Creating a legitimate "business" in SL to make RL money...

Here's what I understand, so far. If you want to live the fantasy of running a business in SL - from which you make an RL living (in the USA, at least), then you need to do the following:

1. File for and receive a legitimate business license from the government.
2. File IRS forms 940 and 941.
3. Register all appropriate trademarks and copyrights with the appropriate agencies.
4. Report any and all income from SL to the IRS, and pay the appropriate taxes.

Is there anything I've left out?

Come up with a product or service to sell?

You missed the most important part.

Time Travel back in Time 2 years.

Don't forget

6. Work your ass off and spend more time with your business than you do your friends. And enjoy it.

Seriously...if you expect to make a living off of your income from SL...then you've got to follow the same rules and regulations small businesses in RL follow.
Or am I wrong?

I'm not talking about making 5 or 10 USD per month...but making at least 1.5-2k USD per month. Something that's at least a middling "living wage" in RL.

That step is true regardless of whether your business is based in RL or SL -- running your own business takes a lot of time and energy.

-Atashi

If you are going to form a RL company, any $$ you cash out of SL which was earned in your online business is taxable revenue. You will need, if you intend to form a legal business in RL, to follow the same rules/regulations/laws any other company would.

Or, you can simply claim your earnings from your SL business to your regular tax returns as "other income". Many businesses in SL don't really need to register as a legal business in RL. Just declare the income if you are worried about the tax man taking you to jail.

And technically, you only have to declare what you cash out of SL as income, since L$ is not a legal tender.

Assuming you don't want to incorporate (you likely don't), you will likely have to file a fictitious name registration with your state prothonotary or whatever the registrar of names is in your state. This allows you to conduct business (bank, etc.) as John Smith d/b/a SL Fun Stuff.

You should also look at the IRS 1040-SE, and check - annoying as it may be - whether your state requires you to pay unemployment and/or disability insurance for yourself.

Unless you expect to be pulling US$10k+ a year out of SL, you are likely better off considering it a hobby* and just reporting the extra income on your 1040.

*http://www.irs.gov/newsroom/article/0,,id=172833,00.html

Pepsi just came out my nose.

Be very careful with assumptions and small-talk on a forum - business is complex and there are many 'exceptions' and 'gotchas'.

Here's a crazy for-instance.

I've had a professional office since 2004, but only this year did I get something called a "571-L" form - apparently a specific city tax on all the desks, faxes and related sundries in my office - I had no clue until it showed up one day. Wot's this!?

Well of course I paid it (32 dollars, whoo-hoo, someone downtown can now go buy lunch) but I've been around the block a while and things still surprise me.

For starting a business, here's a good indication of what to do (this is only for the State of California, United $tates):

http://www.sos.ca.gov/business/resources.htm

It doesn't matter what your business is, really, provided that it's lawful. (I suspect the drug-runners sailing in and out of Newport Beach Harbour don't file with the Secretary of State!)

I'm going to follow my own advisement, and not try to become a faux 'authority' on business or taxation in these forums here - I pay professionals to sort these things for me, and for good reason.

What I have to do may *not* be what you have to do.

Unless the US definition of 'income' is wildly different from what it is in UK, surely if L$ are cashed out, that IS income. If you sell them in return for US dollars, the dollars are 'income' from sales of L$, jst the same as if you'd sold pots of yoghurt!!!!

Anyway for many of us the sums involved are so small that the taxman would not be interested.

"Come one come all, watch as Pepsi spurts out of Ann's nose. All for a low low price of 10L. A great bargain! A super value! A fun time to spend while in SL! She will also be nude."

And understanding that if you treat it as a hobby, you've got no way to legitimately claim any money spent on SL as a business expense.

I guess...the long and short of it is...if you plan on trying to make a living in SL, then you need to follow all the same steps you'd follow if you were planning to open up a small business in RL. Check with your local and state business officials, to make certain you've the appropriate licenses (if any are required), and depending on if you'll be involved with content creation or virtual real estate, make sure you FILE the appropriate claims for your creations.

I'd have a higher slut rating if that were true.

True, however, you will end up paying as much as you save in taxes for your home office, accountant, and lawyer depending on how you establish your business. Not knowing what you are intending to do for business in SL, it is hard to give any idea of what your expenses will be.

You are 100% correct.

You must weigh your cost of doing business with a legitimate RL business, and with a SL "hobby" business which you claim as extra income on your personal taxes.

