Virtual Economies Attract Real-World Tax Attention 247
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."
Finally. (Score:2, Insightful)
Re:Well (Score:5, Insightful)
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!
Another step towards blending games into reality (Score:4, Insightful)
You are all missing something: (Score:1, Insightful)
Re:yay! (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?
deduct your expenses!! (Score:2, Insightful)
I wonder when Monopoly will stat coming with a per-game tax too...
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.
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: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?
Sounds like a plan! (Score:1, Insightful)
1. Register in told MMORPG
2. Buy weapons, land whatever on ebay(or other means, i am not too experienced yet)
3. Meet AQ/AC/AB in the game who takes away my stuff
4. He sells the stuff where it can be sold.
- No record who i handed the items (is there full log of these games stored anywhere?)
- I have lost in a game, i did not support terrorism/mafia/AB
- The receiving end made a fortune on gaming, not easy to prove he received donations
Great!
vajk
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:Congress strikes again (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 the total tax paid.
If you make $20K
The IRS isn't going to worry about people making $20-100 / month online doing this stuff... they are going to go after the bigger fish.
As an aside, most people know that the money you win gambling is taxable, typically at a fairly high rate. Most people I've talked to, however, didn't realize that if you keep your reciepts from when you lose, you can mark that as an expense against your winnings to reduce that tax.
All this being said, IANATL, so check with a specialist
Does this mean... (Score:3, Insightful)
Re:Finally. (Score:3, Insightful)
Income Tax is Income Tax (Score:2, Insightful)
The problem is, the average gamer isn't looking to give unto Ceasar what is Ceasar's since they think it's just a game. It is just a game until you turn a real money profit, at which time you declare income less deductions and pay the percentage for whatever tax bracket you fall into.
This would not fall under a capital gains (15%) tax since it wouldn't be a regulated investment income or real estate sale. I would dare to guess that virtual estates aren't recognized under tax regs.
Re:Ummm.... (Score:1, Insightful)
It's a big deal today because Reuters opened a bureau in Second Life, and there's a lot of Second Life hype hitting the techie mainstream (like with Sun). It was in the papers this morning and on the news: it must be a real story - it was from Reuters.
It's a big non-story really, though. You make a living at something, you get to pay income tax on it. If it's pocket money, nobody really cares. It's no different to being a regular E-bay seller: if you trade enough, it counts as a job. Folks really are living in an alternate reality when they think making money online is different than making it offline.
Re:Finally. (Score:2, Insightful)
Hm.. I think the trade of the gold for a sword may separately be taxable as barter exchange [irs.gov], oh boy -- you may note, that income from barter or exchange is not deferrable for tax purposes, beyond the end of the year, and estimated payments may be required.
Otherwise, you could start a consulting business and delay taxation of your business profit, by having your customers pay you in Barrels of Whisky, Japanese Yen, instead of dollars, E-gold or World of Warcraft money. But according to the IRS, the income is taxable immediately, all the same.
You really don't have to worry about that... you don't get taxed on things as they increase in value, just when you cash out on them (imagine buying a rare baseball card; as it increases in value you don't have to pay taxes on that)
Problem: when you slay the boar and get the gold, it's not a matter of something increasing in value.. it's a matter of you working and earning, acquiring control over a new possession that already has a market value at the time you earned it, that's what might get taxed, as an ordinary income asset, instead of a gain from selling a capital asset.
(The virtual currency did not start at a value of $0 when you acquired it, if there was already a market for the item.)
I know that once you already have the asset, the gold, it will be considered a capital asset (unless you are a dealer, and the thing is part of your inventory), I know future changes in value after you acquired it won't be taxable, until you sell.
I think there is a possibility the gold you acquire could be determined to be ordinary income property, at the moment you acquire it: much like a non-qualified stock option grant, may be taxed: if you're a treasure hunter, and you find a stash of USD, that's taxable, if you find gold, that is taxable also.
Re:Finally. (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 considered self-employment, and is subject to federal and (in some states) local income taxes.