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IRS Eyeballing Virtual World Tax Policies
Kotaku points out a Washington Post report about this year's recommendations from the national taxpayer advocate (an official who suggests improvements and updates to the tax code) which include developing clearer protocols for reporting taxable income from virtual worlds. We've previously discussed the implementation of such policies in China. Quoting the report summary (PDF): "By one estimate, about $1 billion in real dollars changed hands in computer-based environments called 'virtual worlds' in 2005. ... IRS employees have been unable to respond to taxpayer inquiries about how to report transactions associated with them. Economic activities in virtual worlds may present an emerging area of tax noncompliance, in part because the IRS has not provided guidance about whether and how taxpayers should report such activities. To improve voluntary tax compliance, the National Taxpayer Advocate recommends that the IRS issue guidance addressing how taxpayers should report economic activities in virtual worlds."
You truly can never escape the two inevitabilities of life: death, and taxes.
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If your generating enough income from "virtual worlds" that it needs to be taxed...
Well, taxes are probably the LEAST of your problems.
flat income tax. only way to go. anyone have a clue about how much freaking money is wasted on calculating this crap? its in the hundreds of millions of dollars annually.
If they want to tax real money gained for selling virtual items/services, that's fine. Technically it's already taxed under the 'Other Income' category.
On the other hand, if they want to take my Everquest Gold, or my World Of Warcraft Epic Mount, they can byte my virtual posterior. It doesn't exist, it can't be taxed.
Even if you took the route of "if you sold it for real money..." you still can't tax it. If you did, then you could be taxed for your car (you could sell it), your blood (you can sell it several times a month), your grandmothers old knicknacks (you might inherit them, then sell them), etc. All in all, a stupid idea.
Taxation of virtual worlds will mean players will have ownership over their accounts (currently trying to monetize your WoW assets is a bannable offence), and fraud and theft in virtual worlds will fall under standard criminal statutes.
Trying to enforce that mess will drain resources from trying to create copyright cops or other nonsense.
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CINC, 4th Penguin Legion
Can I write my WoW characters off as dependencies?
Gaming companies by and large insist that they own everything within the game. Basically a player "owns" stuff the same way a monopoly player "owns" his cards, houses and money, i. e. only in the context of the game. If there is a transition to real world money (gold on ebay), that is already taxable.
"Beware of he who would deny you access to information, for in his heart he dreams himself your master."
Nobody would argue that income suddenly became immune from income tax simply because it was earned using a computer and the internet. OK, which have convoluted rules about cross-border transactions, but not income tax. I think you'll also find that the taxmen also have existing arrangements (took 30 seconds on Google to find that) to deal with any attempt to use alternative currencies or barter exchanges as an end-run around tax.
The only difference between income from selling software or art on your dollar-priced internet shop and income from running a virtual hat shop in Second Life is a sprinkling of fairy dust. If second-lifers try too hard to make it sound like something new, different and scary, the danger is that the tax authorities will be only too keen to invent new, different and scary rules...
What I find depressing is that these "virtual worlds" are all taking the form of capitalist economies. Communism/Socialism may or may not work in the real world, but if I'm going to move to a virtual world which is supposedly limited only by the imagination of its inhabitants, I'm holding out for a post-scarcity utopia like The Culture or even the freakin' United Federation of Planets! If you don't have property then its much harder to have tax...
In a survey of 100 programmers, 111111 thought that duck-typing was a good idea.
Yes, you can deduct business expenses.
This is exactly the reason why taxation isn't anything to get hysterical about. If you make so much money from selling stuff that you actually have to pay taxes then you should be taxed -- just like all the other businesses selling stuff.
Now if only peddlers of religion were held to the same standard.