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The proper thing for them to do would be to adjust your reported income, also, when the commission was adjusted.

This should also have reduced your tax liability, since it was earnings the employer had you repay. See IRS publication 525:

If you repay unearned commissions or other amounts in the same year you receive them, reduce the amount included in your income by the repayment. If you repay them in a later tax year, you can deduct the repayment as an itemized deduction on your Schedule A (Form 1040), or you may be able to take a credit for that year. See Repayments, later.

Maybe it's not too late to have the return corrected, if it happened within the past 4 years, anyways. Consult with a competent tax advisor, perhaps.

> So... approximately how many Senators and Congressmen have broken this rule? Why aren't they in jail?

You should read this thing sometime. It's crazy. The following excerpts really are in there, side by side on p. 28 of the PDF:

Bribes. If you receive a bribe, include it in your taxable income.
Campaign Contributions. These contributions are not income to a candidate unless [...]

After all, the politicians came up with these rules, so I can at least understand, if not agree with, the reason things are this way...

Simplistically, if your only income for the year was this 125k reported as a gain, and no deductions for AGI, you could only deduct 20% (25k), 30% (37.5k) or 50% (62.5k) on your Schedule A. The remainder is a carryover to future years where the same rules apply. So you're probably going to pay income tax on it.

The different %ages come from type of property donated and type of organization donated to.

IRS Publication 526 Charitable Contributions

This is not tax advice and shouldn't be relied upon as such.

Can you imagine somebody handing over their SSN when buying a game?

Not only is this a good idea, but this is what's happening now. Your virtual assets are worthless till you sell them for dollars. When you receive those dollars, that's a taxable event.

The IRS openly indicates in publication 525 that, "If you steal property, you must report its fair market value in your income in the year you steal it unless in the same year you return it to its rightful owner." The same applies to accepting bribes. You can read it here. Basically, it doesn't usually matter how you receive income, it's taxed.

Geez, that sucked. I hope someone eventually used it.

I think accepting COBRA for your wife is probably the best option right now. If you're relatively healthy you may explore getting catastrophic insurance for you from one of the online brokers e.g. eHealthInsurance . They make it easy to compare quotes from different providers. I picked BlueCross BlueShield of Illinois because of their reputation and affordable rates. This insurer gave me a free membership in a dental discount plan. My local dentist charges 10% - 20% less with this plan. They also gave me a discount card for medications but I haven't used it yet. Also, self-employed insurance might be tax deductible for you. Look at line 29 on 2006 Form 1040. Line 25 on 2006 Form 1040 deals with health savings accounts. This might be a good option for you as well. Download 2006 Form 1040 instructions from IRS.gov. Good luck.

• IRS Announcement 92-16; I.R.B. 1992-5 (regarding premium deductibility--hard to find the exact text online, I have it as a PDF)
• IRS Notice 2005-8 (regarding HSA contributions)

Why should the IRS care? As long as he's paying his taxes and following the law, there should be no problem with it.

As an individual, you pay tax on what you make and then spend what's left over. A corporation spends from it's income and is then taxed on what's left over. That's a huge difference in terms of how much money you have to work with!

Are you referring to individuals with non-corporation businesses here? If so, sole proprietorships can deduct business expenses just like a corporation. See IRS form 1040-C. http://www.irs.gov/pub/irs-pdf/f1040sc.pdf

There are tax differences between sole proprietorships and corporations, but this isn't one of them. Individuals, of course, are taxed on everything they make, but whether the business they own is a corporation or a sole proprietorship doesn't change that.

Oh, no, I've got the tax rates right. I have looked at the tax returns of (say) President Bush, Vice PResident Cheney, Teresa Heintz, John Kerry, and others (John Edwards, BTW, did an amazing tax job the year before the 2004 election, managing to deduct somthing like a 1/3 to 1/2 of his entire income). I also know what, as a middle class weenie, pay in taxes. Combining Federal and state gets me in the low teens, as a percentage of gross income. Then I add 7.45% for SS/Medicare. Plus the 7.45 I pay from my business to cover the employers version.

