How Long Till Virtual Currency Taxation? 166
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? "
Re:Why it won't happen... (Score:5, Insightful)
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 to go to the trouble of figuring all this out. For now, if people just report their earning when they cash out and pay their taxes accordingly, I feel sure it'll be years before the issue comes to a head, if ever. No one at the IRS wants to deal with that kind of complexity if they don't have to so no one is motivated to get all technical on the subject.
Now, if we find ourselves in a situation where large numbers of people are making serious money and trying to avoid taxes, then all bets are off and the IRS could come down on the whole thing pretty hard. I just don't see that happening.
doubt it (Score:0, Insightful)
Look at it like this, some people sell human hair for money, for whatever reason. Almost all of us have hair. Are you taxed for having yours? I'm not. I could MAYBE see sales tax on items.. but a cost of ownership?
No way, they are WORTHLESS. Its no different than having a job. You get paid for your time, that doesn't mean you have to pay "property" tax on your free time.
Extrapolation to $880 million a year is bogus (Score:1, Insightful)
To say it another way, the only reason people are making money on this is because people are currently willing to pay that much. When JoeSixpack decides to sell his account below market value, the "going rate" will drop and everybody has to follow suit. Can you say Black Tuesday (Oct 29, 1929)?
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.
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:um.. (Score:5, Insightful)
Do not confuse 'right and wrong' or 'justice' with 'law'.
Re:um.. (Score:2, 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.
While you might not like it, I think you'd like it even less if the other fellow beats the shit out of you and takes his goat and your chickens. Thus the need for the basic government. The people that provide these services that you benefit cannot work for free. And if you argue that police protection can be handled by the markets, then you are basically denying those people that cannot afford it any protection at all. All that particular argument does is show what type of member you are in your own society.
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 engage in a corporate takeover of a virtual world company and then proceeds to
And in the end; the fundamental reason free market economy works is because it shifts resources to the most efficient production of the desired goods. Channeling resources into the production of game-world items that are not in reality scarce effectively misemploys those resources (the purchaser could have _both_ the in-world item by means of a keypress _and_ something else for that money, without any loss to anyone), leading to an overall poorer economy, as the other thing will now go uncreated.
Re:is it simpler than it seems? (Score:5, Insightful)
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 they believe that it has some value for them within the real world.
Think about it... most of "your" money is just a bunch of bits in a computer - just like WOW money. The cash that's in your pocket doesn't belong to you either - it belongs to the government - just like WOW money belongs to WOW.
The only reason either of them have value is because you and other people believe it does. As soon as people lose "faith" in the value of a dollar or WOW gold, it loses its value - because it has little, if any, intrinsic value.
Do you ever own your "real" money either?