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How Long Till Virtual Currency Taxation?
Posted by
Zonk
on Mon May 01, 2006 02:46 PM
from the please-stop-talking-about-it dept.
from the please-stop-talking-about-it dept.
GameDaily has a piece on the thorny issue of taxing virtual currency. From the article: "The current tax law has a clause, #525 to be exact, entitled 'Taxable and Nontaxable Income.' This verbose, meandering clause describes all manner of abstract (legal, illegal and otherwise) means by which you can earn income. Some of these obscurities can only be taxed by the speculative and vague term, 'fair market value.' ... This clause also includes a statement about goods acquired through barter or won (prizes or cash) in a game. Technically speaking this means those 'earnings' are taxable the very moment someone comes into possession of them, regardless as to whether or not they are sold for money. While no one knows the exact worth of all the virtual assets floating around the MMO gaming-verse, estimates for the sale of these goods range as high as $880 million a year. Step back and think about that for a minute... EIGHT HUNDRED AND EIGHTY MILLION! That's a crapload of real world money! Money made during what can be considered the infancy of the genre. Can you imagine how exponentially greater this amount will be in a few short years? "
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Politics: Congress to Revisit Virtual Goods Taxation 205 comments
News.com has the word that congress is set to re-visit taxing virtual goods, a concept they shelved a while back in order to consider the matter more fully. That's given the Congress' Joint Economic Committee time to come to a decision about what exactly the value of virtual goods means for players and game-makers. An economist with the group told CNet to expect their report sometime next month. "What that report will say is unknown, as the committee has kept entirely quiet about its thoughts. However, it's clear that something will happen. 'Given growth rates of 10 to 15 percent a month, the question is when, not if, Congress and IRS start paying attention to these issues,' [senior economist Dan] Miller, who is a fan of virtual worlds and economies, told CNET News.com in December. 'So it is incumbent on us to set the terms and the debate so we have a shaped tax policy toward virtual worlds and virtual economies in a favorable way.'"
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Someday But Not Yet (Score:5, Informative)
Taxing in-game earnings has come up before and it'll come up again. In the U.S., the Internal Revenue Service will eventually take notice of the phenomena when someone who makes lots of real-world money by selling virtual goods gets audited by an ambitous Revenue Agent. Until then, unless you're actually converting virtual goods into real greenbacks, there's not much to say on the subject. Any scaremongering about taxable events occurring inside a game is just FUD. It may be fun to talk about, but I notice that no one has yet made the news after obtaining a private letter ruling. Until someone sparks a written determination from the IRS [irs.gov], this is really a non-issue. Someday it'll be an issue, but not for a while.
Re:is it simpler than it seems? (Score:2)
That would be the easiest way, but depending on how developed these virtual economies become, it may someday be possible to use these "currencies" without first cashing out. If/when you can exchange WoW money for real-world goods or services - i.e., by spending some of your gold (or whatever - I don't play WoW) at Amazon to buy a book - then the IRS will surely perk up and take an active interest, as income from what's effectively a barter system is definite
Re:is it simpler than it seems? (Score:3, Insightful)
No, that's where the scaremongering comes in. Some transactions (and the myriad rules on such subjects are what keeps tax lawyers employed) are taxable when they occur, not when you finally cash out. So if you earn some magic sword that you could sell for USD$5K real-world dollars, it may be the case that you should be taxed on that USD$5K of income right now, before you sell it. Maybe.
Until such transactions become commonplace, however, nobody's going
Re:is it simpler than it seems? (Score:3, Interesting)
If the market for those items were considered robust enough (not sure how you'd measure that), I'd say you're very likely going to be taxed at the time of acquisition, not the time of sale. Just like winning items on a game show, it doesn't take the sale of those items to generate a taxable event, merely the acquisition
Re:is it simpler than it seems? (Score:5, Insightful)
Parent
Re:Someday But Not Yet (Score:3, Funny)
When it becomes more mainstream (Score:2)
I can see it all now... (Score:5, Funny)
Re:I can see it all now... (Score:3, Funny)
> l in corpse
You find 10 gold coins. IRS collects 2 of them.
