I've been debating whether or not to blog about my process of creating this game business. I'm not a lawyer or accountant or MBA holder or tax expert. I basically attempt to research something thoroughly enough that I become confident enough to do it myself. It doesn't always work but frequently does. (Coupled with very bad experiences with hiring contractors - I try to do as much as possible myself.)
So I think I'll go into my business creation process here to help others. I am NOT AN EXPERT - this is just (mostly) what I did. I say mostly, because it's just not practical to include everything. I'll be trying to hit the major points and smaller gotchas that may help others. If you saw me leave out something incredibly important and obvious and everyone should know; it's probably because I thought so too and didn't bother saying anything. (Or maybe I missed something and you should say it in the comments before I get audited. ;-) ) What I've done may be horribly wrong, so as I've said with electrical work - use me as just one more bullet point in your research.
Everything I say is based on United States & Washington State (and early 2019). Anywhere else... at anytime other time... I don't know... Also my goal is a simple one-man game design shop where I do not sell direct to consumers (very limited scope). It gets complicated fast once you sell direct to people.
The very first thing to do is pick a business name. Basically you have to have something that is unique in at least the fields you'll be operating in. For example: don't touch the word "Apple" with a ten foot poll if you're doing anything technology related.
At least for Washington, they recommend business searches local to the state and with the U.S. Patent and Trademark office:
Then (in Washington State) you submit a Business License Application with the Washington Business Licensing Serve at the Department of Revenue:
It's quick and easy to apply online at "My DOR":
In the application you'll include all possible trade names your business will use, whether its a Sole Proprietorship or Limited Liability Corporation (LLC), and the type of business activities you'll be performing. Sole Proprietorship is by far the easiest and cheapest to setup, but it also has the greatest liability in terms of lawsuits. LLC has much more overhead in setting up and running but it gives some protection from lawsuits affecting you personally. There are lots of websites that explain those in far more detail than I'll ever go in, so I'll move on now. The type of business you select determines the frequency Washington state wants your taxes reported.
After a couple weeks you'll get a fancy "Business License" with a UBI (Unified Business ID). On that license will include any trade names you submitted for and you'll be told your required tax reporting frequency.
When I received my license, the tax reporting was quarterly. Since I'm not expecting to make practically any money with this first game, that seemed a bit excessive. I called up the Washington Department of Revenue, and the reason it was quarterly reporting is because I picked business segments related to game sales. Washington state reasonably figured I'd be selling directly to customers and collecting sales tax and thus should report taxes on a fairly frequent basis.
At this point, I need to go into how The Game Crafter works...
I design a game and compile all the artwork. I then upload it to their website and publish it as a game. People can go to thegamecrafter.com to order my game where it's printed on demand and mailed directly to them. I never deal directly with customers. The Game Crafter sends me a periodic royalty payment to pay me for my design.
From The Game Crafter website...
I called the Washington DOR (Department of Revenue) and read off how The Game Crafter works to them (Game Crafter collects the sales tax and sends me a royalty payment). The DOR agreed that the quarterly reporting was not necessary. In fact, since I'm only expecting to get a couple hundreds dollars a year (at best) for this first game, then my business can be downgraded to "Active Not Reporting". Washington does not require me to report my revenue until I hit $28,000. Just over the phone the DOR representative put in the change of status request for me!
It took about 2 months for my reporting status to change from quarterly to "Active Non Reporting". But it's nice not having to worry about that.
If I ever do a Kickstarter for the game or anything similar where I'm selling directly to consumers, then I'll have to collect sales taxes and go back to the Department of Revenue to start regular reporting - even if I'm making very little revenue total.
I'd like to mention calling the Washington Department of Revenue to ask tax questions was an absolute breeze. Very little wait time (if any really) and friendly and helpful people. Don't be intimidated on calling them.
This is a common theme I've noticed online. Someone will ask a question on a forum and they're hammered with "if you don't know, call a professional attorney/tax specialist/electrician/whatever". My suggestion... do research yourself then just call up the government office directly. After I did the electrical calculations for my shop and was on the fence of 6/3 copper or thicker aluminum wiring, I called the county electrical inspector. The inspector said "I can't design your electrical wiring, but when I did mine on a similar project I used 6/3 copper." ;-) If after all that you're still not confident, you can always fall back to a professional!
Except for major plumbing, f plumbing.
Back on topic... according to The Game Crafter they'll be sending me a 1099 for federal tax filing, so that should be pretty straightforward... Report on my federal income tax return and pay taxes on the "self employment income" as appropriate.