People are fickle and hindsight isnt always so clear.
There is also a Nintendo Switch release, so they will have to pay for the Dev-Kit's and licenses which are not cheap. Not as expensive as in the 80's, 90's, early 2000's where a single Dev-Kit could be six figures, but still a significant expense for a indie studio.
So we are already a little bit off from the numbers you posted. I assume, the 30% you cut off is for taxes. Good idea, but Steam and all other platforms where the game is sold also want a piece of the cake. I don't know the numbers for other platforms, but Steam takes 30% of the listed price.
So even with a $30 price tag on Steam, they get $21 after commission. An that is pre-tax... They need to buy hardware for their developers, rent an office, pay developers and so on. So even the founders are not getting rich. A "boring" job in business software can make you more.
But that also means that as long as they don't significantly increase the cost of their lifestyle, that $7m pre-tax will go a very long way.
I don't know where he lives, but in California it could easily add up to close to 50% since he's "rich".
Still, yeah, having the entire amount being dropped on them in a single year will probably have pretty major federal income tax consequences. Hopefully, they will figure it out, and the sales of Dwarf Fortress on steam won't dwindle. I find that it is a pretty good timing for the release, given that Rimworld (the spiritual competitor) has gone extremely mainstream, so people are definitely more open these days to that type of games.
The financial assets will return money in the future, but much more slowly, and get preferential tax treatment compared to direct income (such as long term capital gains tax discounts).
When you have $7mil in cash (and expectation of more in the future), there would be options not available to lower net worth people i suppose?
So about $100k per year, per person (after taxes)
I know that this is nothing out in Silicon Valley, but for reference, the median income in the US is $19k (net) per year, and about $15k (net) per year in Europe (if you include eastern Europe).
I can't tell from your comment whether you feel 100k is high (hence the "optimistic") or low (hence the warning at the end).
It's way higher, between $50-70k https://www.census.gov/library/publications/2022/demo/p60-27...
Real, adjusted, individual including non working and part-time population above 15yo: $38k/yr
Including only full-time workers: $57k
Median household income: $71k
The US has enough problems, no need to make up much smaller income numbers than the reality.
The federal income tax rates for lower income brackets reach 0%. State, sales, payroll, and other taxes aren’t going to come anywhere near 50%.
The real, net, median income in the United States is significantly higher than what the OP quoted.
> That would require greater than 50% taxation, which isn’t realistic at all in the United States.
My point is that higher than 50% total taxation on a large single-year income (considering local and corporate taxes) is entirely possible in the United States, though it may be less in some states than other. I’m not saying that the estimate is correct as the Tarn Brothers don’t live in California. But if they took the income to a corporation, paid corporate income tax, and then took the whole income or a large part of it as dividends in a high tax state, then >50% is quite possible. On a pass-through entity, close to 50% is the standard and unavoidable in high tax states.
That graph seems to be just incorrect. All three of the links it's supposedly sourced from don't have it on their pages. There is a remark of "own work," so I think a Wikipedian assembled it themself. Given that it frankly contradicts the article it's in, I would assume that it's in error.
And I agree that neither income tax nor income + payroll tax adds up to the 33.5%. I don't know if there are more taxes which need to be considered. 13% total tax seems low.
Employee share of payroll tax is, employer share (which is shown reaching down from the bottom) is not.
> 13% total tax seems low.
Given what I've actually paid with a far above median income, 13% soubds reasonable. Its low as a nominal rate, but there are lots of credits and deductions available, and the before-tax median personal income is well below the cutoff for EITC, which can be a huge one. Heck, a large minority of the population pays zero or negative net income tax.
Comparing comp for two people who are working really hard, doesn't really work when you're comparing to a median income that includes lots of people who don't work or don't really work.
Similarly, comparing median net income (which includes taxation) with a pre-tax windfall doesn't really make sense, either.
Further, we're not adjusting for time value of money...
And, very interestingly and more nuanced, you can take into account how a person changes over time. For example, while I was a grad student, I worked full time and definitely fell under the poverty line. But would you really consider me a poor/destitute person?
About 60% of Americans break into the top 20% of household income at some point in their lives(>$110k/yr). In the same vein, almost 20% of Americans will earn less than the poverty rate at some point in their lives ($24k/yr).