Re:I can see it all now... (Score:3, Funny)
Why it won't happen... (Score:3, Interesting)
I think there are a great many things limiting the taxation of this "income." So, don't worry. This will not happen anytime soon.
Re:Why it won't happen... (Score:5, Insightful)
Parent
Sssshhhh! (Score:2)
So many questions... (Score:3, Funny)
If you destroy a no-drop item can you get a refund?
How bout deductions for funding your own crafting business?
Are repairs business expenses?
So many questions... and why do I think all the CPAs are going to be Druids?
(Sorry, no WoW experience, all EQ1 based references...cept the repairs)
It'd be easier (Score:4, Interesting)
If virtual currency ever gains real value (that is... you'd accept your paycheck in WoW gold instead of cash) then you might see taxation systems required to be in the game. But I doubt that will ever happen (Okay that's 50 gold pieces for the broadsword and I see you live in California so that'll be an 8% sales tax rounded up or 54 gold pieces.)
IANAE... (Score:2)
There are certainly parallels between virtual economies and certain forms of commododities trading:
So, is an MMO virtual ec
Re:IANAE... (Score:3, Insightful)
There are also, however, some very large differences; the first and foremost being that there is no fundamental scarcity (nor is it desireable to have such) of the virtual items in question, leaving them ultimately worthless.
I suspect the economic effects of allowing interaction between game and real economies may actually be damaging to the real economy; it opens up various speculation effects, and can create massive fraud distortions (for example, say some nasty people en
Re:IANAE... (Score:3, Informative)
Fine with me (Score:2)
um.. (Score:3, Insightful)
If I trade you two chickens for a goat, are they entitled to take for themselves the drumsticks off one chicken and one udder from the goat? That's stupid.
Almost as stupid as everyone taking it for granted that if I pay you $10 to mow my lawn (or $100,000 to build my house), somehow, the government is entitled to a cut of that payment.
The moment they start taxing my 'virtual gold' I'm paying my IRS bill in WoW silvers.
Re:um.. (Score:5, Insightful)
Do not confuse 'right and wrong' or 'justice' with 'law'.
Parent
Yes, bartering counts as income (Score:4, Informative)
If I trade you two chickens for a goat, are they entitled to take for themselves the drumsticks off one chicken and one udder from the goat?
Actually, yes. Well, not payable in drumsticks, udders or MMO silver, but....yes.
You'd owe taxes on the excess of the market value of goat over the market value of the two chickens. If equivalent tranactions value the goat at more than two chickens, then you just made a profit, and probably owe personal income tax.
Income doesn't have to be in cash, and bartering counts. An equal trade would probably be counted as a either [Revenue-Cost of Goods Sold=zero Net Income], or a like-kind echange of assets.
Reportable on Schedule C (profit or loss from a business-sole proprietorship), or Schedule F (farm income and expenses)
Parent
Capital Gains (Score:4, Insightful)
The answer is very simple (Score:4, Insightful)
To avoid this, simply do not convert your in game assets to real cash.
But what if so many people do it that the taxman decides to attribute a value to ingame assets. What if the taxman would say that a gold piece in game has value.
Well then it is very very easy. Just pay the taxman in goldpieces. IF they are supposed to have a realworld value then you should be able to pay in them.
I think it would open up a can of worms if they would set a virtual to real exchange rate that could not be easily matched. I am not certain how the american tax system works but for instance the value of land is usually not an absolute. It greatly depends on what it is worth on the market and not some fictional market you use to brag about your wealth but what cold hard cash you can get for it today.
It would truly be a nightmare to setup. The goverment would have to constantly check what the real value is of cash in dozens of games. Not to mention that most games have an inflation that makes african countries look well adjusted.
It could happen in theory but I think that the taxman has better things to do. The only people who need to worry is those who make money off their in game wealth. The taxman taxing the money you receive. Wow, what a concept!
Re:I really wish this meme would die. (Score:3, Insightful)
You never own 'your' game money. As such, you can't be taxed on it.
What you say actually applies to real money too.
People trade "real money" for WOW gold because they believe that it has some value for them within WOW.
People trade their labor for "real money" because