SL Payouts and US Taxes

Okay, I started making some real money on SL in the past couple of months, and ironically now I'm worried. Now making the extra money is awesome 'n' all, especially since I just moved and needed a lot of stuff for the new place. But now I'm worried about US income taxes and how to properly report it (And how much I'm going to have to pay for the extra).

Does anyone else here report their sales on the US Income taxes? And where exactly does it/should it go?

I WILL be speaking with someone from H&R Block In December/January so it's not like I'm taking all my advice just in this forum post. But at the same time, I don't want to walk into their offices with no paper trail or any idea of what to do.

Well according to the tax law you have report every time that hits your pocket - even if you are walking along and pick up a quarter on the street. Realistically this does not happen.

There are several ways to report it - the easiest would probably be other misc income and label it gaming. If you consider it self employment income from sales and make over $400 for the year you'll end up having to pay social security and medicare as well as self employment tax on it.

If its less then $500 in taxes , the feds 99% of the time won't mess with it. IRS agents get in TROUBLE for that, becuase it COSTS the IRS money to go after you if they get less then $500 out of you. Mind you thats unreported income. If you report it, and then don't pay it, that's another story, then they can have the cops collect it.

essetnailly if you make ~ $5000 or less gross, claim its online: loan repayment, or gifts or whatever if called on it. As is SL is different sources, and your money is taxed lump sum, instead of how you got it, I don't see why the Feds shold get a chunk of small potatoes, when MOST of that was probably gifts from other "residents" (players) in the first palce.

NOW if you are making OVER 5k, then you should claim it, becuase now you're:

A. Getting to the point where you're getting into potentail trouble

B. You are OBVIUOSLY running a busniess in SL(or are getting VERY good at gambing/games/working), and hence conducting activites you would normally be taxed for.

C. Are able to not just make extra money, but are moving in toward being able to Livee off of SL, in which case its getting to be a major secodnary or even a primary income, which shold be taxed as is everyone else's is.

Deos this make sense to you? I'm not much of one to want to pay the Feds anything I don't have to, but when you get to a certain point you get to a certain point.

"Gaming"? I'm not a US resident, but I doubt you would want to label it as that, if not simply because it sounds like gambling winnings. If you're earning money through creation of content for SL, that's more akin to earning money through graphic design or web design. That sounds like self-employment to me.

Virtual money can be a mess. A good rule of thumb is you don't make a cent till some US dollars arrive in your account, be that via the Lindens' currency thing, or IGE or whatever. When some US dollars do arrive in your account, treat it as a second source of income, fully liable to taxation, and stick it on your tax return

It counts as income and needs to be reported if you earn over something like $800 in a year (guessing, because I can't remember, but it's a low number. Under $1000).

Well gambling winnings aren't taxed any higher than any other income, so I don't really see the problem. And you are making earnings off something the general public would classify as a game.

If you win 1199.00 gambling or playing bingothen you don't have to claim any of it on your taxes, and you are not taxed for it. However, if you win $1200.00 or over in one lump, the casino gives you a form for your taxes and you are expected to pay taxes on it.

The way I see it, if you don't get over 1200.00 in one lump sum, then don't worry about the taxes. Put it away in a savings account, or hide it in your backyard. Use it as cash to purchase things you need, or save it for the end of the world. It's up to you.

Yes, I pay my taxes. But I also think they take wayyy too much out at times, so if they don't know, then don't stress on it. And how exactly can the IRS "prove" you made real cash off virtual money?

(You may want to consult a professional about it, I am nowhere near one) lol

Also, reporting it as self-employment does run into that "pay Medicare, Social Security, etc" problem. Game winnings don't have that trouble.

If you are going to report the income, don't forget to figure out what portion of your computer, internet access, SL fees, etc. get balanced against it as business expenses.

Yeah, in canada you can write off a portion of your housing expenses as well if you do this at home.

Well.. in theory if one were to declare their SL business their 'at home business' whatever business expenses you make can be written off on your taxes, if I'm right.

Well, that's according to Canadian law.

Yes!!!! move to canada and let the government pay you to play online by claiming it on your income tax....rofl...sweeeetttttt

look at the marginal tax rates before you decide...

As a accountant and fairly versed in taxes this thread has raised a interesting thought, Self employment is described as working at a profession and being paid for services and or products. Under tax law you may deduct from income expenses incurred in performing or manufactoring said services or products. For services and products produced in SL you receive a payment Linden Dollars have a USD value that would be income expenses incurred would be internet connection, computer depreciation, software, computer furniture, office supplies, Tier and game subscription. In US tax codes there is something called section 182 depreciation so you cand depreciate around 20K immeaditly. I haven't looked at this years limit yet. So in theory and talk to your tax professional before doing this you can have 5 years losses before the IRS calls it a hobby, and write off your gamning costs as a loss and or include as a profit on your tax return.

Please check with your tax professional befoe doing this as I have not checked the code completely for digital domain income.

As I wrote this another thought occured to me, Is Linden labs going to issue 1099's to people who have sold over 600.00 USD in Lindens? As they let the procedes be used to pay tier that is same as a payment. By law they have to even if they do not issue a check.

Too bad you can only claim a loss against taxes for 5 years, eh? ;-D I think my SL "business" needs capital expenditures!

Avoid trouble. Fill out schedule C. It's not that hard, but you do need to track your income and expenses, and you will get hit for self-employment tax.

It is true that the IRS right now is not bothering with piddling things, but they have ten years to change their minds. They know that some people are making substantial money on SL, so they may decide to start taking a closer look.