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Virtual Economies Attract Real-World Tax Attention
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."
I'm surprised this wasn't done years ago when people were making real money off of Ultima Online and Asheron's Call. Good AC accounts, like Animal the first level 126 Battlemage which went for $5,000, were going for thousands during it's prime and even a year or two afterwards.
I can't wait to pay my tax in WoW gold.
Microsoft: "You've got questions. We've got dancing paperclips."
Given that it is against the Terms of Service in WoW to exchange in-game currency or items for real life currency or items, I can't see that there would be any legal standing here.
Also, I believe Second Life's ToS explicitely states that Linden dollars have no legal value, also trumping any sort of tax law.
But then, neither was the income tax...
Dear God, no! Not that! Engineers will never be able to keep up with the Alchemist or Taylor lobbiests!
The cancel button is your friend. Do not hesitate to use it.
You pay your subscriptions right?
Hence it would be pretty hard to interprete them as income for you...
Any time I'm due to pay taxes, I'm going to claim a loss on my virtual accounts to balance it out. Wheee!
Timmy: WOW a +2 Vorpal SWORD SWEET!
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!
Lawyers, Tax inspectors and accountants.
:(
Myself, I am a level 47 beancounter, I defeated the IRS during a daring raid. Many of my friends died in this battle
liqbase
News flash: When you make money, you owe income tax on it. Doesn't matter if the money comes from real-world work, virtual-world work, services, corporate gifts, or even illegal activity. The second you get U.S. dollars for your work, the IRS gets to claim a chunk of them.
For more information, click here.
Congress is awash in money. The only problem is that they waste so much of it. Is there really a need to find new ways to rob us?
Where were you when the voynix came?
I always felt there would come a time that if someone stole your 'virtual item', they could be arrested for stealing. This will be one more step towards reaching that goal. Because now this is something you would pay taxes on. But how does one decide how much to tax? Is it considered 'investing' if you decide to buy all the WoW gold you can and then raise the price of it when you resell it? Because in all reality, Blizzard can just change the amount of gold you have in their database and poof its gone. And how do you handle hacks and what not? Will that become illegal if you sold 'gold' that you achived through hacking?
This can't be real. Are the virtual tax collectors gonna lock me up in Orgimarr if I don't file my W-2's? Does every purchase I make count as a deduction, since my "job" is killing things, and everying I buy helps me kill things? Will a tailor have to start crafting receipts?
Whether or not there is some sort of god, I'm not supposed to say/god is a word and the argument ends there-Smog
They can only tax actual income made from the sale of said items ingame. They cannot put a value on virtual goods until the actual event of purchase/sale occurs using real money.
This may have been an issue at one time when I actually knew people making a living on EQ. However, I really doubt it's a huge deal today. Because of the international aspect of most of these games, lots of people with lots of time on their hands have time to make most items and currencies almost worthless in real money. I used to know 5 people who supported themselves on EQ transactions. Today, I don't know any who support themselves via mmorpg.
If an officer ever threatens to taze you, say you have a pacemaker.
"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!"
Well, maybe we can have it go both ways. The real world might be improved by having guys dressed like Gimli scattered over the lawn killing rabbits. Or we can have crowd of griefers lurking at the key entrance points to all of our cities and towns (instead of just at Detroit like we have now). We could have real-life gold farmers making goods for real cheap in China.... oh wait.
Where were you when the voynix came?
...income made in the USA is subject to federal income tax. Even your friendly local crack dealer technically owes income tax on his illegal drug profits.
Wouldn't it be more likely to go the other way? If you're making money off of MMORPG, then I would think the subscriptions could arguably be a "business expense", and hence you would get a tax break.
The real question is, "Is selling virtual property" subject to capital gains taxes (like selling a second home or shares of stock)? There's an argument to be made there -- and I'd be curious to see what Congress says.
Is it considered earned income or a capital gain?
From a tax perspective, there's a huge difference.