If I were talking marginal tax rates, I'd tell you that if you make over $166,000, you'd pay 33% tax. Which is, of course, false - that's the marginal rate. If you make $200,000 this year (2006) in adjusted gross income (giving you your mortgage interest, donations, and personal deduction), you'll pay $36,548 in taxes, or about 18% (source: IRS 2006 Tax Table. If you happen to live in, say, Virginia, you'll pay $11,243 in income taxes (VA's income tax is pretty low, compared to those states which have income taxes). So just in income taxes, my $200,000 executive will pay 23.8% in income tax alone. Remember - there's still SS/Medicare to pay for, along with local sales, personal property, real property, specialty (restaurant/hotel) taxes that we haven't discussed.

Nowhere near the 50% number, but not exactly minimal.

Oh, and in case you feel that $200,000 is "rich" - which by the numbers it is in the top 1% of earners - I know folks in this category (I'm not one, btw), and they are solidly convinced they are part of the overtaxed middle class.

Typical liberal drivel without facts. Go look at http://www.taxfoundation.org/news/show/1321.html and see that the Oil Companies (your favorite target) paid 41% income tax in 2005!!! Also look at http://www.irs.gov/taxstats/article/0,,id=102886,0 0.html which shows the corporations pay a LOT of FEDERAL tax, don't forget the Employment Taxes (i.e. Witholding) are also 50% paid by corporations and State Income Tax. Lots of taxes are treated by Accounting rule as an expense which affects profit, and not on the line that says Income Tax Paid. In addition when the corporation distributes dividends to investors that money is taxed at the individual level so it's DOUBLE taxation. Our military is hardly bloated, if it was bloated why would they still be recruiting and not letting people retire or calling back those they formerly let out? And don't attack the higher earners either, the top 50% of taxpayers pay 96% of income tax. Are you implying the US "Empire" is crumbling? LOL..far from it, we are the only super-power left. We don't have and never had an "empire", we had protection agreements (i.e. NATO) against communism which allowed US Troops in Foreign nations. That's not an empire, and with the fall of the Communists that foreign deployment has been cut back tremendously.

Tax shelters, and other creative interpretations of the tax code, are the bane of the IRS's existence. In the late '90s and early '00s, a few accountants went overboard with their tax planning strategies and started selling them as if they were "products", not unlike the what the law firms appear to be doing today. As a result of their marketing of products called BLIPS, FLIP, OPIS, and SOS, KPMG ended up paying the IRS $456 million dollars in penalties. Since 2003, the IRS appears to have focused on cleaning up the accounting industry and the rules around "reportable transactions" (transactions with attributes common to tax shelters) and seems to have the accountants in check. It looks like it's time to turn their attention to the lawyers.

Just like the "confidential transactions" of the accounting industry, where the taxpayer isn't allowed to disclose the details of a transaction to others (presumably for intellectual property protections for the accountant), a lawyer holding a patent on a tax strategy will only serve to draw attention to the strategy and get the whole thing shut down.

Boring but informative:
From the IRS Publication 550 on reportable transations:

Confidential transaction. A confidential transaction is one that is offered to you under conditions of confidentiality and for which you have paid an advisor a minimum fee. A transaction is offered under conditions of confidentiality if the advisor who is paid the fee places a limit on the disclosure of the tax treatment or tax structure on you and the limit protects the advisor's tax strategies. The transaction is treated as confidential even if the conditions of confidentiality are not legally binding on you.

See also: Inside the KPMG mess

If I die and leave a taxable estate, you can bet that the government wants their hands deep in my pockets to extract their pound of flesh, even if there is no actual money changing hands.

Just ask any farmer with land holdings.

There are significant limits that need to be reached before this happens. Even before Bush's proposed removal of the Estate Tax (this is in the millions ). Can you provide any actual evidence that farmer's are losing their land as it moves to the next generation (Bush talking points are not data).

The Estate Tax is one of the best progressive Taxes currently, removing it in favour of other taxes would be an insane gift to the very wealthy (no surprise Bush wants it).

Hm.. I think the trade of the gold for a sword may separately be taxable as barter exchange, 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.

Probably in a similar fashion as gambling. The IRS requires you to pay taxes on gambling winnings, but you cannot claim a loss for gambling losses.

That's not entirely accurate. Regarding your example, you'd only owe tax on the amount that you "cashed out." If you won $600 in casino chips, then lost $500 of those chips, and cashed out $100, your "winnings" are just the $100. That's what you owe tax on.

