her best judgement.

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