LK
"Hi. This is my friend, Jack Shit, and you don't know him." - Lord Kano
Just remember to deduct your expenses toward creating your virtual wealth. Buying the retail box or download, the monthly service fees, upgrade fees when new content is released, etc. should all be legit deductions to such a tax.So should some percentage of your electric bill to power the computer. Maybe part of that nice new desk, chair, and all that too. If they want a tax, they better recognize the business expenses we're ging to to create that income, virtual or not, and if they leave the deductions part out of this weird tax law they better be ready for a virtual revolution.
I wonder when Monopoly will stat coming with a per-game tax too...
.. I don't think this will have as much impact as they think.
I'm surprised this wasn't done years ago when people were making real money off of Ultima Online and Asheron's Call. Good AC accounts, like Animal the first level 126 Battlemage which went for $5,000, were going for thousands during it's prime and even a year or two afterwards.
You, nor many others are really getting it. They're not going to tax your stuff in game, they're going to figure out how to shackle eBay with a scheme to report all your personal sales to the IRS, then tax you on them. Won't matter whether you're turning a profit or not, they'll want a cut of it.
A feeling of having made the same mistake before: Deja Foobar
The only case where I can see taxation having any success is when a company facilitates it in a direct way. So, if I can cash money out of the game directly, you might very well be forced to pay a tax in the same way you are forced to pay a tax when you get a paycheck from work.
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.
I wonder if you could create a business and file your monthly subscription fee as an expense.
"Gimme gimme gimme gimme gimme gimme..." "But I um, actually stole this money off of that old lady that I just shot in the skull..." "28% bitch! Gimme gimme gimme gimme gimme gimme..."
Excuse my speling.
Making The Bar Project
They don't give a damn about how much WoW gold you collect, but they DO care about how much that gold brings you in real money when you sell it on eBay.
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.
ad logicam Claiming a proposition is false because it was presented as the conclusion of a fallacious argument.
if you made a bunch, expect the IRS to be coming after you... income is income, and unreported income still can mean trouble!
stuff |
The article is discussing the idea that in-game income should be taxed, not just when items or currency are converted to real-world money. They are basically saying that if you get loot from a monster and sell it at the auction house for in-game gold, you could be taxed in-game.
Some of you obviously have only played WOW and know nothing of what a major source of income account selling was in the old days. AC accounts regularly went for 500-5,000 (5,000 was the most any 1 account ever went for in AC)
I know one of the Blood monarchy's cores in AC made $30,000 in a year from selling AC accounts/items, as well as about $40,000 in UO items/accounts when he quit to move to AC.
Whether the game manufacturers say it has legal value or not, if you cash in, that's income, and you have to pay tax on it.
That simply is not true. You don't have to pay any income taxes on it if they don't know about it. Saying that you must pay taxes is like saying that you can't buy drugs. Sure you can. You just take some level of risk in doing so.
Let's say you accumulate items worth say $1000 if you sold them - does the act of accumulating them cause the income or does it exist only if sold? Can you deduct the cost of playing? What happens if you trade an item in game? Did you just create a sale?
While this may seem trivial, those are the type of issues I see the IRS struggling with when deciding what constitute income and when is it earned.
Personally, if no cash or other goods of value are traded only online and not for cash or other goods / services in the real world then in my mind no income was earned. The IRS may take a different view.; especially if you barter a game item for something tangible in the real world.
I'm a consultant - I convert gibberish into cash-flow.
Wouldn't this have to depend on whether the "stealing" is considered part of the game? No one's ever been arrested for stealing the blinds in a poker game, or stealing 2nd base in the World Series. But if you hack into a WoW server and give yourself 10 million gold, that might be against some real world law...
Will we get to the point where real-world courts are asked to decide whether someone's action in an online game constitutes cheating? Who defines cheating?
I could see this ending up like card counting in blackjack, where there's no law against it, but if you do it and get caught you'll be banned by the people running the game.
Remember the days when Republicans were the party of fiscal responsibility?
True, but you usually have to materialize that money first. Capital gains aren't taxed until you sell the object. (That's for income taxes; property taxes are different.)
I can see the IRS taxing the income when you convert quatloos or whatever into dollars and have them transferred into a bank account, but trying to tax virtual money sounds like an administrative nightmare.
