Virtual Economies Attract Real-World Tax Attention
Posted by
kdawson
on Mon Oct 16, 2006 12:51 PM
from the tax-haven-in-Second-Life dept.
from the tax-haven-in-Second-Life dept.
doug141 writes to point out a Reuters story on the attention tax authorities are beginning to focus on virtual economies. From the article: "Users of online worlds such as Second Life and World of Warcraft transact millions of dollars worth of virtual goods and services every day... People who cash out of virtual economies by converting their assets into real-world currencies are required to report their incomes to the U.S. Internal Revenue Service or the tax authority where they live in the real world... 'Right now we're at the preliminary stages of looking at the issue and what kind of public policy questions virtual economies raise — taxes, barter exchanges, property and wealth,' said Dan Miller, senior economist for the Joint Economic Committee of the U.S. Congress."
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Finally. (Score:2, Insightful)
Re:Finally. (Score:5, Interesting)
I don't see any need for a special case. You make money off it, you're supposed to declare that money and pay taxes on it. Goes without saying that most people don't, but that's just an enforcement issue.
Re:Finally. (Score:4, Informative)
Most states also have what are known as "Use Taxes". Wiki here: http://en.wikipedia.org/wiki/Use_Tax [wikipedia.org]
Re: (Score:3, Insightful)
This isn't an issue of taxable SALES, it's an issue of taxable INCOME.
It is true that, due to the intangibility of code, you cannot tax the SALE of that code. However, if you are making monetary gains, it is con
Re: (Score:3, Insightful)
Re: (Score:3, Funny)
Ebay is the key (Score:2, Interesting)
I'm surprised this wasn't done years ago when people were making real money off of Ultima Online and Asheron's Call. Good AC accounts, like Animal the first level 126 Battlemage which went for $5,000, were going for thousands during it's prime and even a
Re:Ebay is the key (Score:5, Informative)
There's one cool tax consequence of this, btw. As a taxpayer, you can allocate basis when you receive both cash and an illiquid asset in exchange for your own asset. So, if I buy my card for $500 and you bought yours for $.05, I can sell you my card for $500 plus your card and not owe any taxes until I sell your card. For baseball cards that's small potatos, but for things like real estate it can make a huge difference in whether a transaction is profitable or not.
Well (Score:5, Funny)
Also, I believe Second Life's ToS [secondlife.com] explicitely states that Linden dollars have no legal value, also trumping any sort of tax law.
But then, neither was the income tax...
Re:Well (Score:5, Insightful)
Not True (Score:2)
That simply is not true. You don't have to pay any income taxes on it if they don't know about it. Saying that you must pay taxes i
Re:Not True (Score:4, Insightful)
So , actually it simply is true.
If you sell drugs, you are required to pay taxes on the income.
Remember, it was good enough for the original mob Al Capone, it's certainly good enough for you with the loot you got off your MOB.
Re: (Score:2)
Legal, or not... (Score:2)
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So
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Gov't Regulation (Score:3, Funny)
Losses (Score:4, Funny)
Any time I'm due to pay taxes, I'm going to claim a loss on my virtual accounts to balance it out. Wheee!
Re:Losses (Score:4, Insightful)
yeah, seriously. If you "invested", say, $10,000 worth of online currency into, oh... I dunno... this [slashdot.org] does that mean you can claim that online currency's worth as a loss?
To answer my own question: no
Now for a better question: suppose you first bought that $10,000 worth of online currency and "invested" it into that EVE Online ISK scam and lost it. Can you then claim your $10,000 investment as a loss? Since you invested the money into a business (some might argue this, but I'd argue right back that the EVE Bank had more chance of succeeding than some dot coms), with the expectation that it would make a profit (online) which you could then sell for real money (and hence pay tax on), but instead lost it?
I mean, just how different are these two scenarios:
These are the reverse of the two scenarios the IRS wants to capitalize on:
Where does the line get drawn?
Canada kicks butt (Score:3)
That's not entirely accurate. Regarding your example, you'd only owe tax on the amount that you "cashed out.
Re:Losses (Score:4, Informative)
You are allowed to deduct any losses from your winnings for tax purposes. You cannot claim an overall loss (ie if I won $500 and lost $600, I can't claim a $100 loss for taxes). Any chip purchases, tournament buyins, or other money you gave to the casino can be offset against your winnings thereby reducing the final tax bill.
And yes, I would know, since I had to fill out paperwork for winning a poker tournament in Atlantic City. The $1360 I won is offset by my $65 buy-in, as well as the $300 in other buy-ins I had over the weekend, as well as the other miscellaneous losses I can document.
(Documentation is key, if you are going to gamble with any possibility of winning more than the $599.99 that doesn't trigger the paperwork, write down precisely when and how much you bought in for, and how much and when you cashed out for)
Holy crap it's the Grinch! (Score:3, Insightful)
IRS: Hey Timmy...