Like I said, I think Americans have many problems, but if there is one thing we are good at it is income (and the consumption that comes with it).
https://www.npr.org/sections/money/2014/05/05/308380342/most...
Your (net) number in the US is way too low.
The real (aka inflation adjusted) median earnings for US workers is around $42K before taxes.
Tax rates at the lower end of the income spectrum in the US are very low. Federal income tax is effectively 0% for the bottom income brackets, though they’ll have to pay some payroll taxes, state taxes, sales taxes, and others along the way. Even considering that, there’s no way to go from the >$40K median earnings to your $19K net income figure.
That's off by close to half. The median income in the US is around $37,000 [1], the median full-time income is around $53,000 [2] and the median US household income is up over $70,000 [3].
It's also worth noting that those median incomes are paying low tax rates on that income (typically ~15%-20% including federal + state + local + fica, depending on the location).
[1] https://fred.stlouisfed.org/series/MEPAINUSA672N
They spent more time on this game than on any other.
I’m sure you’ll agree that it’d be mindblowingly dumb to not set some kind of company for a bunch of reasons? (Eg limited liability)
And that you best leave accounting and tax filings to professionals so that you can spend your precious time on something you love instead?
OP’s suggestion automatically flows from that…
I don't think there is. I wholeheartedly agree with the prior sentiment. Way too much of peoples lives are spent on shit that does not really matter. As a people we have overcomplicated the shit out of everything to such a degree it's disgusting. And it's all based on greed. Optimize this structure to pay the least tax, optimize your income into this and that so it magically makes more money. Meanwhile those without any real money can't take advantage of any of that kind of stuff. Yeah, really fair!
Not everyone subscribes to the financial bullshit the wealth class has created.
>By any measure these two aren’t wealthy
That's objectively so wrong. They are basically set for life on money or will be before too long with more sales rolling in over time.
The vast majority of people will never see anywhere near that amount of money.. yet we don't want to call it wealthy. Ludicrous.
Do you agree with the premise that it would be incredible dumb and dangerous not to structure their business into a legal limited liability company?
Do you agree that the accounting and tax handling is best left to professionals because it can be complicated and because you trade a little bit of money for the peace of mind that you’re following the rules and more free time?
If you agree with those two points, then the act of paying out the profits as a dividend instead of a salary rolls out pretty much for free. Because it’s not some hard to set up tax avoidance construction, it’s the norm.
I'm not oblivious to any of these things, I have an econ, accounting & M.S. finance degree. I have a CPA (never practiced).
And you know what? I see this shit all the time in my line of work. I've been lucky enough to do more of the technology/programming side of the industry I'm in so I don't kill myself on the meaningless garbage that the people I'm creating stuff for actually do.. but I see this shit all the time.
Structures or laws being set up constantly to avoid tax that your normal person has absolutely no way to use. Self employed people setting up S-Corps so they don't have to pay into social security because they will be rich enough they don't need it themselves so why pay into the system to help others. People in other countries setting up US structures so they can pay a lower tax rate here than their home country while they get to reap all the benefits. LLCs being set up in delaware so you don't have to pay state taxes when one could easily argue you operate there if anyone checked. People throwing money into dividend paying stocks just because of a low tax. Reducing long term capital gains to stupidly low tax levels.
I mean I can go on and on. Your average person GETS ALMOST NONE OF THESE BENEFITS.
I'm not saying all of the stuff is bad or not needed. But the vast majority is set up so people who already make way more than the average person don't have to pay their fair share.
So look- I'm more being general here. I'm not specifically talking about this case as much as I'm just bitching about how the world works. It just disgusts me at this point. What one calls "optimization", at this point in my life I call it taking advantage.
/rant off
As near as I know: (1) they formed a company at some point in the past (S-corp?), (2) they did constant work per year, (3) they had some donations per year, (4) they suddenly had a large amount of revenue in 2022
I'm guessing they didn't fully account for their time/expenses in prior years.
If they didn't, are there options to go back and amend previous returns in amounts that would be meaningful? (Assuming they have proof, etc.)
S-Corp is not an efficient entity type for a windfall like this. It is a pass through entity, and cannot retain earnings year over year, for that you need a C-Corp.