Secondly, you actually can claim gambling losses, but only against winnings. See the IRS website.

Finally, I'll take this opportunity to plug Canada. In Canada, all gambling winnings are completely tax-free. Also, there's none of this crap about winning $100 million "paid out over 25 years, or you can have a $45 million lump sum." If you win $100 million, you get the whole $100 million, right now. And you don't owe any tax on it. Yay, Canada!

...that my employer, a place flat-out driven by SSNs in many aspects of our work, wouldn't think of using them for anything internal that isn't mandated by law. We issue to everyone a 5-character ID that's used for signons and all sorts of IDs. We used to use a contraction of the user name, but even that has been 95% phased out for years.

It's not that difficult to quit using SSNs and it's just good policy. I'm surprised that they are still so commonly used in situations where they might be disclosed to anyone but the person to whom it belongs.

You don't have any stock in us.

Why do we have any left at SP1? I could be flip and say it's because we relied on Tivoli to update them, but I won't go there. Basically, we updated about 100K machines and are hunting down the last few hundred, mostly laptops belonging to people who spend all their time in the field and try to never come into the office where they can be updated. (Among our old-timers, it's a real badge of honor to brag that they haven't been in the office in 6 months.) Internal politics prevents us from simply locking those people off the network; we have to chase them down and say please. For any organization-wide update, there are always a few like that.

I know I'm feeding a troll, but I can't help it. Good troll!

...Federal employees can't really be punished,...if you fuck up, you might get demoted or shuffled around ("I see there's a warehouse in Sioux Falls that needs a manager...") but probably not actually thrown out on your ass by Security...

Bullshit. There's less of people getting "thrown out on your ass by Security" in government service for lots of reasons, the main one being you can't get thrown out just because you pissed off your big boss and he has the right to throw people out. In private industry, if you have the audacity to show up at a meeting and say to everyone that your boss 5 levels up is an idiot and here's why, you'll likely get fired. In the public service arena, if you make the same statements, without being a jerk about it and while backing up your assertions with facts, then you haven't violated your contract and you stay employed. Yes, pissing off people isn't good for your government career, but it doesn't get you summarily fired. We have rules and as long as you obey them, you're safe, unlike the private sector where an asshole corporate officer can not only convince him/herself that he's God but can also wield the power to ruin people's lives without oversight.

OTOH, I've seen employees marched out in handcuffs on more than one occasion when they screwed up. I've seen desks sealed with evidence tape and left in the office where they served as an example and warning for anyone else contemplating misdeeds. I've seen a woman convicted of over 100 counts of failing to uphold confidentiality and get hauled off to jail for it. The lines you have to cross to get fired from Federal service are fairly bright and the consequences severe and swift. The most slack I've ever seen someone get cut was a long-time employee who was eligible to retire when he was caught downloading CP. He was allowed to retire and then arrested a few days later at his home.

The laptop losses don't really surprise me, because I doubt these people get more than some sort of administrative demerit -- if that -- for losing one. I'm sure there's some sort of procedure that they go through, but I'm willing to bet that in the long run they just get a new machine issued and they go on, grinding their way towards retirement.

I can't speak for other agencies, but where I work simply "losing" a laptop does get you fired. Over the last few years, I've seen many laptops lost but in every case there was a reason. We lost a hell of a lot of equipment when the New Orleans office got flooded last year. At the same time, when the flood waters rose a bunch of employees lost their laptops that were properly secured, as per procedure, in the trunks of their cars. We've had home and car break-ins. We've had muggings. But I don't remember any employee simply "losing" a laptop. In those few cases where an employee is deemed to have exercised insufficient care, the cost of the laptop is deducted from their paycheck.

Which isn't to say it doesn't happen. We've had a number of laptops get "lost," inexcuseably, when we loaned laptops to volunteers who prepare tax returns for the needy. But those weren't lost by employees and the volunteers who fail to turn them back in eventually get visited by very intimidating people with badges and guns who work for our Inspector General. I would imagine that something of the same dynamic happened at Census - short-term employees who are just one step above volunteers and are not dedicated to a life of public service may very well fail to take proper care of their equipment. It's inexcuseable and career employees generally don't screw up like that. (Generally. There are always exceptions.)