In theory one can use the barter system and step into massive gray area with the IRS. They usually ignore it simply because it would be too much work. Trading virtual goods for virtual dollars would probably be treated as barter, on which you DO owe taxes (under schedule C, business income).
It's getting more real than we may like to contemplate.
These game writers are essentially bankers. They are printing virtual money with no real limits, and now there appears to be enough connections ( permitted or not ) to real money that they are increasing the real-world money supply ( M1 ). They are not, at the same time, increasing the supply of tangible real-world goods.
The increase in the money supply without a proportionate increase in real-world goods causes inflation. Inflation is usually followed by ( some say 'cured by' ) a collapse and long depression.
So i want to anonymously transfer some funds to Al Quaida or Al Capone or Al Bundy, i just have to:
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
I'd rather we declare war against these buttheads rather than sending them past due tax bills. Gold farmers destroy the economies of games like Warcraft, at least they make like damned hard on honest in-game farmers. They depress the prices on the resources you harvest and increase the costs of the auction house goodies you're looking to buy. I wouldn't mind seeing some of these guys waterboarded.
I swear to God...I swear to God! That is NOT how you treat your human!
How many of us play board games? Or card games? Why not tax all those transactions. What about borrowing items from friends?
The game company is already taxed for the profits they make. And there is a lot of money moving hands there.
I can see taxing profits from a game (i.e. if you make more than you spend in monthly fees or whatever) and taxing profits the company makes, but anything else is absolutely silly and greedy.
...is to vote. Or have gaming lobbyists.
There are other types of income with real-world value that the IRS doesn't go after. What about frequent flyer miles? My employer buys my tickets to go to meetings, as abusiness expense and I get the mile. I have enough to fly around the world first-class, but aren't required to report them on my taxes.
But this then raises the issue, if i trade some weapon that i could sell in real life for say $50, for a piece that is worth $100 in real life, even though no real money traded, will i be expected to pay the differance in taxes? Or what if i sold it in the game for a bunch of online currency? How do you decide what gets taxed and what doesn't?
If they consider selling wow accounts as capital gains, you could factor in costs per month. So if i sold a level 60 character for $300 but it took you a year to create him and factoring $20 month charge. Your taxes would be on 300 - $20 * 12= $60. Oh wait we are talking about the US tax code, you'll pay taxes $300 because the gamer community doesn't have enough money to bribe the politicians.
Have you ever been to a turkish prison?
This seriously would have sucked when I was selling stormshields, etc. on ebay three years ago. The only way the gvmt is going to even attempt to regulate this is if they weed their way into Ebay/paypal and monitor stuff from the inside.
Bury me in mashed potatoes.
It doesn't sound like they're taxing what you have in the game. They're just taxing you if you sell your game assets and make real-world money. This isn't something new. If I sell something for profit, I get taxed on the income, no matter how worthless the item is that I sold.
tell it to Al Capone
He's wearing a Helmet of Insight +5.
Knowledge is how to play a game, intelligence is how to win, wisdom is knowing what game to play.
Why do government officials always want to tax things they do not understand? When it turns into real currency, people have to report it as income, or if your smart as a sale and thus you can write of legit expenses of generating that sale. Plain and simple.
Why not just put a counter on the tube marked for virtual currency currently untaxed, cause that's how the internet works right?...
What does this meen for EULA's? Does it meen that US law trumps Eulas? It so this may be a good thing.
On the plus side, your WoW account fees would become tax deductable as a business expense.
It will take them a while to figure out how to tax reputation based currencies like Whuffie.
There's a question of jurisdiction. The host government has unquestioned jurisdiction over physical machines hosting the games, but the virtual worlds are different. They don't necessarily exist within the coordinates of the host government's borders.
...
To subvert virtual lands into colonies, governments will have to raise a virtual armies to assert rule.
The inhabitants will most likely resist.
Can anyone see reservations, re-education camps, trails of tears
Of course but that's true with everything and isn't a surprise. If you win money in a game a golf you're supposed to pay tax on that too...
If you sell some cocaine to someone you're supposed to pay tax on that too...