That said, had they already had a C-Corp set up, then this income would be taxed at 21%, so after Steam fees and taxes, they would be sitting on around $3.3M (not counting publisher fees and any expenses that might arise). If they hold that money for 120 days, they can then do regular monthly dividend distributions of around $7k, and it would be considered tax free to their person (assuming married, and no other source of income), but keep in mind they already paid 21% taxes on it. Any amount above that would be taxed at 15% (then 20% at top tax bracket), so if they wanted $200k/yr, that would be a monthly dividend of around $17k, 7k of that is "tax free" then the other 10k would be taxed at 15%. But again, they pre-paid 21% taxes at the c-corp level, so 15% would actually be 36%, which is nearly top tax bracket already, and it was hit MUCH sooner than if you took a higher paid salary.
What you suggest is not a hack of the tax code. Close corporations are generally required to pay reasonable salaries to their owners (and more importantly, payroll taxes on those salaries) if the corporation's revenue is derived from the labor of its owners. Not doing this is the #1 reason that close corporations, and their owners get penalized by the IRS. From personal experience being brought in to put out these fires, the IRS might be willing to negotiate the size of the penalty, but penalties will be owed, as will back taxes on the tax deemed due, as well as interest on those back taxes. Generally, these close corporation owners will spend more on penalties and interest for a single tax year than they would save in 5 years from this scheme, and that doesn't include legal fees they paid for the audit.
There is no bright-line rule for what a "reasonable" salary is. For low six-figure amounts, the SS contribution threshold is usually considered a safe amount with the rest paid as a dividend, but for seven-figure amounts, different considerations apply. Indeed, at larger amounts, the IRS is actually opposed to close corporations using inflated salaries to reduce corporate income taxes (because salaries are deductible to the corporation but dividends are not).
So: owners would have paid their progressive rate on the XXXk of income received as salary (which is deductible to the corporation), at a likely 22-37% marginal rate, plus up to 12% state income tax rate, for a total of up to 49% including state taxes. The remaining income received as a dividend would be subject to a corporate tax rate of 21%, plus a personal tax rate of 20% (15% on the portion of the dividend income, if any, below the QD 20% rate threshold, which depends on how much of their income they chose to allocate as salary), plus 3.8% NIIT, or a 44.8% rate of federal tax before state taxes on the corporation and the owner are taken into account. Or in other words, usually worse than just taking all of the profits as a salary.
If they had money in a C-corp to start with, you could run it at a loss (actually paying the salary), and then carry forward those losses to offset the windfall.
With an S-corp, Each year the company ran a loss, they would receive a negative dividend which would adjust their annual earnings down.
This really only applies to C-Corps as well, and then you run into the Double Taxation of C-Corp income and pay a 21% tax rate at the corporation, then additional capital gains on the dividend income.
BUT dividends would be tax free up to around $80k of income (any income (salaries, 1099, etc., also assuming married), then they would be taxed at 15% - 25% above that, but do not forget, the corporation has already paid 21%.
So optimizing for qualified-dividend-only income requires a LOT of forethought, and either accepting a lower income (since the benefit maxes out at $80k total income), or paying 15-25% + 21% for a 36-46% tax rate on your dividends.
The really smart move (or evil move, depending how you see it) would have been to start the business within a Roth IRA. Then you'd just pay the 21% corporate tax rate.
For any indie devs out there: don't give your game away for free for 18 years if you want to make money. That's really the lesson here.
Had DF monetized in 2006 instead of going free, and played the industry game as others do, I would not be surprised to see DF at $100M in 2023.
Also they wouldn’t have been able to keep it a single-person programming project focused almost entirely on expanding the core games features and simulation aspects if they released earlier. Way more time would have been spent on productionization and getting it good-enough rather than done, and more hands would be involved, making it less of a passion/art project of an inventor, and just a regular old commercial endeavor.
As it was, the risk would have been way too high for most people to pay tenbux or whatever BEFORE playing it (many have "donated" way more than that after playing).
I work in enterprise software, the pressures from paying customers are immense. Sales loves to short circuit processes to get new features in front of the line. Large customers love to short circuit the process. Eventually your processes become customer driven rather than creation driven. And that's fine if you want to make money, but it ain't great if you want to create.
I am a bit older as a gamer so to hear that "2006 the market was small" is crazy to me! I grew up playing MUDs and believe me, the market for text games in 2006 was a lot bigger than it is today! From my perspective, monetizing the kids from the 80s/90s who loved text games with the best text game of all time as they turn 20s and 30s in the 2006... that's the best time in history to sell a text game.
