TAXABLE INCOME FROM VIDEO GAME

[SteamBoat94]

My friend has a video game private server and they've recently contemplated creating some content / equipment (all electronic, not tangible assets) in game that users may purchase. A few different methods to collect payment were discussed with Tybex (gaming payment service) being the leading platform. The question he has is will he have to report the funds exchanged in that account? There are no plans to create an LLC or anything like that it's just a group of roughly 40 people and the funds generated will largely be returned to the server for services required to maintain it. thanks! 

[Bsch4477]

He has two choices. One is that he has a hobby where the activity is just something he enjoys and not intended for profit. In that case he has to report any income and cannot deduct expenses. The other is that he intends to make a profit and so he has a business. In that case he completes Sch C where he reports income and deducts expenses. 

[lukebelmaar]

Yes, even if it’s a small group and funds go back into the server, any income—especially from digital goods—is generally considered taxable. It’s best to keep clear records and consult a tax professional to avoid surprises.
-Luke