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Dragon Slayers or Tax Evaders?

Posted by Zonk on from the i-don't-want-to-fill-out-tax-forms-for-killing-a-kobold dept.

Julian Dibbell has a piece on the LegalAffairs site exploring the possibility that MMOG transactions could be taxed. From the article: "June 2003. I set myself the following challenge, posting it on my web log for the world to see: 'On April 15, 2004, I will truthfully report to the IRS that my primary source of income is the sale of imaginary goods--and that I earn more from it, on a monthly basis, than I have ever earned as a professional writer.' In the course of this project, I made a total of $11,000 selling on eBay the items I won playing a game called Ultima Online, $3,900 of which was in the final, most profitable month. I reported my profit to the IRS, and I paid the requisite taxes. But after I did so, a troublesome set of questions continued to nag at me--for which even IRS publication 525, entitled 'Taxable and Nontaxable Income,' couldn't provide answers."

1 of 40 comments (clear)

  1. Re:Business Expense by dougmc · · Score: 2, Informative
    However, in order to write off 100% of the monthly fee, he needs to be able to "prove" that he plays his MMORPG only to make money, not just for the fun of it.
    Somehow, I doubt it.

    After all, many of us have jobs/businesses that we consider `fun' ... but we can still deduct legitimate business expenses.

    Ultimately, the IRS sees the difference between a hobby and a business that a business makes a profit (or at least it's intended to make a profit, and I believe that it needs to do so at least 3 out of 5 years or so, but I'm not sure on that point.) If you're making a profit playing MMORPGs, then you should be able to deduct the expenses incurred in playing those games ... but you'll also have to report the income. It doesn't really matter if it was `fun' or not.

    Of course, I'm not a CPA, and this is not intended as tax advice. Consult your tax advisor.