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[masi]

Is it really legal? You don't have to start a company, deal with taxes/health insurance and such, to be legally fit to recieve donations, but once you offer something in exchange - is it still considered as a donation? My first thought was that it's far from legal, but after donating eg. you could get an early build of VVVVVVV, or get a special edition of one of yahtzee's trilby games.

[Terry]

Er, sorry, I have no idea. Maybe I'll end up going to prison?

[William Broom]

It's not legal to sell things?

[moi]

If you do it regularly and don't pay taxes, then yes it becomes illegal (people could argue it's not illegal, but bottom line is that they will still accuse you of fraud regardless of your philosophical principles)

[masi]

It's not legal to sell things?

From a legal standpoint, selling stuff is different than giving something away only to people who donated, not paying any tax for it (because afterall, they didn't buy it - they donated), and explicitly saying that people get something after donating a certain amount of money, instead of after buying it.

Now if you do all that and it is truly illegal, this leads me to my point:

Er, sorry, I have no idea. Maybe I'll end up going to prison?

Well, going to prison is a bit exaggerated, but in most countries you'd be probably called to justice by having to pay an even more exaggerated amount of money as punishment. The reason for this topic is that I live in a country where you have to pay HUGE fixed fees for running a one man company (which at least here, is required in order to be able to legally earn ANY money on your own), which would basically exceed the money I could potentially earn by releasing a small shareware title that would sell a hundred copies at most.

So I'm currently trying to sniff around and make releasing smaller games worthwhile for me, before bringing out the big guns.

[jrjellybeans]

I'm pretty sure that if you're an indie developer just looking for funds to make your next game, it isn't that big of a deal to accept donations.

I would think if all your income relies on those donations, it'd practically be a waste of time for any government place to bother with you.

[But, I'm no lawyer so what do I know...]

[Craig Stern]

In the U.S., states each have their own laws regarding what you have to do to operate as a one-man business (a.k.a. a sole proprietorship). I don't think most of them require all that much.

Illinois, for example, only makes you submit an Assumed Name form to your county clerk (and even then, only if you're doing business under a name other than your personal name). No fees are required. Your sole proprietorship income is taxed as ordinary, personal income.

Are you in the U.S., or somewhere else?

[masi]

I live outside of the US. Poland, to be precise. I could easily and legally avoid paying the income tax, health insurance is where the problem lies. If you're running a company, you're required to sign for a exaggerated ~150$-a-month plan (you have to pay this no matter if you have any income or not), which is less than I could get from donations (even when people will be more willing to donate when I offer extra content for doing so).

[DaveGilbert]

Back in 2001 or so there was a guy who was laid off from his job and went on unemployment.  For lack of anything to do, he created a little flash toon called Laid Off Land, which became very popular.  He asked for donations on his website, and it wasn't long before he was making enough from donations alone to pay his monthly rent.  Meanwhile, he was still collecting unemployment benefits.

Eventually, the unemployment office got wind of this and didn't like it at all.  They forced him to pay back several months worth of unemployment checks. 

I guess in your case it depends where you live, and if you get caught doing it!  Any income received is supposed to be declared, whether it's a "donation" or not. 

[Christian Knudsen]

Seems to be how it works in Denmark as well. You're not an organization exempt from paying tax -- it's personal income like anything else, no matter what you call it.

[dbb]

Yeah, in England the only way you could legally avoid paying tax on "donations" was if you were a registered charity, or if your total annual income is less than the £5k per annum minimum or whatever it is now.

Luckily in England the barrier to entry on setting yourself up as a one-man company is pretty low, unlike, by the sound of it, Poland.

Having said all that, if you're really not expecting to make very much money at all from donations, you could probably write it all off as expenses (cost of computer hardware, hosting costs, cost of games bought for "reasearch", etc).

[Sam]

As dbb said, it's very simple to do in the UK: Declare yourself as a "sole trader" to the tax people, and you're recognised as being self-employed.  They send you a self-assessment tax return to fill out each year where you have to declare any/all earnings as well as expenses (you can't just skip it and assume your earnings are less than your expenses.)  How you get the money really doesn't matter - if you write "donate" or "pay what you think it's worth" on a payPal button, it's still income.  The only fixed cost is type 2 national insurance payments, which are tiny.  Obviously if you're self-employed then you can't go claiming unemployment benefits, but may be eligible for other help if you earn very little.