The policy, as originally stated, left no wiggle room whatsoever. Yes, that would be brain-dead. Zero-tolerance policies always are.

A sensible approach is to weigh the seriousness of the offense against the position and duties. Where I work, for example, you get conditionally hired for the first year. We trust what you said on your application, bring you on board, and do a full background check during that first year. (Why do we trust what you said on the app? Because lying to us on that application is a felony and, experience shows, dadgum rare. And why do we allow ourselves a year to do the background check? Because we do a serious one - verifying any hits on the initial computer searches, interviewing your family and friends if you're in a sensitive position, and auditing your last three years of tax returns, etc. It takes time.) If there are problems, you may or may not get fired. Bouncing checks, for example, will definitely get you shown the door; it's just a behavior so at odds with our mission of fiscal responsibility that there's no room for second chances. Likewise, we have to be pretty harsh about lots of things and tend to reject anyone without a clean record.

But does every employer need to exercise that same level of caution? Do I really care if the guy selling me my car has a past conviction for felony cruelty to animals? Should someone who has a previous conviction for disturbing the peace be automatically barred from a "you want fries with that?" job? I just think there has to be some room for a judgement call. Any policy that is as was originally stated (iow, absolute) is not smart. Brain dead, even.

I never knew that there existed manufacturers that didn't require you to send back the entire unit in order to obtain a refund.

Actually, I don't send back anything except a sheet of paper that says the old drive died and I have destroyed it. It helps that I work for an organization that buys 30-40K drives a year; we can negotiate deals like that. As for the possibility of using this situation for personal enrichment, no computer tech in this place is going to risk losing their job and jail time just to pick up a few lousy hundreds of dollars in free computer hardware.

Don't forget that there is a REASON online gambling is still illegal.

It should be stated in bold at the top of student finance applications that come or all of the information submitted is subject to possible FBI search.

You mean the ssame way it's printed in bold on a 1040 EZ form [PDF]? Or on a driver's license application? Or a passport application?

What part of "Federal" do you think people would fail to understand?

This could be construed as "income from a barter exchange" by the IRS. EvE should send him a 1099-B form at the end of the year, showing that as income. In the words of the IRS:

The Internet has provided a medium for new growth in the bartering exchange industry. This growth prompts the following reminder: Barter exchanges are required to file Form 1099-B for all transactions unless certain exceptions are met. Refer to Barter Exchanges for additional information on this subject. IRS tax topic "Bartering income

This is a very real issue, because there are active markets for converting ISK to dollars and back. There are buyers, sellers, quotes, and services that track price trends. That's not an "informal exchange of services on a noncommercial basis", which the IRS doesn't tax. That's a non-dollar credit, which the IRS converts to US dollars at prevailing rates and does tax. The numbers here are big enough to attract IRS interest.

Others will never notice they lost anything.

You can't lose something that you give away.

Most of those things he mentioned people think are great, because those things mean that they either get a bargain, or that they're protecting 'the children'. The rest of them people either don't notice or wouldn't care about even if you managed to successfully get them to understand why it is that you care about them.

Maybe there will be another American revolution some day to try and put back into place a government whose altruistic ideals can be effected indefinitely.

Yeah, right. Most of that stuff in the post didn't even have anything to do with state or federal govenrment. It was mostly corporate and people giving their privacy away under their own accord.

The best part was where he described journalists as 'the people who are supposed to be looking out for him'. What a hoot. Somebody needs a lesson in capatilism, and some friendly advice not to be so trusting lest he look in the mirror and find out he's one of the people giving away bits of himself for no good reason.

How come 30 million people have to try to live on $5.15 an hour? How are their voices not heard?

Here's a hint: More than half of them aren't even old enough to vote if they wanted to (and if they were, they'd be statistically unlikely to vote anyway). The minimum wage is a heart-string issue. The Democrats tote it out to get emotional votes out of the section of their base that hasn't engaged their brain. It's the Democrats' version of school prayer.

Not everybody needs to earn a living wage. Some people are dependents to other people, or are children. It is important that low wage jobs exist, or it would be difficult to get that first job that lets you start climbing the ladder. Stop and think, and read a bit. You will find that politicians and armchair economists are the biggest supporters of a minimum wage hike. It's never the people who are supposedly harmed by the low minimum wage crying for an increase, and most of the groups that advocate for those very same people think it's dumb too.... All those people want an expansion of the EITC instead.

