Question about Income taxes

Is SL income taxable?

I don't know where you live so can only say for where I live (US). Any income above a certain amount is taxable, even gambling winnings, babysitting money and yes money earned in any online venture. The problem is that I can't off the top of my head remember what that amount limit is.

like any other income,its taxable

If you cash out it's income and is taxable.

I do wonder about SL income when you don't cash out. On one hand, the IRS can tax anything of value. Currency exchange services like Lindex makes it pretty easy to determine exactly how much real value your virtual money has, even if you don't cash out. It's like inheriting an antique vase from your grandmother. It's certainly not money, but if it has any value then you owe taxes on it, and it doesn't matter if you consider it valuable or not.

On the other hand, money made and spent in Second Life without cashing out would be on par with Monopoly money! The idea of taxing it is absurd.

So I could earn a whole ton of $Ls and then wait until Jan 1st to cash out and be safe? Sounds like a good plan to me since it will still be monopoly money. Also another strange question, if I cashed out money and spent it on programs and textures for second life, wouldn't that be a deduction then??

Yes, it's taxable income, and depending on which country you live in, making money from SL might also make you liable to pay other types of tax - for example, in the UK (where I am), making money from SL means I also have to pay additional National Insurance contributions.

The US part at least really depends on your view of illegal unapportioned income tax and a 16th amendment that was never properly ratified I spose. muuuuahahaha

*laugh*giggle* Lots of people are in the Uncle Sam Extended Stay Hotels claiming that they dont have to pay income taxes becuse of the above. *laugh*

Not so. Is your time worth anything? Are your designs worth anything? I'm quite sure you would argue they are. And by trading your "worth something" for my "worth something" we are engaging in a taxable transfer of value. Taxing that isn't any more absurd than taxing a law firm and an accounting firm if they exchange legal advice for bookkeeping services. Which is not absurd at all, and is in fact the way things work.

Of course the IRS official opinion is that they don't have an opinion...yet. Would you care to pony up the $650 for an official opinion letter on whether you owe unpaid taxes on your L$-denominated sales?

Stupid question but your location shows as Canada? Why would you care about the American IRS any more than I would care about the Canada Revenue Agency?

I'm not a tax expert and seeing as how my business doesn't generate money in Second Life this may not even apply, however if I earn over $600 in a calender year through my Amazon affiliate then Amazon is required to file a 1099 form listing me as an independent contractor.

So, $600 could be your limit but that seems awfully low.

Would incorporating yourself as a 501(c)6 entity help, I wonder?

I wouldn't, but Revenue Canada has similar rules regarding barter and non-pecuniary trade, and a judgement in the U.S. over a situation like this would be "persuasive" for RevCan.

Well I am sure it counts as income in the United States, just about everthing does. If you go bankrupt the amount forgiven counts as income. Thus I would say that income from SL counts as income. When in doubt report it! I can't see anyone getting in trouble for paying too much tax.

hehe.. and guess who's paying for that as well

So if you dont pay your taxes in Canada or Europe you dont go to jail?

see! the US does have free healthcare!

Actually in the UK jail is unusual for not paying taxes - they tend to make sure you pay them off, with interest and that means letting you work.

They do make exceptions (Lester Piggott, a famous jockey for example) when the case is sufficiently spectacular, annoying or large.

And I asked about it over here (UK) in my last tax return. It won't help you US people, but the ruling was L$ is not a recognised currency, but when it becomes a currency that is recognised (I can earn in US$ for example, so cashing out on LindeX) it becomes income. They also said if it's less than £1,000 of profit (so paying tier fees is a business expense allowable against that) they're not really bothered, same as income up to that level from eBay, occasional car boot sales etc. they don't care about. That number is subject to change btw, it was just the local office's cut off - it just costs too much to process the claim to be worth it below there, but if you do declare it they'll still take it I'm sure.

You should ask a qualified and certified CPA and/or lawyer who is conversant with your local regulations, and not the general public at large (who are generally not CPAs, nor are they lawyers, and who would not give you advice for free if they were, nor would they advise you without knowing more detail).

At this point I think it's not really trackable by the IRS. In the future, as this sort of stuff grows, I expect Ebay, LL and others to have to report 1099's to the government.

Right now it's untrackable cause you don't provide your SSN or EIN number to LL and so they can't really uniquely identify you for tax reporting purposes.

Im not even close to a tax professional... But I did stay at a Holiday Inn Express last night..

If your in the USA all income from whatever source derived is taxable, even $2.

Here's the part I'm not 100% sure of: The income has to be "realised" in order for it to be taxable. I know a CPA who bragged he won $20,000 that year playing poker online and still has all the $ in his online account. I asked him if he paid taxes on that $, he said no, he will when he withdraws it, until then it is considered "deferred income". I'm not sure how accurate that assesment is, or if it has to be reported, but can be deferred, I would consult a tax professional on the matter.

To my knowledge there are 3 countries in the world that tax you on your world-wide income, based on citizenship:

1) Philippines
2) Eritrea
3) United States

Many other countries to my knowledge tax you based on Residency (you can be a citizen living outside the country and not owe tax to your home country), and/or do not tax "foreign sourced" income. Again, you may want to consult a local tax professional, if your outside the USA and not a US citizen you may not even owe taxes on it for any number of reasons..

If your a US citizen, no matter where on earth you live, it's taxable. But if you are a US citizen outside the US there is a $80,000 exclusion of Federal income tax (have to be outside the country for 330 consecutive days I believe), but you would still have to pay Social Security tax (about 15%) on the income. And if your a US Resident it is probally still taxable on the Federal, State, and SSI level..

If you play SL solely as a business though any $ put into the game should be deductable.

I'm in the US so the following only likely applies to US citizens:

I took my information to H&R Block last March, because I do cash out with what I make. We do have to pay our taxes on our earnings, but only what actually makes it to us. So if you don't cash out at all, you don't have to pay taxes on it.

If you do cash out, you're supposed to report that as additional income. I'm a freelancer in general so I have to fill out the tax for 1040 ES. But everything you spend related to SL can be taken out as expenses "for the business." So if you pay any land tier, that's deductable. Your internet access is deductable. Any money you spend on your computer is deductable. You might even be able to get away with your rent, because that's your "office".

I made about $10,000 last year (No, not from SL) on freelance work, and I ended up having to pay about $1000something total for taxes. I've made more this year with the addition of new work, I'll be paying more in taxes. So this year I intend to buy an island for myself. Hell, either way I'm out at least $1000, so I'd rather get an island and get something in return for my hard earned money

The only drawback is I have to pay them 4 times a year and then they look into deductions and stuff

I think I recall someone mentioning the OP may be Canadian. Gambling income is not taxable in Canada I believe. Again, consult a tax professional but that may be another thing to keep in mind..

Rephrase question: Would you like to take a turn at cutting your own throat? It will only cost $650.00!

Lol!