If I was to offer services and/or products for optional donations - customers paying what they thought the product or service was worth would the donations be taxable if they are the only source of income from those services/products.

Yes. The use of the word "donations" does not, in the eyes of the IRS, change the fact that are receiving compensation for either products delivered or services rendered.

If the IRS were to allow this, every corporation in the U.S. would soon follow suit to avoid taxation on their capitalistic activities.

Thank you for the clarification

Glad to help!

Just one thought has occurred to me, does the fact that they are optional make a difference. i.e. they only pay if they wish to.

Still it is an income. It is not a nontaxable income. It is self employed income.
You must file your tax return if yourself employed income is $400 or more. You will report your income and expenses on schedule C or C-EZ (Form 1040). Then you put net income (or loss) on line 12 of Form 1040. This income is subject to SE tax at 15.3% (this is shown on line 57 of Form 1040). Half of SE tax is deductible on line 27 of Form 1040. Read: http://taxipay.blogspot.com/2008/04/...oyed-sole.html

Thanks for the info, although noticing you are both US based my queery is for UK. Perhaps I should have clarified this point in my initial question if it makes a difference.

Generally, this forum does NOT answer U.K. tax questions.

Thank you I had not realised that ask me was US. Will look more closely at forums for accurate relevance in future to make sure questions are being posed to the correct forum