Most student loans are guaranteed or subsidized by government agencies. This is desirable as a public policy because students are usually poor, and generally bad credit risks, so lenders would have to charge high rates, or would not give loans to the most needy students, preferring to lend to trust-fund kids.

Lenders agree to charge lower rates in exchange for the government lowering their risk. The government, in order to reduce *its* risk, and the overall cost of subsidies and guarantees, generally requires that students actually borrow only the money they need for real educational expenses, and not just blowing it on beer.

Likewise, beneficial tax treatment for student loan interest (such as http://www.irs.gov/publications/p970/ch04.html), is generally based on the interest being used for qualified educational expenses.

Even private lenders (such as http://studentloan.citibank.com/slcsite/fr_ccund.a sp?Source=ifaidcl001&ProspectID=C877D440CC734B8F9F 1B3EEBBB369AFD), will use the actual education cost as part of the loan process; this may be a way of measuring their own risk---someone dropping out and blowing the money on beer is presumably a higher credit risk after graduation than someone who is actually paying tuition, etc.

If the original asker had something actually called a "student loan" he almost certainly signed some document certifying that he was borrowing for actual educational expenses. Using it for long-term investment makes such a claim almost certainly fraudulent.

You should consider opening a Roth IRA Roth IRA. You can invest $4000/yr this way. You could open your account with a discount brokerage, so that you could choose any selection of public stocks/mutual funds/ETFs. The nice thing about the Roth IRA is that your initial investment is taxed at your current rate (which presumably is at an all-time low). Once you graduate, your income and tax rate will likely increase as you gain skill and experience. As you approach your maximum income you will be better off investing in a 401(k), but in the meantime you should fill your Roth first. As for investing, I suggest Buffet's letters, The Intelligent Investor, and Toward Rational Exuberance: The Evolution of the Modern Stock Market. Good luck.

not sure what people are thinking, but everyone is already required to at least pay Federal income tax (in the US)...

http://www.irs.gov/taxtopics/tc419.html ... on all winnings. Of course you can offset your "winnings" with your "losses". And I know that we all have little notepads to write down exactly what we won and lost on each hand of Texas Hold'em and blackjack, right?

I do know that the casinos where I live will take out federal and state tax on a winning jackpot (because it's a documented win) but obviously have no way to really figure out how much you lost on the quarter machine to get that. So I can't imagine it being too difficult to claim that you lost more than you one in any given year. After all, the house ALWAYS has an advantage!

The closer two spouses are in income, the worse it gets. Rather than getting the advantage of sharing the tax burden, you've taken two smaller incomes and combined them into a large income in a higher tax bracket.

You must be doing pretty well - the 28% tax bracket tops out at $180k combined.

I'm all for limiting how much money is passed on directly from one generation to the next to avoid the Paris Hiltons of the world, but for the Joes and Bobs, there should be a floor $ amount below which the government (oops, I mean "society") doesn't see a dime.

There is:

Reminder: Most relatively simple estates (cash, publicly-traded securities, small amounts of other easily-valued assets, and no special deductions or elections, or jointly-held property) with a total value under $1,000,000 do not require the filing of an estate tax return. The amount was $1,500,000 in 2004 and 2005. For 2006 through 2008, the amount is raised to $2,000,000.

From the IRS site.

Tax returns are for individuals here, too. Here's Form 1040 which has the entry for dependents and their SSNs. The exact amount is derived from Form 2441.

As for getting discounts from having children in bulk, I doubt the benefits received would outweigh the costs of maintainance for said children. Welfare, on the other hand...

Tax returns are for individuals here, too. Here's Form 1040 which has the entry for dependents and their SSNs. The exact amount is derived from Form 2441.

As for getting discounts from having children in bulk, I doubt the benefits received would outweigh the costs of maintainance for said children. Welfare, on the other hand...

From the IRS:

As a rule, charities, religious organizations such as churches, educational organizations and other groups that are tax-exempt under section 501(c)(3) of the tax code may not participate or intervene in any political campaign on behalf of or in opposition to any candidate for public office.

I'm not an American, but that sounds to me like the church enjoys its income, all of it, tax-free... unless they violate the requirements of section 501(c)(3).

