If you don't cash out any of your L$, does it still count as real money?

If you make a lot of money on some activity, say selling Tringo tables or something, but never cash out that L$... does it count as real money?

Do you have to declare it on your taxes?

Or is it effectively sheltered?

Effectively sheltered. Or do you mean "laundered"

Either way, I doubt anyone is putting on their taxes "1 million Linden"

AFAIK, yes, it's "sheltered", until you trade your chips in for "real cash", they're just chips, its just "play money".

Well, laundered is taking criminal money and changing it into clean money.

I believe because L$ has a USD equivalent value you need to declare it.

The $L has no value until you cash it into $USD.
That is my story and I am sticking to it.

I think $L is still officially in the gray zone. I doubt the U.S. government would likely care about your balance in a virtual world. I'm positive that if you have large amounts of US$ money coming to you through PayPal that they will become interested. I think of the $L as a "foreign" currency that the U.S. government does not recognize or regulate, so I don't consider it wrong to not tell them how much of this currency I have when I believe most of them will look at it like Monopoly money. Some Texas legisltors might be an exeption with them trying to pass silly laws like poker chips have token value even when no prizes or money is being distributed, but I think most people in the government just don't care until those $L become US$.

To be 100% above board, any income you make in SL should be reported on your taxes at fair market value, regardless of whether you cash it out or not. I think as soon as the U.S. government becomes sufficiently aware of Second Life, they will start enforcing the requirement that taxes be paid on L$ earned. It's no different from any other "local currency" in circulation.

A prominent example of a local currency is "Ithaca Hours" -- people in Ithaca, NY can trade this local currency with others for goods and services. The IRS expects transactions make in Ithaca Hours to be declared at fair market value, so why wouldn't transactions made in a local currency valid only in SL also be taxable?

Here is an article outlining local currencies in use in Vermont. Sounds fairly similar to what we're dealing with here...

This is one of the particular reasons why I have been trying to find a resource of daily values of L$ for at least the past year from GOM, LindeX, etc. If anyone has or knows where to get this data I would be most helpful. With the year coming close to an end I am sure many people will be wondering the tax implications of their L$ assets and without conversion rates its hard to determine. It would be REALLY nice if LL has this historical data to post it publically somewhere.

https://secondlife.com/community/economy.php

That list there goes back over one year, I've also got the values prior to that somewhere.

I think the government would be hard pressed to charge you on your IN GAME ASSETS.

They could charge you on the CASH OUTS quite easily as they have a real $ value.

The in game assets have a theoretical value at best and taxing on a held asset is not generally done. You don't pay taxes on a painting until you SELL it even though it might go up in value, as a similar example.

Just because we can say, "252L = 1 dollar" that doesn't really make it so. If everyone or even a large number of people wanted to cash out at the same time the ratio wouldn't hold as it is not an intrinsicaly valuable asset.

I honestly don't know of any other asset that is taxed before you sell it other than property and physical use items such as cars and boats. Holding any other asset, be it rare coins, stamps, paintings, or even $L's is not going to be taxed.

Yeah, you are supposed to declare it, I'm actually in the process of writing an application at the moment to catalogue L$'s recieved for tax come next july.

-Adam

Holding no. Recieving yes.

If you are 'paid' in gold coins, then your going to be taxed on their equivilent market rate.

What accountant gave you that advice? I seriously doubt that HELD assets, whether they appreciate or not, need to be taxed prior to sale. Now I'm not an accountant either, so I could be wrong.

If I paid you in gold coins, stamps, paintings or L$ for a job, you'd have to declare them as income received.

If the total value was under some amount (say 1000 USD equivalent) I really doubt the US government would care.

However, if it is over some amount (say 10,000 USD) then, yeah, I think they want their booty.

From the IRS website section on the taxability of bartered goods & services:

"Example 3.

You are self-employed and a member of a barter club. The club uses credit units as a means of exchange. It adds credit units to your account for goods or services you provide to members, which you can use to purchase goods or services offered by other members of the barter club. The club subtracts credit units from your account when you receive goods or services from other members. You must include in your income the value of the credit units that are added to your account, even though you may not actually receive goods or services from other members until a later tax year. "

Sound familiar?