Of course you'll have a totally different system, so none of that is any use!  What I would say is make sure there's not a cheaper alternative to starting a company.  Starting a company does cost at least some money in the UK too.  But unless you need to be borrowing capital to get your business started (who needs money to make games?) there's no need to be a company.  It just seems kind of crazy if you absolutely have to form a company.  How does a solo window cleaner manage it?

[Oddball]

As dbb said, it's very simple to do in the UK: Declare yourself as a "sole trader" to the tax people, and you're recognised as being self-employed.  They send you a self-assessment tax return to fill out each year where you have to declare any/all earnings as well as expenses (you can't just skip it and assume your earnings are less than your expenses.)  How you get the money really doesn't matter - if you write "donate" or "pay what you think it's worth" on a payPal button, it's still income.  The only fixed cost is type 2 national insurance payments, which are tiny.  Obviously if you're self-employed then you can't go claiming unemployment benefits, but may be eligible for other help if you earn very little.

Of course you'll have a totally different system, so none of that is any use!  What I would say is make sure there's not a cheaper alternative to starting a company.  Starting a company does cost at least some money in the UK too.  But unless you need to be borrowing capital to get your business started (who needs money to make games?) there's no need to be a company.  It just seems kind of crazy if you absolutely have to form a company.  How does a solo window cleaner manage it?

Just to add to this for the uk people, you may be required to pay type 4 national insurance too. However, if you aren't earning a lot you can also claim Small Earnings Exception(SEE) and not have to pay any national insurance.

[masi]

What I would say is make sure there's not a cheaper alternative to starting a company.

Sadly, that's the cheapest it can get. There are no company registration fees, the income tax is fair, but you're forced to sign up for a social health insurance plan which makes running a micro company a simply retarded idea. Like I mentioned before, it's about 150$ a month and that's after already applying various discounts.

It just seems kind of crazy if you absolutely have to form a company.  How does a solo window cleaner manage it?

He would absolutely have to start a company too. I'm not joking right now.

But unless you need to be borrowing capital to get your business started (who needs money to make games?) there's no need to be a company.

It's a grey area in my country, since you need to register as a company when you do something solely for financial gain, in an organized and continuous manner. This seems logical and really simple, but I still had to pay a large penalty for not starting a company before cleaning my neighbour's carpet like five times on the timespan of a year (I paid the right amount of income tax for that, that's probably how they got to me).

On the bright side, you don't have to start a company to recieve donations (yay?). But masking selling stuff as donations will get you in trouble if you aren't registered as a sole trader, even if you pay the due income tax. Thanks mr. lawyer guy.

[weasello]

In the US/Canada (just as an FYI, I know the OP is from another country):

Donations are tax-deductible for the donator. That's why you get receipts for donations, typically when the value is very high.

If people start claiming those deductions, the government needs to account for where the money came from.

That's why there's a line on US/Canadian income tax forms that say
[ $    ] Income Received
[ $    ] Donations Received

I believe if you make any decent amount of business on donations you have to apply for a charity license too, which becomes more red tape and hassle. That's why every single company doesn't switch their business model to "gifts" and "donations" from their retail storefronts downtown.

All around, it's simply less headache to sell it and declare it on your tax forms. Besides, we like paying taxes and keeping our roads and communties and EI cheques coming in, right?

[Christian Knudsen]

I believe if you make any decent amount of business on donations you have to apply for a charity license too, which becomes more red tape and hassle. That's why every single company doesn't switch their business model to "gifts" and "donations" from their retail storefronts downtown.

I'd think that's more due to the fact that they aren't charities, not because of any extra tax hassle.

[obscure]

Donations are tax-deductible for the donator. That's why you get receipts for donations, typically when the value is very high.

If people start claiming those deductions, the government needs to account for where the money came from.

That's why there's a line on US/Canadian income tax forms that say
[ $    ] Income Received
[ $    ] Donations Received

I believe if you make any decent amount of business on donations you have to apply for a charity license too, which becomes more red tape and hassle. That's why every single company doesn't switch their business model to "gifts" and "donations" from their retail storefronts downtown.

Pretty sure that donations are only tax deductible if given to a registered charity. Likewise if you are receiving donations it counts as income unless you are a registered charity. 

[Imagineergames]

Hmm. I'm going to have to tell you that you should REALLY ask directly to your local Tax collection advisor/office. Every place has different laws, and you really should know. The more you know!