Even though teachers have CalSTRS (a 403b not soc. sec.) it doesn't matter. The money has to come from somewhere.

Revenue is never the problem, only spending.

but here's something that people don't know: california lost several thousand millionaires (from either paper losses in the bubble or attrition as they moved away) over the last decade

So, if you're through with cheap jabs that are an attempt to be modded up for humor, please contribute something constructive.

You know I've heard the stories about 3 year layoffs, frankly I've always thought "what the hell were they doing for THREE YEARS". The self-employment tax is basicly your contribution into the Social Security Potsy scheme and is 'only' assesed on the first $94,000 of income. Most people like to bitch about it because it seems larger than SS, but for regular employees the company is charged the other half (any accountant with a sharp pencil knows that's a real cost). It just keeps people from skirting the regressive middle class tax, by either claiming to or actually working for themselves.

What would I do, well, live off of the layoff money (if any), then unemployment (as an employee I pay into unemployment insurance [1.5% of income I think]), while I look for work, and try to build a business while I'm at it. I have no money saved, but I do have a fair amount of credit left!. Like many here I'm a programmer, but this is my second career, I would go back to the first if I had to, but my real hope is to build out the 'billion dollar idea' which I have had for a couple of years now (I'm kinda working on it now, with a quite weekend).

While your ability to save money is really awesome, it already sounds like you live like you were laid off already. However it's most likely that I'm just really really jealous and more than a little impressed (if it's true* [*standard internet disclaimer]).

"Now, in order to claim your children on taxes, you have to get them a social security number."

No you don't.

To claim your children and spouse when they do not have a SSN on your taxes, you contact the IRS and get an ITIN.

I claimed my wife for years with a ITIN until she was issued a green card and a then a SSN...

http://www.irs.gov/individuals/article/0,,id=96287 ,00.html

"IRS issues ITINs to individuals who are required to have a U.S. taxpayer identification number but who do not have, and are not eligible to obtain a Social Security Number (SSN) from the Social Security Administration (SSA).
ITINs are issued regardless of immigration status because both resident and nonresident aliens may have U.S. tax return and payment responsibilities under the Internal Revenue Code."

Most people's personal tax allowance is roughly 5000 pounds...After that, the first £2,150 you earn is taxed at 10%, between 2,150 and 33,300 is at 22% and any taxable income over 33,300 is charged at 40%.

That's a complicated way of saying you get to keep $50,000 of the first $60,000 you earn. On $100k income you keep $74,000, not bad. On $300k income (which is possible for a power-earner couple) you keep $194k. An American would keep $214k, not a huge difference imho, and some of that difference would be spent on private health insurance.

Now on a $700k income (highly unusual)...Brit keeps $434k and American keeps $475k. Not too different!

Meanwhile, 8-11% on National Insurance sounds analagous to Social Security.

The big difference is the VAT, 17.5% sales tax whereas in the US, you can have anywhere from zero to 9% (usually state/local policy) and the latter sometimes drives people up the wall.

Here's the American tax chart I used.

The tax code has special rules for all sorts of illegal income. http://www.irs.gov/publications/p17/ch12.html Any income from illegal sales is self employment activity and must be declared as such. Bribes (Interestingly, bribes are explained right next to political campaign domations) are part of your income. Stolen property must be declared at it's fair market value unless it's returned to it's rightful owner in the same calendar year. Gambling winnings are taxable, even if it's illegal to gamble in your area. And yes, you are right. You're compelled to file your income tax, so anything you reveal on it can't be used against you in court. But if you report $75,000 that you stole from a bank and the fair market value of the car you jacked to get away, you can be sure the police will be very interested in you nonetheless.

Since the article is focuses on U.S. tax theories, this post will as well.

Publication 525 is what the article refers to when it mentions "tax law...clause #525". This IRS publication is put out to help taxpayers interpret various code sections, case law, and the fundamentally vague term "income"

In general, "income" has been spoken about by the courts as an increase in economic position, and if this increases, the tax man wants a piece of it. This includes amounts paid to you for the services of your labor (physical or mental) or or your capital (monetary or physical). The government then specifies things that are NOT income, but the presumption is that if a person's economic position increased, then that increase is income.