In the was of WoW I would suspect most of the transaction take place externally - one person sends another person a check and then some gold gets transferred in the game. Of course if the IRS can get details on people who seem to do a lot of transfers then they can do an audit and try and find all that undeclared income. (just like they'd love to do with all those offshore online casinos.)
Well, that's exactly what a lot of people are missing.
/month in Second Life, hell yes you should be required to pay taxes on that. But you'll be able to deduct the cost of your internet access, computer depreciation, office space rental, etc. from the gross income.
:-)
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
i think the Treasuary department is just looking for a reason to pay WoW on the job
'...if only "Jumping to a Conclusion" was an event in the Olympics.'
Et cetera. Let me know if you are interested.
Is a movie a tangible, real-world good? Or a song? Much of the American economy already depends on such things. I would say that a +5 Double Axe of Leetness is as much a real-world good as is a copy of Hit Me Baby One More Time. Any value that game money has is based solely on its ability to buy such things.
Real Daleks don't climb stairs - they level the building.
...those folks can write off their WoW account fees, and depreciation on their computers, etc. as "expenses"?
"People" using "unnecessary" quotes should be "shot".
I, for one, demand that the devs give the taxpayers some love and nerf the IRS. Everybody bump until we see some blue text!
trustedworlds.net - gaming, security, and the gunk that lives in between
And are you to get arrested for murder when you kill their in game character? (Arrested out here in the real world that is...)
p hp?topic_id=4146&forum=171&post_id=61131#forumpost 61131
all the best,
drew
Come on slashdotters, you know you want to...
http://www.nanowrimo.org/modules/newbb/viewtopic.
FreeMusicPush If you want to see more Free Music made, listen to Free
So pay them those taxes, but if they demand, make your demands too: deduct the costs of playing: cost of PC, cost of electricity, cost of buying the game, cost of monthly subscription fees, etc. :)
BTW, how will they know you had any income ? Who will tell them that you are playing, what is your character's id and how much money you made with it ? Will they ask every player's all data from the game maker ? Can they ask and will them give ?
I am putting myself to the fullest possible use, which is all I can think that any conscious entity can ever hope to do.
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!
Like woodworking? Build your own picture frames.
Next they'll consider "/random 1 100" as online gambling.
I disagree that they're essentially creating real world inflation. I base that belief on the fact that, no matter how much virtual assets exist in the world, one can effectively consider the real world currency ammount to remain the same during a small period of time. If 500 billion gil/plat/etc were injected into a VR economy, the change to the RL economy is nil. HOWEVER, the exchange rate from VR currency to RL currency is devalued (more VR currency per RL currency unit) because it is exceptionally easier to get ahold of VR currency.
Don't be mistaken. VR inflation does not cause RL inflation unless RL merchants honor VR currency as valid in a fixed 1:1 ratio.
Nice idea!
And as the other post mentions: what about your office space, or your new (:D) computer with a video card to run SecondLife smoothly.
Would it really matter for the IRS/Chamber of Commerce if one is developing virtual goods like software, web pages or virtual goods like virtual shops, clothing, furniture?!?
In the event that you have set up a business model that sells virtual equipment/accounts from an online game you would treat your business as you would any other service oriented business. Income would be generated at the time of sale rather than at the time of acquisition of an item since market pricing would provide fluctuations in the value of the commodity. Accounting for your machine, home office expenses, percentages taken for online payment options, advertising, game costs, etc. you would file under a 1099 just like any other independent contractor who provides a service.
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.
Already happens, FFXI Auction Houses charge a percent to put stuff up for sale for others to buy. In the major cities it's pretty pricey. I seriously doubt they're trying to tax virtual economies tho. So what, the IRS gets a billion gold in WoW because you filed tax on each of your toons. and whats the point of that? If they want to go afte rthe ebay'ers thats fine with me.
Some see the vessel as half full; others see it as half-empty; We pour it out on the floor and laugh
This is quite different than for instance in Germany: There, income from gambling, lottery and similar games are free for the first year (the following year they are taxed as property though (while the property tax in the current form is no longer demanded due to constitutional problems, and a new property tax system is not in place yet)).