I think that as part of DF being monetized, the graphics would be replaced, as it was for Steam, and potentially had it been done in 2D back in the 2000s, they could have envisioned and scaled into a 3D implementation by now. Who knows!
Notch didn't make all the right calls either. Letting other people have some control is almost always a good thing.
I don't DF would have existed then, it would be hard to see it gather the same community and the creators probably wouldn't have felt as free to explore their own ideas if they felt it needed to be commercially viable.
The thing that made DF's current commercial success is it's previously un-commercial approach. It's a true labor of love and that shows in every aspect of the game.
Minecraft was a sandbox single-dev game that broke every mold and trope, and sold for $4 billion.
Me claiming that DF could be worth $100M in a world where Minecraft was worth $4B and is likely worth much more now... not a crazy take.
The only dwarf fortress players I know IRL are also skilled with and interested in computers. Normies aren’t sinking 6 weeks (what it took me) to ramp up on DF, and certainly wouldn’t have in 2013
Don't underestimate what tiles do for a game in terms of (perceived) accessibility. Anecdotally my kids (under 11), who will almost certainly abandon the game after playing it, are demanding that we get it because they like what they are seeing, they like drama (dwarfs into zombies), they like building and crafting (infinite possibilities vs. MC). Now it's true that I've been talking about it, so they are feeding on my hype, but they are also genuinely intrigued by it. I think the viral potential of DF went way up with the recent release, it might not be completely unheard of as common amongst the broader gaming populace in the future.
I doubt that in 2006 a game with an ASCII-Interface would have been a great success if people had to pay for it.
But DF could be (squints) converted to some minecraft "world" couldn't it? How hard is it to do minecraft worlds that would mirror/translate/active generate from some complex sim process like DF?
How many developers with better games failed?
Any game that isn't a building game is immediately disqualified from consideration, since most games focus on you consuming level content made by others instead of expressing your own creativity, and no such game can be considered better than Minecraft. And Minecraft is simply the best building game out there, I'm open to suggestions but I've seen and played a lot of building / digital lego games and none of the rest can hold a candle to Minecraft balance of streamlined simplicity and creative versatility.
If you're looking for a game that is specifically about building and sailing battleships, or cars, or rockets, or cities, then there are better games than Minecraft. But minecraft is more generalist, you can build anything from cute cottages to digital computers in minecraft, it has the broadest general appeal of any building game I've ever heard of.
It was pretty obvious to me from the start, from the beta days in 2010 anyway, that Minecraft would be a massive success. Even in that early state all the elements were there to make it massively successful. And compared to other digital lego games at that time, it was hands down the best there was. I've seen Infiniminer, don't try to tell me that it was pure luck that Minecraft succeeded where Infiniminer languished in obscurity.
If we're talking about whether the highly obtuse ASCII version of DF should have monetized earlier we cannot point to its highly accessible direct descendant from seven years later.
The indie gaming scene in 2006 was almost entirely freeware with a few exceptions. Indie games as a steam category - let alone industry - was unthinkable. Monetisation was essentially building a flash game to sell to an ad network, there's really no amount of industry game playing that could have been done.
Unless you have a talented team, marketing plan, and lots of capital you can burn for a gamble; or are willing to just do it for fun for years and don't care if it succeeds -- don't quit your job to make indie games. Otherwise you're playing Russian roulette. For every hollow knight, Dwarf Fortress, Celeste, there are 1000s of other titles you've never heard of.
Also the game wasn’t built yet. Maybe they could have monetized earlier than this, but what does it matter? Maybe trying to monetized earlier would have killed the project or resulted in a game very different from today. Either way it doesn’t matter: there are different paths to success and not every one of them is an option for every game. DF found one though, and that’s what matters.
I didn't play DF in 2006 but I did play it first in about 2011, and can categorically at that point it was so user-hostile and batshit crazy there's no way the trajectory you're talking about would have been possible. Even just the normally-simple step of getting a copy of the game you could run was a bizarro-world nightmare involving multiple trips to the bay12 forum and searching for threads to find the download link etc.
Eg if you look at this example Youtube tutorial series from 2015, the first 2 episodes are all stuff before you actually launch the game. https://www.youtube.com/playlist?list=PL0sBhCMFBvPlF7wG7OH-N...