Of course, how does this impact all those Everquest players with lots of plat and mega weapons / armor?

Station Exchange, baby!

Hm, good point.

Although, I was considering the "in game material" as a "per account" type thing. So, your account could be modified with "more money" or "more land" or whatever, and would still be a single asset.

The question is which is correct? Is an account a "single entity", a single in-game asset, or is the account and asset, the L$'s, the land, etc.

I would see a tax specialist/accoutant on how to account for L. Maybe you could treat it as a capital gain instead of other income which would have you paying less taxes. LL states the L has no value so I wouldn't state L as income until I cashed it into hard currency. So it value is nothing, then when you cash in, realize a capital gain of how much you recieved.

Honestly, I don't think our tax laws have joined the rest of us in the 21st century yet.

No. Because the Linden Dollar is not yet a RL currency. Its only value is when someone is willing to pay US dollars for it.

Much like you could not buy your groceries with that ultra rare baseball card. BUT, someone would pay you for that card. And the money you got could be used for grocieres.

So no. Linden dollars do not count as Real Money. Even though they count as "real" value to some collectors.

For now...

Sorry, Pendari, but that's incorrect. There are many examples of "local currencies" (i.e. scrip that can be exchanged for goods and services within a limited area, such as Ithaca hours, or Toronto dollars) and barter clubs (groups where members can exchange goods and services with each other on a barter or credit based system). Both these exchange methods are taxable by the IRS at fair market value.

So, if I sell you a skin for L$4000, I'm taking in roughly $15 equivalent at LL's currently posted exchange rate and must pay tax on that value. Regardless of whether I cash it out or not.

Now, LL may *claim* in their TOS that the L$ has no value, but (a) people's work and energy *do* have intrinsic value and that value is being measured in L$, and (b) their marketing and promotion (and now their co-opting of the currency exchange business) say otherwise. Just because LL says something is valueless, doesn't make it true.

Yet, the company is in a *very* unique position.

Overnight, they could render the $L effectively valueless.

How?

By giving us all 100 trillion $L each.



Nothing says that they cannot do this. In fact, were some terrible precedent to be set in US or UK tax law, it might be the most merciful thing they could do for us.

Work and energy do have intrinsic value, but not $L. It is not backed by a tangible like gold, for instance. It essentially has no intrinsic value, just like the Euro, USD or GBP.

$L are perhaps more akin to an ultra-liquid commodity stock option than money - the stock being virtual land, content, services &c. Those would retain value even if the $L were compromised.

If there was any portent of a proto-metaverse forming, such squishy, definition-defying entities such as the $L might be our first sign.

Hey Ricky. Just becaue I scratch my ass and somebody decides my ass scratching is worth 2000 squiggles of imaginary currency. It doesn't mean that the tax man is going to come collecting. I think the reason why the people in the Barter Clubs pay taxes is because they're buying real goods, like food etc, with their earned credits. But I know, you're just quoting what it said in the taxman's rule book and it did mention services and not just goods. So maybe we need to IM the taxman. I'm sure he'd reply with "I don't know, I'll get back to you."

I think that if Linden Lab was to allow us to buy real life items, like food, with our Linden dollars. Then the taxman would come knocking. But still, having said all this. I'm sure that if the taxman decided that I had to pay taxes on the boogers I ate, then I'd have to pay taxes. The system makes the rules, not us. Do any of us want to pay any taxes at all? 1st life or 2nd life? Probably not. But do we want law and order? and nice hard roads? Okay, I'm rambling. * shoots myself in the head *

Sure. If the tax man wants my L$, he can register an account with the Lindens, put out a legitimate statement through them, and collect.

Until then, I don't cash out and I will not report my L$. Considering I never had enough to matter anyway, it's not like this would impact me.


Then again, "Tax Man" in SL would be a tidy little scam.

http://www.irs.gov/individuals/article/0,,id=140252,00.html

"You must report all of your hobby income on line 21 of Form 1040. A hobby is defined as an activity not engaged in for profit. You may be entitled to certain hobby deductions, but only up to the amount of income reported for each hobby."