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L$ and tax question


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If you are in the US, depends on how you got it.  In general , if it was money you received from a business in SL or prize winnings, yes you may have to claim it as income.  However you may be able to deduct expenses that you had to pay if they were directly related to earning the income and you have kept receipts (transaction history).  You will need to file another form with your taxes more than likely if its a business. If the activity that got you the money is considered a hobby, what you can deduct is different than if it is a for profit business.  The IRS website has information you should read about hobbies vs.a for profit business and what deductions can be taken for each.

Note that I am not a CPA or tax attorney, I just have had some training and do my own taxes for personal and business income. Aside from consulting the information on the IRS website, you really should consult a tax specialist of some sort or use one of the tax prep programs at the very least.

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In the US, a good rule to follow is that any money you receive as income is reportable and taxable as income. However, if that is income derived from Second Live business or work, you may have some tax deductions. Also, the way you made the money may determine how you report it (and related deductions, if any).

The best advice, and the only advice I can give, is to talk to a tax professional.

Does anyone know if Linden reports to the IRS L$ converted to $ and paid out via PayPal or other means?

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Maybe you can google what the thresholds are in your state. I'm not usre about what your local laws are, but I'm pretty sure they vary wildly. Ther is the question also of what taxes were applied at the time of transaction.

I mean, in PA, something like a "yard sale" doesn't really count. There is a law that "tips must be reported" but that doesn't count. Notarized sales are charged a "sales" tax, but seldom an income tax. Real world example, in PA, all sales of cars are covered by sales tax, to a limit of five in a twelve month period. On car number six, you must apply for a business licence as a dealership. Then you get into a business tax code that I'm not familiar with. So, it's a big grey area, when it comes to taxes. A local tax professional could help you much more than any of us can.

Your best bet is ask your tax preparer what the thresholds in your state are.

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I Imagine that tax rules/laws are more or less the same throughout the world so all earned income should be declared, along with all costs that are spent to achieve the income. If you only sell on the marketplace, then there are possibly no costs to declare because tier, rent, premium fee, etc. are not required to trade on the marketplace. But it could be that a certain amount of land for product creation is required, so that would be declarable as a cost.

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I don't make money in SL, but, I do have a small online business selling photographs. Every year, the site that does the customer fulfillment for me sends me a Federal 1099 form showing my income, which I dutifully declare to the IRS.

If SL does not issue 1099s I'm not sure how the IRS would discover your income, and merely transferring L$ to your Paypal does not necessarily mean it's income.....

I did earn L$500 as a female avie escort back in '05 (don't ask), I wasn't quite sure how to broach the subject with my tax guy *laughs*

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I don't know what a 1099 is - except that it's the years that was 33 years after the Battle of hastings :) Presumably it's a U.S. form. Here in the UK such forms aren't needed. We simply itemise our income on the Tax Return form. It doesn't need to be backed up with paperwork. They aren't going to complain if we declare income that we have no evidence for :)

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I've been declaring SL income to HMRC since 2006. I've got a record of every single sale I have made. 2011 the tax man audited me. In relation to SL he said that all my inworld and MP transaction records were pointless and not admissible to  HMRC as they didn't detail any income in any recongnised currency.  Any costs paid inworld in L$ were also not tax deductible. As far as he was concerned, my paying for a months rent on a sim with L$ earned in SL is no different to buying a rocket launcher in Grand Theft Auto, neither were tax deductible. He advised me to do as much business as possible in real currencies and I have started paying more expenses in paypal too instead of L$ so they can be deemed as tax deductible.

In the eyes of the tax man (in the UK) they have no interest in what I do in SL or how I go about earning L$. In their eyes it's irrelevant. The only part of my business operation that they recognise as being tangible is the sale of L$ for USD via a currency exchange. They wanted to see a record of every L$ to USD sale I had made as in their eyes, that is the point at which I am generating income, everything else is just playing games with a meaningless currency.

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Porky Gorky wrote:

In the eyes of the tax man (in the UK) they have no interest in what I do in SL or how I go about earning L$. In their eyes it's irrelevant. The only part of my business operation that they recognise as being tangible is the sale of L$ for USD via a currency exchange. They wanted to see a record of every L$ to USD sale I had made as in their eyes, that is the point at which I am generating income, everything else is just playing games with a meaningless currency.

Its pretty much the same in the Netherlands, with a just a little difference. They are not interested in L$ at all, L$ are not taxable, and business expenses paid in L$ are not deductable.

The difference is: As long as the USD are on my SL account they are not taxable either, because the money is not available for me to spend outsite SL. But the moment I transfer the USD to my paypal account, then it is taxable income.

