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How Long Till Virtual Currency Taxation?
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? "
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.
You slay some MMO monster, and it drops a small pile of gold, jewels, and several IRS forms for you to fill in.
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Will the IRS allow a one time, tax free gift to your in-game spouse for up to 100k plat?
If you destroy a no-drop item can you get a refund?
How bout deductions for funding your own crafting business?
Are repairs business expenses?
So many questions... and why do I think all the CPAs are going to be Druids?
(Sorry, no WoW experience, all EQ1 based references...cept the repairs)
to just tax the transaction point at which point you have to convert the virtual currency into the real thing. For instance, an EBay or paypal sale. It's easier (and more profitable) to tax all of EBay sales or paypal transactions.
If virtual currency ever gains real value (that is... you'd accept your paycheck in WoW gold instead of cash) then you might see taxation systems required to be in the game. But I doubt that will ever happen (Okay that's 50 gold pieces for the broadsword and I see you live in California so that'll be an 8% sales tax rounded up or 54 gold pieces.)
Al Capone was not allowed, by law, to sell bootleg liquor. He was, however, legally required to pay taxes on the income. He failed to do so, and went to prison for tax evasion...
Generally, bash is superior to python in those environments where python is not installed.
When you get an income, it gets income-taxed in the USA unless it is exempt. The fake-goods trailer was correct by reporting this income. I personally feel it should be taxed as realized capital gains, since it is worth nothing until sold for actual money. You should also be able to deduct the game cost. So, if game price is $50, and monthly fee is $10, and you sell something for $150 after 3 months, you've realized a gain $70. Plus, it is probably the seller's labor that is being traded (play-for-hire), not the virtual goods.
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!
MMO Quests are like orgasms:
You may solo them, I prefer them in a group.
The government is entitled to take whatever they please as long as they can write it into law and enforce it.
Do not confuse 'right and wrong' or 'justice' with 'law'.
Job? I don't have time to get a job! Who will sit around and bitch about being broke and unemployed then?
In most MMOs there is no transaction. The service contract clearly states that all items remain property of the service provider. Because the items cannot be traded for real money they have no value.
Justice is the sheep getting arrested while an impartial judge declares the vote void.
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?
Actually, yes. Well, not payable in drumsticks, udders or MMO silver, but....yes.
You'd owe taxes on the excess of the market value of goat over the market value of the two chickens. If equivalent tranactions value the goat at more than two chickens, then you just made a profit, and probably owe personal income tax.
Income doesn't have to be in cash, and bartering counts. An equal trade would probably be counted as a either [Revenue-Cost of Goods Sold=zero Net Income], or a like-kind echange of assets.
Reportable on Schedule C (profit or loss from a business-sole proprietorship), or Schedule F (farm income and expenses)