Can i claim that i play games as a business then, thus write off my game purchases and broadband costs as expenses. Surely all i have to do is sell one character on eBay each year to show i'm making an effort - doesn't really matter that i'm making a loss, surely.
Sweet ;)
Your post gives me an idea.....
Used slashdot handle "lottameez" for sale, just $5000-US.
This lightly-used handle is about 2 years old with an ID in the low 800K's and comes with Excellent karma. Occasional moderation and meta-moderation privileges provided. Clever sig not transferable.
Yeah? Well I think you're overrated too.
Is there really nothing more behind the desire to collect additional taxes?
http://en.wikipedia.org/wiki/Missing_trader_fraud
:P :)
1) Buy World of Warcraft.
2) Set up a World Of Warcraft goods import business.
3) Buy the most expensive swords and armour you can from the Chinese market.
4) Claim back Value Added Tax from Her Royal Highness Customs and Excise.
5) Sell them back to International Game Exchange.
6) ???
7) Profit.
8) Seriously, Profit.
Aside from that:
Can you still claim unemployment benefit if you play World of Warcraft?
Surely I won't have to pay tax if I'm a student right?
What about if you're a minor?
Will I get a tax deduction for using a normal mount instead of a gold guzzling epic mount?
How much gold do I have to earn per month before I change tax brackets?
Is anyone seriously going to implement laws like this?
Government officials find something else to tax, news at 11.
-- If we don't stand up for our rights, now, there will be no right to stand up for them later.
Can the crack dealer write off his bail bonds, 22" dubs, and Escalade sound system as expenses? How about those crack whores - as an entertainment item, usual and customary in his line of work? I doubt the IRS will accept those deductions.
So, if selling in-game items in the real world is "illegal" (against the TOS), can you have legitimate expenses?
Any accountants for crack dealers out there? If they do pay taxes, don't they generally lie about where the money came from? (Thus making it a moot point of admitting to the "expenses" involved.)
This issue is a bit more complicated than you think.
Hello, I'd like to introduce you to a game that generates thousands of dollars in sales daily (if not tens of thousands of dollars in transactions). That game is Magic Online.
Everyone here is commenting about WoW or EQ or AC, but this seems like small potatoes. People spend thousands of dollars to buy Virtual Cards in Magic Online. Of course, a virtual cottage industry has burdgeoned: dealers and independents operate on-line stores, complete with trading bots.
All of these bots effectively operate at a profit, which can net lots of "tix" (one online USD) for the seller. Of course, these tix need to be converted into actual dollars which is where e-bay comes in again.. Tix sell for an average of 90 cents on the dollar (to accomodate ebay and pay-pal fees). Many others offer tix for sale via Paypal directly from within the game, which cuts back on fees, but drastically increases fraud.
Add to this Wizards' "real-life to virtual life" stop-gap. Anyone who collects a complete set of on-line cards can cash in that set of cards for a real set of cards. This was done with good intentions, but dealers can profit from these intentions by converting their virtual card collections into real cards. Collecting a set can be difficult, but dealers can benefit from having a larger scale.
This means that sets sold in cash can go from virtual to pocket completely un-noticed, heck they were never even on the balance sheets.
Add to this that players play tournaments on-line. All of the prize is given out in product. But when winning a big 90-man tourney gets you two boxes of virtual cards (3.69 * 36 * 2 ~ $265), this is not an insignificant amount.
Given the above info that this stuff has cash value, I think that Wizards of the Coast (owned by Hasbro) has done quite well not only dodging the IRS, but also dodging all of the on-line attention. Collecting $600 for a WoW character is nothing compared to some bot-run Magic stores that profit in the hundreds per month.
In order to answer your question, you have to clarify what you mean by "movie". If by "movie" you mean "a piece of film or other object that, perhaps when manipulated by another device, creates sounds and images" then a movie is in fact a tangible, real-world good. If you mean "the images produced by such an object" then no, a movie is not a tangible thing, but is an entertainment service. That is, playing a movie many times may have entertainment value, but it does not increase the number of pieces of film.
Interestingly enough, a virtual good does not actually increase the wealth of society, but it may have value. Remember, governments typically tax value, not wealth; there is a subtle, sneaky difference there.