This is increadible they are taking one of the LEASE PLEASANT ASPECTS OF REAL LIFE and imprinting it on the virtual world... for no reason, they can just tax the sale of the goods!
Re: (Score:2)
If you had some other way of converting virtual items into real currency the IRS would tax that too if you made
It could go both ways... (Score:2)
Well, maybe we can have it go both ways. The real world might be improv
Time for a new Classes and professions (Score:5, Funny)
Myself, I am a level 47 beancounter, I defeated the IRS during a daring raid. Many of my friends died in this battle
It's all greed. (Score:2)
Another step towards blending games into reality (Score:4, Insightful)
Re:Another step towards blending games into realit (Score:2)
Re:Another step towards blending games into realit (Score:2)
These game writers are essentially bankers. They are printing virtual money with no real limits, and now there appears to be enough connections ( permitted or not ) to real money that they are incr
Ummm.... (Score:3, Interesting)
Um, Duh? (Score:3, Interesting)
The real question is, "Is selling virtual property" subject to capital gains taxes (like selling a second home or shares of stock)? There's an argument to be made there -- and I'd be curious to see what Congress says.
Yeah, but (Score:3, Interesting)
From a tax perspective, there's a huge difference.
LK
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If you play an account for 6 months, sell, rinse and repeat than I'd have said income tax as it's a trade.
Play for 3-4 years and sell up on quitting then it's a capital gain.
Of course, if they tax it as
deduct your expenses!! (Score:2, Insightful)
Given that most gold farmers appear to be Chinese. (Score:3, Funny)
Taxation, good luck (Score:5, Insightful)
That said, that sort of transaction where a legitimate business is facilitating a cash transfer is pretty rare. The real money trading hands in MMORPG economies is almost exclusively person to person transaction, non-legal companies, or legal companies outside of the US. In all of those cases you are about as likely to get a drug dealer to voluntary tax report his taxes as you are to get some guy working over e-bay to report his income.
The only reason I can think of to voluntarily report MMORPG income is if you are making so much that it makes up a substantial part of your income. In that case, you might report some fraction of it just to avoid looking like a drug dealer.
I expect the vast majority of people to simply ignore any efforts to improve taxation about as easily as they ignore laws against a few guys playing poker on Friday night and smoking small quantities of marijuana. Yeah, those activities are illegal if you are caught, but unless you are running an underground casino or smuggling pounds of drugs, no one really cares and the penalties for being caught are a slap on the wrist.
watch out for back taxes (Score:2)
The real issue is when is the income earned (Score:2)
Does this mean... (Score:3, Insightful)
Foreign Accounts (Score:3, Informative)
The simpler solution is to say that while the virtual possessions are still virtual, they are worthless. However, once you make real money off of them by selling, the sales are taxable in the same way that plants you have grown on your property are not taxable, but as soon as you sell them the revenue is taxable. Otherwise, this situation is parallel and displays the idiocy of taxing virtual possessions as capital gains:
MMORPG : FPS Tournament
virtual gold : frags
cashed out value : tournament winnings.
Isn't it absurd to say you should be taxed on frags gained in pursuit of a tournament victory? Or, to put it in terms more old people (read: legislators and judges) would understand:
MMORPG : tennis tournament
virtual gold : points
cashed out value : tournament winnings.
Now, does Maria Sharapova get taxed on points she won in a match? NO! She is taxed on tournament winnings only. Thus, by analogy, a gamer should be taxed on real earnings made by "cashing out", and not by what he possesses in the virtual world.
Re: (Score:2)
Hence it would be pretty hard to interprete them as income for you...
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Re: (Score:3, Insightful)
This is no different than other forms of income, and income is taxable.
By great coincedence, the money you spend to allow you to create that income is allowed to be deducted from the earnings to offset
Re:Congress strikes again (Score:4, Insightful)
Subscription fees are an obvious tax deduction, but the fact remains if you're making more than a minimum amount on it, and you live in the US (don't know about other countries), you owe taxes on it.
What I'd expect to see out of this is companies like IGE being forced to be more open about their cash flow, to make it easier to find people who are not paying their taxes.
Re:Congress strikes again (Score:5, Informative)
Re: (Score:3, Funny)
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I can see the IRS taxing the income when you convert quatloos or whatever into dollars
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Re: (Score:2, Insightful)
I can't wait to pay my tax in WoW gold.
Don't mention Gold. Tangible or not, it just gets Congress excited.
You know the paper dollars in your pocket are not backed by any gold or silver, right?
Re: (Score:2)
If earning WoW gold is income,
then expenses incured must be deductable.
Comming soon:
Tax Loophole investment gaming. Play the game for 10 minutes and get a $10k tax