anyone here have TP who writes computer games?

[schirallicpa]

Young taxpayer has idea for game.  Young friend of taxpayer writes code.  (under 20 - adults, but young).  They haven't structured anything yet, and haven't decided on partnership or contract.  I'm absolutely clueless how this industry works.  I hate partnerships, so I would have them create a sub-s if "partnering " is what they do.  Otherwise, I guess I don't know if the tech person contracts with the idea person and then takes royalties?  Or does the idea person take royalties.  This is all kinda interesting, but looking for anyone's input as to structuring this.

 

[Medlin Software, Dennis]

There will be a large number of hours spent just getting to a beta status, which should be accounted for at a reasonable rate.  This amount, no matter the structure, will not likely ever be covered by revenue. Then, if they get to release status, the only reasonable way to make money these days (for new ideas) is via mobile apps and ad revenue, which takes time and multiple titles based off the same code (low cost to develop additional titles.)  The chances of them being the next "DOOM" are too small to consider - if it happens, they can deal with it then.

When asked about getting into the software market, my answer remains unchanged after decades.  Develop something you know, use, and can't live without yourself, share it with others, and if it is to be profitable, it will become apparant when you share with others.  Then, after sharing, if it seems profitable, setup a "real" business.  If developing other than by yourself, setup some sort of structure which can be enforced if the item becomes a product.  Setting up a business first will only take away from development.

Just one person's opinion, who happened to get into the try before you buy software industry at the right time...

(Also applies to an old passion of mine, auto racing - and too many who tried to setup businesses for a hobby with zero chance of making a profit.  One interesting item in auto racing, is when racing as a business, the often unforeseen pitfall of needing a commercial drivers license to transport the car... and all the CDL regulations involved such as hours, weight stations and inspections, etc.)

[schirallicpa]

okay - not really the response I thought I would get, but makes sense. 

 

[DANRVAN]

On 6/26/2019 at 10:38 AM, schirallicpa said:

I would have them create a sub-s if "partnering " is what they do. 

I think you need to have a thorough discussion with the client to determine what is the best arrangement and choice of entity.

-who will be compensated and for how much

-who is going to be in control

-who will provide capital and financing

-how will profits and losses be divided

-who will assume liabilities

-the list goes on.

I am curious why you would choose Sub S over partnership?  Partnership is less complex in formation and operation.  Also more flexible.

[Lee B]

18 hours ago, DANRVAN said:

I think you need to have a thorough discussion with the client to determine what is the best arrangement and choice of entity.

-who will be compensated and for how much

-who is going to be in control

-who will provide capital and financing

-how will profits and losses be divided

-who will assume liabilities

-the list goes on.

I am curious why you would choose Sub S over partnership?  Partnership is less complex in formation and operation.  Also more flexible.

I agree that this is the conversation that should be held. However, Medlin is correct,  the process of creating for a game or an app for the first time is a very long journey.

 Second,  most young adults who have never been in business don't even have the base of knowledge to participate in this discussion.

Their eyes will glaze over before five minutes elapse. 

[Medlin Software, Dennis]

Two people, no money, means a couple of years of all of their non working for money time just to get close to having something which could possibly generate revenue...  The best advice is to refer to a business lawyer to setup their structure, then, if they get that far, coming back to you for tax advice.  Get a decent retainer before spending any effort on their situation, as it may be the only money you ever see from their venture.