If I am split 50/50 with an artist, come tax time, how do I take care of this?
Per frob and tom's advice, go make an appointment with someone who can walk you through this. Do it first thing Monday morning
As a bit of background info...
Ouya (or Apple, etc) require that you provide a tax id number.. for an individual, that's a social security number. That is on a form w-9 that you must provide to them
Any money Ouya pays to you is income to you and you will have to report it to the irs when you do your taxes.
If you have an agreement with your artist friend that s/he gets half, then whatever you get from Ouya, you write a check to them for half (after expenses)
Now here's the tricky part. You need to report to the IRS that you paid your friend that money. Otherwise you will have to pay tax on it. There are separate forms for that (form 1099-MISC).
Yes, this goes on your Schedule 'C', as you surmised, along with any other legitimate, direct expense related to the creation or selling of the game.
So to sum, it up, if Ouya sends you 10,000 you
Figure out what business costs there were.. say there were 1,000.
Take half of what's left, and write a check to your friend.. 4,500 (half of 9,000)
Fill out the proper forms come tax time-- your net taxable income should be 4,500 ( (10,000 - 1000)/2)
Sound tricky? it can be, which is why you should talk to someone who can walk you through it properly. In addition, how I described it is only one of several ossible ways of setting things up. It is VERY worth it to talk to an expert if this is your first time doing it. It's not rocket science, but if you get something wrong, it can cost a lot of money.
Oh--and get the agreement with your artist friend in writing.