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  #1  
Old 02-07-2006, 10:18 AM
Junior Member
  
Join Date: Apr 2005
Posts: 9

Money earned from website

STATE: Pennsylvania

Hi there,

I run a free website, we accept "donations" to keep the website running.
We do not charge for a service but if people donate they get special perks for donating (like special avatars etc.)

We are a new company and we are not registered as non-profit.
My question is, what are these donations considered? I looked at some
of the forms and all I see is "sales." would the entire donation be taxable?
Or is it considered a gift ? If so, what portion is taxable if any?
I want to make sure we're paying the right amount of taxes.

I would appreciate any help you could give, If I haven't supplied enough info for you to be able to give advice, please let me know as well.
  #2  
Old 02-07-2006, 12:07 PM
Senior Member
  
Join Date: May 2004
Posts: 41,421
Quote:
Originally Posted by ohthenoes
STATE: Pennsylvania

Hi there,

I run a free website, we accept "donations" to keep the website running.
We do not charge for a service but if people donate they get special perks for donating (like special avatars etc.)

We are a new company and we are not registered as non-profit.
My question is, what are these donations considered? I looked at some
of the forms and all I see is "sales." would the entire donation be taxable?
Or is it considered a gift ? If so, what portion is taxable if any?
I want to make sure we're paying the right amount of taxes.

I would appreciate any help you could give, If I haven't supplied enough info for you to be able to give advice, please let me know as well.
What kind of a website is it?
  #3  
Old 02-07-2006, 12:10 PM
Junior Member
  
Join Date: Apr 2005
Posts: 9
Its an free online graphical RPG.
You download a client to play it (sorry
I should have clarified that before.)
  #4  
Old 02-07-2006, 12:22 PM
Senior Member
  
Join Date: May 2000
Location: Catatonic State
Posts: 75,781
Quote:
Originally Posted by ohthenoes
Its an free online graphical RPG.
You download a client to play it (sorry
I should have clarified that before.)

**A: download a client?
  #5  
Old 02-07-2006, 12:36 PM
Junior Member
  
Join Date: Apr 2005
Posts: 9
Quote:
Originally Posted by HomeGuru
**A: download a client?
In order to access the game you have to download a program
onto your computer. Games like this consist of 2 parts, the server
which contains all users (and the games) information, and the client a program by
which the users accesses the information. The client is free to download and there
is no game subscription fee.
Last edited by ohthenoes; 02-07-2006 at 12:39 PM.
  #6  
Old 02-07-2006, 11:23 PM
Junior Member
  
Join Date: Feb 2006
Posts: 5
Easiest thing is to look at it as a sole proprietorship... not sure if that helps, and I'm no cpa... but I personally would file expenses of running the website, and consider any donations as income toward offering the service of the website, ie, RPG. More than likely you're running at a loss, and you may get some money back because of it... but if you come out in the black (have more money donated than the system costs to maintain), then you may owe some taxes on the donations.
  #7  
Old 02-08-2006, 08:14 AM
Senior Member
  
Join Date: Aug 2003
Posts: 1,848
I would rule it a hobby. You can deduct losses on Sch A up to the amount of income. That's it. You may NOT take a loss on this which subtracts from your other taxable income.

That will get you into trouble with the IRS.

Snipes
__________________
This post does not create an agreement to represent you before the IRS, nor does it invoke confidentiality regulations. Postings are based only on the information provided and you should consult a tax professional in your area before relying on information contained in this post.
  #8  
Old 02-08-2006, 09:42 AM
Junior Member
  
Join Date: Apr 2005
Posts: 9
Thank you very much for your help. I have a question regarding
your responses:

We bought 2 copies of Windows XP for the main administrators of the game. I still have the receipts. Would these be considered
expenses towards running the game?


Thank you again!
  #9  
Old 02-08-2006, 10:26 AM
Senior Member
  
Join Date: May 2004
Posts: 41,421
Quote:
Originally Posted by ohthenoes
Thank you very much for your help. I have a question regarding
your responses:

We bought 2 copies of Windows XP for the main administrators of the game. I still have the receipts. Would these be considered
expenses towards running the game?


Thank you again!
Yes**************.....
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