Is Second Life a tax shelter?

Let's say I own a few large sims and I'm making about 2000 USD a month off tier. Will Linden Lab be reporting my finances to the government, or is this tax free money come cash out time?

Thanks,
LL

Actually I know a bit about this. For US tax purposes, the money made in SL is considered monopoly money UNTIL it is processsed into REAL money, via Paypal or check.

What is the situation with money that's cashed out into real money, but the real money is left in the person's SL account to use to pay future tier fees?

I doubt it. You Can place money in to it, to withdraw later, perhaps at a gain, or Loss, But as yet, the money is still Taxable when you receive it. Unlike RSP's, 401(K)s or Charities, there is no Deduction or Differment(sp?) available any more than if you put the money under your matress.

Some day, perhaps after test cases are Made with the IRS, Inland Revenue, or Revenue Canada there Might be something in Future, But i think we are a long way off from that.

Angel.

If it is your account it is real money the same as if it was in a rl bank.

How about cases where several residents get together to share land, and use L$ to pay their share of the fee?

For example, four people buy an island together; 3 out of those 4 people pay the equivalent of $73/month in L$ to the fourth person, who is the actual island owner. They then pay the tier from the US$ account, not making any profit.

I would assume there is some kind of tax exception for this kind of thing. Certainly in real life, if you go out to a restaurant together to eat, and split the bill, the person who collects the money together and hands it all to the waiter doesn't have to pay tax on the "income" they received at the moment they picked the money up; that would be ridiculous

Actually I know a bit about this. For US tax purposes, the money made in SL is considered monopoly money UNTIL it is processsed into REAL money, via Paypal or check. If you keep it in the game it isn't taxed. For this reason I tend to reinvest my Lindens and only take out pocket money through Paypal.

1.4 Second Life "currency" is a limited license right available for purchase or free distribution at Linden Lab's discretion, and is not redeemable for monetary value from Linden Lab.

You acknowledge that the Service presently includes a component of in-world fictional currency ("Currency" or "Linden Dollars" or "L$", which constitutes a limited license right to use a feature of our product when, as, and if allowed by Linden Lab. Linden Lab may charge fees for the right to use Linden Dollars, or may distribute Linden Dollars without charge, in its sole discretion. Regardless of terminology used, Linden Dollars represent a limited license right governed solely under the terms of this Agreement, and are not redeemable for any sum of money or monetary value from Linden Lab at any time. You agree that Linden Lab has the absolute right to manage, regulate, control, modify and/or eliminate such Currency as it sees fit in its sole discretion, in any general or specific case, and that Linden Lab will have no liability to you based on its exercise of such right.

How about cases where several residents get together to share land, and use L$ to pay their share of the fee?

For example, four people buy an island together; 3 out of those 4 people pay the equivalent of $73/month in L$ to the fourth person, who is the actual island owner. They then pay the tier from the US$ account, not making any profit.

I would assume there is some kind of tax exception for this kind of thing.

LL still claims $L is fictional. I am not so sure how this TOS snip would hold up in court though. As more of these virtual economies get going the more the IRS is going to be interested.

As has been said many times before, LL's description isn't that relevant to the tax consequences.

The State I'm in sez as long as I'm making under a certain amount/month, it's considered a "hobby" and not "income".

HEH! I could always be like the waitresses at the restaurant where I'm currently working & claim that tips aren't taxable income.

We have already had someone in Canada audited by Rev Canada over his expense claims in SL Angelique and he passed. He has a company in SL that hasn't made much money yet but has had large expenses. I spoke with him recently and he gave me some advice as to how to structure my tax return (note: we both have incorporated businesses). He used to be an auditor with Rev Can so he was very helpful to me though I'm still ready for my own audit if that is the way it goes.

And congrats to the OP for making 2000USD over Tier!!! Wish I knew how to do that! (Oh right Eolus One! - yeah you better pay taxes, that's pretty high profile!)

As far as the IRS is concerned, hobby income is still income. In fact, it's worse, because it's harder to deduct things for a hobby.

People receiving tips regularly are required to report tips to their employer in any month that they receive more than $20 in tips. But even if it's less than $20 in a month, they still need to be reported to the IRS as income, just not to their employer (the difference being the social security tax implications).

Let's say I own a few large sims and I'm making about 2000 USD a month off tier. Will Linden Lab be reporting my finances to the government, or is this tax free money come cash out time?

Thanks,
LL