"There are a dozen opinions on a matter until you know the truth. Then there is only one." - CS Lewis (paraprhase)
Right question: can they write it off without getting audited?
Cue Gene Hackman: "I don't care about an indictment. I just don't want them getting a conviction."
//Information does not want to be free; it wants to breed.
They seem to be able to support themselves just nicely, and I hear that they are increasing in number.
---- "XML is like violence. If it doesn't fix the problem, you aren't using enough."
It seems to me that, if we are going to consider that money in virtual worlds is taxable, that it should be treated like money in foreign accounts. I'm not a tax lawyer, but if you have more than US$10,000 in aggregate in foreign accounts, they may be taxable and you may have to file a U.S. Treasury Form TD F90.22-1 annually. A foreign country is defined as geographic areas located outside the US, Guam, Puerto Rico, and the Virgin Islands. Granted, this may invalidate prior case law where the internet was defined as being within the US, but I think it is very important to set a precedent that the internet is one unit that encompasses the whole world, and to rule that the entire thing is located within the US is folly.
:: :: :: ::
The simpler solution is to say that while the virtual possessions are still virtual, they are worthless. However, once you make real money off of them by selling, the sales are taxable in the same way that plants you have grown on your property are not taxable, but as soon as you sell them the revenue is taxable. Otherwise, this situation is parallel and displays the idiocy of taxing virtual possessions as capital gains:
MMORPG : FPS Tournament
virtual gold : frags
cashed out value : tournament winnings.
Isn't it absurd to say you should be taxed on frags gained in pursuit of a tournament victory? Or, to put it in terms more old people (read: legislators and judges) would understand:
MMORPG : tennis tournament
virtual gold : points
cashed out value : tournament winnings.
Now, does Maria Sharapova get taxed on points she won in a match? NO! She is taxed on tournament winnings only. Thus, by analogy, a gamer should be taxed on real earnings made by "cashing out", and not by what he possesses in the virtual world.
Funny that they mention World of Warcraft, since it's against the WoW Terms of Service to exchange in-game items for real-world currency.
"I'll say it again for the logic-impaired." -- Larry Wall.
given a source of power didn't want to legislate to control it. Give a source of income they desire their portion of it. The irony is that some of these aren't considered corrupt.
www.voiceofthehive.com - Beekeeping and Honeybees for those who don't.
Don't they tax international money transfers at the moment? How would they check that a US player doesn't transfer funds to a Chinese player or whatever?
(Correct me if they don't actually tax international transfers)
Send email from the afterlife! Write your e-will at Dead Man's Switch.
Leave us gamers alone! We've done nothin to you!!
And wtf.. they tax us for... what?!
and what will end up with that money?
http://naerey.switch-case.org
Simple and beautiful summary of so-called "democratic" taxation: two wolves and a lamb deciding what to have for dinner.
[ home ]
The second you get U.S. dollars for your work, the IRS gets to claim a chunk of them.
Worse; barter income is also taxable. This has some silly implications.
Suppose your primary source of income is from working in the US as a hitman for a Columbian cartel, and the cartel pays you in smuggled cocaine -- in weights valued far more than the rest of your personal net worth combined. You owe tax on the income based on the street value of the nose candy, even though the employment behind the income is illegal, the income is barter instead of cash, your posession of the barter item is illegal, and that converting the barter to a legal tender medium for paying your taxes would require comission of a separate felony.
Don't you love this country?
//Information does not want to be free; it wants to breed.
I can kind of understand charging people tax if they sell accounts, currency, or goods, but where does it stop?
Do they start taxing you for you new epic sword, or your new tier 3 chestpiece?
How do you estimate the value of something that doesn't actually exist?
Don't buy WoW Gold! Make it yourself!
I think many readers missed the point of the article, which is not that gamers have to report any IRL income from the game on their tax forms, but rather, how do you make a suitable tax scheme within virtual environments. Many virtual economies suffer from either significant inflation or deflation, which has a tendency to benefit the uber rich players, and penalize the more normalized income players. Which is not unlike IRL economies in different countries around the globe.
