As far as I know donations are tax free.

The first $600 is considered tax free, after that either you generate a 1099-MISC if someone doesn't for you or you need to add it to your Schedule A as a form of income. If the donations make up more than $2,000 you need to either declare it as self-employment income or register a business license and make yourself a W-2.

I've been searching trying to find exactly what tax laws say for donations. Everything I said above (minus the wrong schedule to claim income) is true for normal income earned through charging a premium for a game. If it's strictly free and donations are encouraged then it falls under gift tax (meaning $12,000 donation limit before it's considered income). Sorry for the misinformation at first!

Is this limit for per month income, per single transaction or per year?

But it looks that this is more complicated, since it is not clear.

Strictly speaking every donation is income, but nobody will care until a specific amount of money, so this is some kind of greyzone, since the amount of money until they will care varies.

For example if you get donations through paypal and do not transfer it to your regular bank account, then your donations are pretty much invisible until a limit of 10 000$ or so, but it can happen that paypal will freeze accounts for suspicious actions.

In the USA a donation is not income, it is a gift as long as it's not required. There is no limit if each donation is less than 12000 USD. Every year you have to declare your income so I would imagine there is some annual limit but I don't know. I do know that after 600 USD it's usually considered income but with donations it's different because it's a gift. In the USA it would fall under gift tax law after some point.

You may be lucky in the US there, here in Germany it seems to be more complicated, everything is income, even if it is not required to pay, because it is a form of payment since people get something for it and I don't think you can concinve the finance office that your income are all gifts. Your are also not allowed to legally receive donations here, you would need to legally run some kind of non-profit organisation like a religion or church to be allowed to receive donations, otherwise everything is income and has to be specified somehow. I know of cases where people got sued by the finance office because they had 20 bucks or so of illegal income.

I'm not sure what part of Germany you live in but I live in Germany too. Here in the Eifel region (around Trier, next to Luxembourg) the finance office told me it's legal to receive up to 20000 EUR as a donation without paying tax for an individual. I found a document that says this, here is the link (current as of 2009):

http://www.steuerlehre-freiburg.de/fileadmin/repository/lehrstuhl/intlta...

If you make a game and you give it away for free then you are not charging. If you allow people to give you money as a gift in response to providing a free product or service it is a gift, not income. In the table on page 3 of the link I gave above it would fall under Tax Bracket III. There's nothing gray about it unless you have some local tax laws that prohibit donations.

In other European countries like Austria (Österreich) there is not gift or inheritance law so all money received is considered income. It depends on the country.

As far as I could find out now you should specify it in your tax declaration otherwise you might get into trouble and if you receive some payment from the employment centre because you are unemployed you are not allowed to have additional income, only 100€ is tax free per month then, if it is more they will take big parts of the money away from you and if you make enough through donations that you can live from it it will likely be considered income.

You have to report donations income everywhere in the world. I don't know any country where you can take money without reporting it. You don't always have to pay tax on it under the right conditions, that's what I'm trying to say.

If you receive unemployment that's different. Even in America, if you receive unemployment and you get donation money they consider it like income if it's above a certain amount. I don't know what the numbers are for every country but that's not the same situation as working and receiving a steady income while receiving donations. If you receive unemployment they consider everything income outside of what they give you. If you receive donations and you have a regular job with steady income, even if you're self-employed, you can still take it and declare it without paying tax if it's under the right conditions.

If you don't charge to play, download, use, or otherwise access the game then it's a 0-cost software. If you accept donations purely to allow grateful people to give you money in connection with making games then it's a donation because you don't charge to play.

Name-your-price is the same thing as saying donations encouraged but not required. Anything you receive purely as a donation is coverd by gift tax laws (if your country has them, not all have them). There's nothing gray about it. If you charge then it's a service and that's considered income. There's nothing between those two options that's gray.

You always have to report any income? How annoying, I don't want this money thing anymore.

4000€ per 3 years comes close to the 100€ per month, so the amount you are allowed to get tax free seems to be similar.

Additionally you can get around this limit if you make others donate you material things, like a new computer hardware, so it is not money income you get.

But it is not likely that you will make a lot of money with donations anyway and small amounts will not help you much so probably you don't want to start this trouble for such little income.

I don't think allowing donations is such a bad thing. Sometimes you might get 20 euro from a nice person. I wouldn't count on it but it's nice when you do. I wouldn't expect to get much, ever. It's just an option for the grateful people to say thanks. I doubt it would ever get over 100 euro.

Donations could keep you afloat, but you would have to organize it in a bigger way and this then would look much like a form of payment. No matter if legal or not, if you make over a certain amount of money the financial office and others will always try to find ways to get money from you.

one another trick is/would be merchandizing perhaps but that is out of scope of what the OP wanted to ask/share.