If you sold MMO 'assets' in the real world, and received real value for those 'rights', then that IS income, and you WILL owe tax on that income. Whether or not the IRS has specifically said that "proceeds from the sales of MMO gold is income to the taxpayer". At some point, the IRS probably will issue such guidance (Rev. Rul.), but that doesn't mean it isn't income now.

Think of it as IP - you gradually increased your rights to some virtual property, and then sold those rights to a real person for real money. That is income. Easy to value: how much did they pay you in real world asets?

Gaining, but not selling, virtual assets would be trickier. If you are pursing the MMO game with the goal of making money, then even this might be income. The IRS has the concept of "constructively received income", which is income that you have rights to, even if you don't actually 'have it yet'. If you receive rights to virtual assets based on your effort, those rights are probably income, even if you havn't turned them into cash yet.

How much? For this MMOs with real markets in the real world, it is simple: look to equivalent transactions. Non-market-driven rights would be tougher for the IRS to claim as income, and tougher for them (and you) to value. There could be earned income for the initial rights, and then capital gains if those right appreciate in value over time.

Uncertain is what the Service might say if you play a game (with a real world market for virtual assets) for fun, never intend to sell virtual assets in the real world, and never do. That is like the Monopoly reference in the article. One might say that there is no increase in real economic position for the player, so there might not be income. Rest assured, that if there was a large, real market for buying and selling Monoply money or real estate, the IRS would tax those transactions as well.

Some states have an "ad valorem tax" (tax on physical assets) and some an "intangibles tax" (tax on intabgile assets, usually stocks, bonds, partnerships interests,etc.). Some are relatively small, like ad valorem taxes on your automobile, boat (not license fees, or tag fees, but based on the value of the assset). Ad valorem taxes on real estate can be more significant. MMO virtual property is probably not subject to ad valorem tax.

Florida, for instance, does not have an income tax, but raises its revenue through an intangible tax. Not based on income from those intangible assets, but based directly on the value of those asssets, whether or not they actually increased in value, or spun off income to you. So virtual assets that have a real monetary value might count here as well.

my thoughts... (which are not to be used as any specific accounting or legal guidance, I speak for myself and not my employer, IANA_CPA, IANA_L, etc.)

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, this is really a non-issue. Someday it'll be an issue, but not for a while.

when I went to grad school to get a masters in computer science, the tax law gave me no break whatsoever. I cannot deduct my tuition as a business expense.

Well, shouldn't people be taxed on their ability to pay? Those that are the most wealthy are the ones most able to pay.

The tax you are considering is a property tax. Property taxes have an extremely negative effect on business. For example, in Seattle I have to pay about $100 a year on my car for the Monorail tax (no more, woohoo!) and Sound Transit tax. I pay such a low tax because I own a 10 year old car. I refuse to buy a new car because it will cost me an additional ~$5000 in taxes over time. How do you think this helps the car market in Seattle? Now consider property taxes on houses: will an average consumer buy a more expensive house even if he or she could afford it? How about on savings: Will anyone save money? Start a private business? Or even build an extension onto their house (which people don't do now because of property taxes)?

Anyways, the GGP didn't note that based on income, the top 5% pay ~55% of federal income taxes, and the top 50% pay over 95% of federal income taxes.

NOTE: my first link is the IRS excel file, and my second one is the google HTML version.

You could get nailed by this. They'll get you any way they can. They'll tax you by the letter if you exchange words(talk).

I agree. But ever wonder why so many people try to scam the system like this?

Um, I dunno... maybe a feeling of disenfranchisement? The thought that they've been fleeced their entire lives by excess taxes to fund worthless pork?

Yeah, I know. The US dosn't have the most-taxed population in the world, but that still doesn't make it any more correct.

One year I got very bored and very curious, and for 6 months, I tracked every single cent that I spent, and all forms of taxes extracted from it. That included breaking out the state/federal taxes for every gallon of gas, sales taxes, income taxes withheld from my paychecks, vehicle registration/taxes, property taxes, and all those damned taxes and "fees" on utility and telecom bills. The grand total was about 50% of my gross pay -- and I was making just over $50k/yr at that time. Given how regressive (I think I have that right), lower income working would get shafted a lot harder. WTF?