I for one think that using virtual economies to experiment with tax reform ideas is an idea far overdue. For example, wouldn't you like to see the The Fair Tax put into practice to see what ramifications it would have on a functioning economy? I mean, that is legislation that is posed annually to the US Congress. Or even implementing a tax system like what a country currently employs, then mucking with it to see if there is a better option.
Unfortunately, while this is a worth while goal, many virtual economies do not have the same market forces as a real one. For example, barrier to entry into a industry is very low. You're an enchanter in WoW and want to be a Tinkerer? No problem, drop your skill and work up points in another. IRL it's not so simple. You want to be a automobile producer? You can't simply aquire skill points and make it happen. You need to purchase capital, expensive capital. Plus virtual economies suffer from other problems as well, such as the ability for people to gain significant market monopoly power. Those of you who play WoW on Arthas and are Horde. Um, sorry about running the Auction House prices on gems up 500%, but the game let me... Game manufacturers and GMs really don't regulate the economy as much as say the Federal Reserve would, and they allow players to establish Cartels and other organizations that will allow them to set prices and control the flow of goods.
While virtual economies are not perfect, with some effort, we could really use them as models to test economic theories without affecting our IRL economies. This would be great for Economists who work on tax reform and other areas. Kudos to someone else finally figuring it out.
-Runz
If a job's not worth doing, it's not worth doing right.
Would be fun so see a bunch of orcs and necromancers raid congress though.. ;)
And when you gaze long enough into the code, the code will also gaze into you.
I think the simplest solution that protects consumer privacy, prevents MMORPG companies from collecting Tax IDs and issuing W-4s is to have a virtual sales tax. If indeed these sales do constitute legitimate income for real people, then I think SL should simply bargain with the IRS and say "there's no good way to tax people who cash in from their virtual earnings, so we'll just collect a tax in Linden dollars, convert it to real currency, and send you a check and call it good." Sounds like the easiest solution at this point. It also prevents real governments from getting too involved in what are essentially virtual foreign nations. If we can keep taxation issues at arms length like this, I think it's a good way to start addressing the issue without raising a terrible ballyhoo.
Funtime Candy Wow! - my plan for eventually conquering Japan.
Now, I don't play any MMORPGs, so excuse me if I'm talking ignorant nonsense, but aren't these games perfect for money laundering? Here I am, a small-time drug dealer (note to The Man: I AM TALKING HYPOTHETICALLY), wanting to buy a load of gear off my local kilo man. I put a load of money into the game, carry out some transaction between my character and his, he takes the money out at the other end, clean as a whistle.
Is there any reason why this wouldn't be possible ?
TFA was referring more to virtual assets that get converted into physical currency, but your point raised a question for me: If you got a tax bill due to the IRS considering virtual gold as a real asset, then could you pay that tax bill in virtual gold?
Pi Ran Out
If you win $100 million, you get the whole $100 million, right now. And you don't owe any tax on it. Yay, Canada!
Dude, that's like $1.87 US. I wouldn't be bragging...
excellent point.
If you plan to ever make income through games, then all games you ever bought and the computer costs to play them improved your earning potential. Just being able to write off your computer software and subscription costs will cover most people's profits.
If anything, I've always thought of accounts as a capital transaction. You are reselling the game, the account is free. There is a capital gain equal to sale - accumulated costs.
Not true.
When you make virtual (virtual meaning not-real) you should only owe (virtual) taxes.
Seriously though, the only time the government should get involved is when that virtual money is liquidated to "real money.". This is more the case where the government is trying to extend its funds by assuming that a "game-based transaction" has any bearing in the real world excluding the transfers of funds that occur when you put/take money out of the game.
You might as well try to tax poker chips in Vegas. Sure there are millions of dollars of transactions done on a nightly basis in vegas using poker chips, but that doesn't mean that you should tax every single game played using the chips. Especially since you're already taxed when the chips
Reasons - Can you imagine the repercussions when government funds are determined by virtual economies that are completely controlled by the game company????
or in WoW Gold...