Also, check your state & County laws regarding running your own business.

They all have their own lil' websites, or should at least.

And don't forget your city/town's ordinances. Every town/city has its own regulations regarding business, and some are a little odd. It's a good idea to contact the City Clerk (or town equivilant) with questions regarding local laws.

Which is exactly what I did. Measuring the projected cost against the unsure gains of doing a legitimate business in the SL world made no sense to me. Even if I constructed the business as a subsidiary to, or a part of, my existing RL business - the risks far outweighed the rewards.

And since I've already dealt with the unpleasantness of IRS audits as a small business owner, it wasn't even worth the potential of raising another audit flag to the IRS by reporting my income as simply "other income". The lack of being able to secure receipts for transactions was also a potential nightmare. Unless I did business strictly with USD, and bypassed the whole linden affair completely, proving a transaction to the IRS outside of those made with Paypal, is almost impossible....unless I snapshot my transaction history regulalry, and keep it updated. Even then...that requires itemizing transactions by hand in order to keep accurate records on whatever service work I've performed...and since I've only had very little vendor experience, you need to itemize those transactions by hand, as well, don't you?

Yes, if you actually manage to earn more than pocket change with your SL Business, you ought to file the same tax forms and pay the same taxes as any other home-run, self-employed business. Certainly that is what any tax lawyer would tell you. The Tax Man would like you to pay the government's share on any loose change you pick up off the street, too, if you asked them about it.

But do bear in mind that the vast majority of people who 'work' in SL don't make any profit at all, in the long run. The number of people who raked in $2,000 USD or more in profits from SL in the month of October of this year is precisely 477 souls, out of over TEN MILLION registered users.

You have better odds of becoming a sports Superstar or a Movie Star than of making a living wage in SL.

Some can do it. With a good business plan, a super-good product or service, and a LOT of hard work, it is possible. But the deck is stacked quite heavily against any new start-ups in SL.

Don't US citizens get any tax breaks at all? Every cent you make is taxable income? That sounds very harsh.

Which brings me to my last question concerning business in SL (for now, at least...).

Let's say you're a content creator, and you build vehicles. In SL, once you've created that first product, you can make copies of that product endlessly. There's never any supplier you have to pay for the raw steel, or fiberglass, or instrumentation, etc.

Effectively, you have an inventory that is completely limitless. If you put a price of, let's say, $1,000 L on each car you sell...what's the value of your inventory? It seems to be unmeasurable. How do you guage potential losses with something like that?

Simple. You DON'T put a value on the in-world assets. The only thing the tax man will care about is the profit that hits your real bank account, PayPal account, etc.. Trying to claim the value of in-world assest or tracking individual in-world transactions is a quick trip to the looney bin, for you and your poor tax accountant. And probably a certain way to get a full audit pulled on, you, as well. ("Where the heck is 'Magenta', and why is this jerk claiming to pay 40 bucks a month for his store property there?" You'll also probably have a very difficult time proving that any money you paid IN to SL was a legitimate business expense. Keep it simple, and report what you pull out as a service fee you were paid.

1. There is no such thing as a business license at the national government level. See your city and state regulations, however, as THEY may require a license or a "Doing Business As" filing.

2. I've run a small home based RL business for years and I have no idea what these forms are.

3. If you have intellectual property, registering it is a good idea...but is not a government requirement.

4. Yes. The $US that you "pull" out of SL is taxable income and must be reported. You'll report your business income and expenses on IRS Schedule C.

You should also decide what form your business will take. Most small businesses are sole proprietorships, and setting one up can be as simple as getting some business cards printed and opening a checking account in the business' name. Then there are partnerships, corporations, LLCs, etc. Each type of structure has its advantages and disadvantages.

You should write up a business plan...a detailed outline of what you'll make, how you'll sell it, how you'll market, what your competition looks like, how you'll finance the startup, what growth you project...there are software packages that can help you do this, and make sure you've covered all the bases. But a pad of paper and a pencil work well too. Refer back often to your plan and update it as needed.

You can download the transaction history from the website too. As for itemizing everything... I incorporated (unrelated to SL) which required me to have a CPA for a bunch of different filings, so I just used him for everything. I got the receipts/details for everything and he did the paperwork.

The only two things in the US which are guaranteed are Death and Taxes. And we have death taxes too.