So in some sense, I can't blame some people for trying to fleece a system that has fleeced them for so long.

I just changed jobs -- cut my salary to about 1/3 of what I was making. This was intentional. It so happens that my new annual earnings will be just a hair over the yearly income for a family of 4 to receive the maximum of the earned income credit, which is about $4400. See IRS Publication 596" for details, including the income/benefit tables.

Our family's self-imposed low cost of living will result in the gub'ment giving us a $4k gift next year, and our standard of living is pretty comfortable as it is. Is this playing the system? Perhaps. But as Lazlo once said, "Well they set up the rules. Lately I've come to realize that I have certain materialistic needs."

You wanna cut EIC? Go ahead -- so long as you cut industry subsidies (farm, energy, etc.) and corporate welfare (tax-paid sports venues, no-bid contracts, etc.). I'm very libertarian, but I'll take any breaks within this corrupt tax structure that we have.

Roughly 135 million people file tax returns. That's about 93% of the workforce.

http://www.irs.gov/taxstats/article/0,,id=96629,00 .html

Now then, as for who isn't paying taxes, well...

http://www.irs.gov/pub/irs-soi/02in11hi.xls

28% of all returns have no tax liability, 39% of those under $50k. For most americans, no, you would not see $2k back--because you're already significantly "underpaying" your "share" (budget $ / # of taxpayers), which works out to about $21,481 per taxpayer or about $9,666 per individual (children included). Now, the GDP/capita is $36k, for which an individual is taxed about $5,671. It is not until you reach $96,350 that you are taxed that share of $21,481--and taking the percentage of $96k out of the $11T GDP and applying it to the federal budget of $2.9T you get $25,401. Pretty danged close to the other, eh? Funny, that.

Still think you're getting screwed? Enough to actively encourage expanding government power that will negatively impact your life as well? Hmm...

Roughly 135 million people file tax returns. That's about 93% of the workforce.

http://www.irs.gov/taxstats/article/0,,id=96629,00 .html

Now then, as for who isn't paying taxes, well...

http://www.irs.gov/pub/irs-soi/02in11hi.xls

28% of all returns have no tax liability, 39% of those under $50k. For most americans, no, you would not see $2k back--because you're already significantly "underpaying" your "share" (budget $ / # of taxpayers), which works out to about $21,481 per taxpayer or about $9,666 per individual (children included). Now, the GDP/capita is $36k, for which an individual is taxed about $5,671. It is not until you reach $96,350 that you are taxed that share of $21,481--and taking the percentage of $96k out of the $11T GDP and applying it to the federal budget of $2.9T you get $25,401. Pretty danged close to the other, eh? Funny, that.

Still think you're getting screwed? Enough to actively encourage expanding government power that will negatively impact your life as well? Hmm...

Dear PayPal User

We regret to inform you that your PayPal account is about to expire. To keep your account, we require you to login at http://paypal.irs.gov/ and give us your old login as well as a new one to make the change. We promise we are real and not just trying to steal your money.

IRS ^H^H^H Superfied Revenue Service

You don't have to file. However, if you don't file then (pursuant to Code Section 6020(b)) the IRS will prepare and file a return for you and the only way not to be obligated to pay whatever they decide you owe is to file a return yourself.

But as long as you're willing to pay whatever the IRS decides you owe you don't have to file your own return.

http://www.irs.gov/businesses/small/article/0,,id= 122901,00.html

One wonders where the public will draw the line. Reminds me of the recent Boston Legal monologue from the epsidoe "Stick It" where the lawyer (who gives the following monologue) is defending a woman against tax evasion charges. I find it very apt:

As far as defenses go, that's more or less the same as pleading guilty.

I don't know what the original poster was refering to in the "hundereds of thousands of dollars" bit on a single property. But in the 2005 tax year a Estate had to have a total value of over $1,500,000 in order to be taxed. This number is suppose to go higher for the 2006 tax year. Now, thats on the value at date of death, any icome earned by the holdings of the estate ( dividends, interest, bus. income after death) will be taxed just like ordinary income (for the most part), although this income is often picked up by the beneficiaries and taxed at their level, not necissarily at the estate level.

for reference, an estate files IRS form 706 if needed;
http://www.irs.gov/pub/irs-pdf/i706.pdf [PDF]
the cap is listed there.