80 CC D8 AF AE D3 AB 54 B7 2E CE 67 C7
You'ld claim the losses on Schedule A, based on your honest recollection. In case your claim was challenged, I'd strongly advise you to print off a statement of bank account activity, canceled checks, or similar documentation that showed when amd how you had funded your losses, and to keep a year long gambling diary that records your wins and losses, locations, and dates. You should also keep non-winning lottery tickets, track tickets, inside casino ATM reciepts, or whatever else seems applicable, at least to the extent of your loss claimed. In an audit, you should expect the IRS to want more, often much more, than just your copy of a W2-G and your unsupported word.
(Yes I am a tax pro - this is not official advice, and I am not charging anyone for it. If this were official advice, I would go into some necessary detail and maybe advise something a little different, based on the person's specific tax situation. Please, all readers, treat this as a general hypothtical case only - I wouldn't even comment on it if it wasn't a relatively straight-forward, simple question. I'm afraid that's all the advice on this point I should ethically give, and if it generates any more questions I'll have to refuse to go further.)
Note too, if you don't have enough total expenses to itemize (you had to exceed a base of $5,000 per filing single or $10,000 Married, Filing Jointly, last year), then you still have to report gambling winnings even though you can't deduct losses. Large gambling winnings from legitimate casinos or state lotteries will result in the winner recieving a W2-G, which looks much like a regular W-2, but records gambling income. The government gets a copy of those too.
A W2-G should be generated for:
winnings of $1,200 or more from slot machines and bingo.
winnings of $1,500 or more from keno, minus the cost of the tickets.
winnings of $600 or more from horse or dog racing.
winnings of $600 or more from state lotteries.
winnings of $600 or more from poker tournaments.
(2004-2005 limits, subject to change)
W-2Gs are not required for typical wagers won from table games such as craps, blackjack, roulette, baccarat, etc., but there is other paper work (money laundering rules require cash transaction reports) which should happen if you engage in aggregate cash transactions of $10,000 or more in any one day. Note that your account puts you under that limit in all three cases you mention, but for your more hypothetical example, sometimes it is like they give you reciepts, as part of this bigger process, and that in turn would depend on the exact situation.
Cruise ships are notorious for not giving required paperwork, with some problems reported at Indian casinos. Vegas is generally immaculate about observing these rules.
Who is John Cabal?
Only pay taxes on items when they are sold at retail. Sell what ever else you want (including your virtual services) and make as much money as you want tax free.
DNA is a Turing machine. You, however, being dynamic and emergent, are not.
What people are worried about are not the profiteers but the average gamer who never trades items for real money. If those ingame items were declared valuable finding phat loot in a game could be considered income. Of course the profiteers have to pay money, it's income after all but people are worried that game assets are counted as income, not just the money from the sale.
Justice is the sheep getting arrested while an impartial judge declares the vote void.
Does killing a mob and taking its gold count as inheritance?
Justice is the sheep getting arrested while an impartial judge declares the vote void.
If they tax me for $ I make selling virtual stuff... will I be able to deduct the expenses I incur in gaining those $? I would love to add a $180 deduction to my yearly taxes
The Joint Economic Committee has issued a press release to clarify the purpose of the Committee's planned study. Here are the headline and and some text from the release:
...if the transaction takes place entirely within a virtual economy, then it seems there is no taxable event. Such distinctions should be addressed and resolved in a common-sense manner.
d f
VIRTUAL ECONOMIES NEED CLARIFICATION, NOT MORE TAXES
WASHINGTON, D.C. -- The past few years have seen a dramatic increase in the popularity of online gaming and the virtual economies that accompany them. The population of these online worlds has been estimated to exceed 10 million people worldwide. Because of their newness, some uncertainty exists regarding taxes and intellectual property rights.
And here is the link to the full press release: http://www.house.gov/jec/news/news2006/pr109-98.p
Probably, yeah. Poker tournaments are tracked things, you sign up on a computer using your Poker Club card (at least at the Casino I was at), the payouts are calculated on the computer, the winners are given forms printed on the computer that are given to the cage to exchange for cash (or chips, I suppose). Since they don't have anywhere near that level of tracking available for casino table games, they have no way of proving that you didn't buy $4,000 in chips to cash out that $3,500.