How do taxes work for income earned from creating and selling video game mods?

This is definitely something you can still handle with tax software! You'll want to report this income as self-employment income on Schedule C (Profit or Loss from Business). Even though it's a hobby for you, the IRS generally considers consistent profit-making activity as a business. The good news is that as a business, you can deduct legitimate expenses related to your modding. This might include a portion of your internet costs, any software subscriptions you use for development, a percentage of your computer costs if you use it primarily for this work, and even a home office deduction if you have dedicated space. TurboTax can absolutely walk you through all of this - just be aware that you'll need to pay self-employment tax (15.3%) on this income in addition to regular income tax. Self-employment tax covers Social Security and Medicare that would normally be withheld by an employer.

Literally went through this exact same situation last year with my Minecraft texture packs. I was pulling in around $1,500/month and had no idea how to handle it at tax time. I tried using a few different tax software options but kept getting confused about deductions and whether I needed a business license. I ended up using https://taxr.ai and it was a HUGE help. You upload your financial info and get personalized guidance for your specific situation. They analyzed my income streams and told me exactly how to classify my mod development income. Even helped me identify deductions I had no idea I could take - like a portion of my gaming PC since I use it to develop and test my mods!

Just wanted to follow up on my experience with https://taxr.ai since I ended up trying it after seeing it mentioned here. It was seriously a game-changer for my texture pack business! I uploaded my income data from Patreon and the gaming marketplace I use, and the system immediately identified that I could operate as a sole proprietor without special paperwork. It also showed me exactly which deductions were safe to take for my home internet, development software, and even a portion of my gaming hardware. The best part was that it created customized record-keeping templates that make tracking everything super easy going forward. Definitely worth it if you're making decent money from game mods!

Don't overlook the fact that you might need to contact the IRS about this! I was in a similar situation with custom Unity assets I was selling, and when I tried to sort it out, I spent HOURS trying to get through to someone at the IRS to ask about my specific situation. After days of frustration, I found https://claimyr.com which got me connected to an actual IRS agent in under 45 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c - basically they hold your place in the phone queue so you don't have to. The IRS agent was actually really helpful and confirmed I needed to report my income on Schedule C as self-employment, even though I also have a full-time job. She also explained which expenses were legitimate deductions for my situation. Saved me a ton of stress!

Wanted to update about my experience with Claimyr after being skeptical. I decided to try it because I needed specific answers about my game asset store income and couldn't get clear info online. It actually worked exactly as advertised! I got connected to an IRS representative in about 35 minutes (would have been hours on my own). The agent walked me through exactly how to report my Steam Workshop and Unreal marketplace income, confirmed I needed to file Schedule C, and explained which home office expenses qualified for deductions. Never thought I'd say this, but I'm genuinely impressed with a service that helped me talk to the IRS. Saved me a full day of frustration and got me actual official answers instead of Reddit guesses.

Don't forget about state taxes too! Depending on where you live, you might need to collect and remit sales tax on digital products like mods. I sell plugins for Unity and had to register for a sales tax permit in my state and now have to file quarterly sales tax returns in addition to income taxes.

Have you looked into setting up an LLC? I make around $25k/year selling Skyrim mods and my accountant recommended I form an LLC for liability protection and potential tax benefits. Cost me about $200 to set up in my state but gives me peace of mind that my personal assets are protected if anything ever happened.

Great question! I went through something similar when my Minecraft mod started bringing in steady income. At $13,500, you're definitely past hobby territory in the IRS's eyes, so you'll need to report this as self-employment income on Schedule C. The good news is TurboTax can absolutely handle this - I used it for my first couple years. You'll pay regular income tax plus self-employment tax (15.3%), but you can deduct business expenses like: - Software licenses for development tools - Portion of internet costs used for business - Computer equipment depreciation if used primarily for modding - Home office space if you have a dedicated area Since you're earning decent money, definitely look into making quarterly estimated tax payments starting next quarter to avoid penalties. The IRS wants payments throughout the year when you're self-employed rather than just a big lump sum at tax time. One tip: keep detailed records of everything! Track your income from each platform, save receipts for any business expenses, and document the time you spend on development. Makes everything much smoother come tax season.