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Porky Gorky wrote:

I've been declaring SL income to HMRC since 2006. I've got a record of every single sale I have made. 2011 the tax man audited me. In relation to SL he said that all my inworld and MP transaction records were pointless and not admissible to  HMRC as they didn't detail any income in any recongnised currency.  Any costs paid inworld in L$ were also not tax deductible. As far as he was concerned, my paying for a months rent on a sim with L$ earned in SL is no different to buying a rocket launcher in Grand Theft Auto, neither were tax deductible. He advised me to do as much business as possible in real currencies and I have started paying more expenses in paypal too instead of L$ so they can be deemed as tax deductible.

In the eyes of the tax man (in the UK) they have no interest in what I do in SL or how I go about earning L$. In their eyes it's irrelevant. The only part of my business operation that they recognise as being tangible is the sale of L$ for USD via a currency exchange. They wanted to see a record of every L$ to USD sale I had made as in their eyes, that is the point at which I am generating income, everything else is just playing games with a meaningless currency.

But we've been discussing RL money that's earned from SL. Your taxman would view that somewhat differently ;)

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Phil Deakins wrote:

But we've been discussing RL money that's earned from SL. Your taxman would view that somewhat differently
;)

Maybe I missing the point here but....every thing I earn is cashed out and thus becomes RL money earned from SL and needs to be declared. Businesses in the UK are required by law to retain records of all transactions covering the last 3 years of operations. My point was that this requirement falls apart when it comes to SL. Individuals virtual sales are irrelevant. In the event of an audit by HMRC, the only records that are needed are those covering the sale of my L$ for USD.

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Porky Gorky wrote:


Phil Deakins wrote:

But we've been discussing RL money that's earned from SL. Your taxman would view that somewhat differently
;)

Maybe I missing the point here but....every thing I earn is cashed out and thus becomes RL money earned from SL and needs to be declared. Businesses in the UK are required by law to retain records of all transactions covering the last 3 years of operations. My point was that this requirement falls apart when it comes to SL. Individuals virtual sales are irrelevant. In the event of an audit by HMRC, the only records that are needed are those covering the sale of my L$ for USD.

that is true..the moment it becomes actual income  it becomes taxable..

spending and income and transactions that never leave and remain inworld are not taxable..

SL in a way is like a tax shelter..

it becomes unsheltered at the cashout..

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LOL I guess that is true, never really thought of SL as a tax haven.

It really annoys me that I can't list my L$ expenses incurred in SL as tax deductions on my tax return. This has become more of an issue this past year as the cost of creation has increased for me as I make large structures in mesh...that is not cheap to upload. What would be great for me is if LL billed me at the end of each month for my upload costs and took payment from a card. The same with classifieds. 

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Phil Deakins wrote:

I don't know what a 1099 is - except that it's the years that was 33 years after the Battle of hastings
:)

That William was such a b***ard, wasn't he? The 1099 is a way for anyone with whom we've earned taxable income to let us know what we earned, and more importantly to let us know they've ratted us out to the IRS so we have no choice but to pay taxes on that income.

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Porky Gorky wrote:

LOL I guess that is true, never really thought of SL as a tax haven.

It really annoys me that I can't list my L$ expenses incurred in SL as tax deductions on my tax return. This has become more of an issue this past year as the cost of creation has increased for me as I make large structures in mesh...that is not cheap to upload. What would be great for me is if LL billed me at the end of each month for my upload costs and took payment from a card. The same with classifieds. 

I don't understand this. You are only taxed on your income after expenses, since this is what cashing out is. 

 

(YOu can also deduct any RL expenses you might incur as well, of course.)

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Porky Gorky wrote:


Phil Deakins wrote:

But we've been discussing RL money that's earned from SL. Your taxman would view that somewhat differently
;)

Maybe I missing the point here but....every thing I earn is cashed out and thus becomes RL money earned from SL and needs to be declared. Businesses in the UK are required by law to retain records of all transactions covering the last 3 years of operations. My point was that this requirement falls apart when it comes to SL. Individuals virtual sales are irrelevant. In the event of an audit by HMRC, the only records that are needed are those covering the sale of my L$ for USD.

I didn't mention virtual sales in SL or on the marketplace. They are only done using play money so they don't come into it.

I only mentioned earnings from SL.When you cash out into RL money, it's earnings and needs to be declared. When you pay in RL money, for things like tier and premium membership,, it can be declared as costs. If you earn RL money from SL, and don't declare it, you could get into a little bit of trouble if it becomes known to the tax authorities.

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Porky Gorky wrote:

It really annoys me that I can't list my L$ expenses incurred in SL as tax deductions on my tax return. This has become more of an issue this past year as the cost of creation has increased for me as I make large structures in mesh...that is not cheap to upload. What would be great for me is if LL billed me at the end of each month for my upload costs and took payment from a card. The same with classifieds. 

But you do declare those L$ expenses - in a roundabout way. Because of them, you don't cash out as much as you would have done if you hadn't incurred them. So, because of them, you aren't taxed as much as you would have been without them. You don't lose out because you can't declare L$ costs as expenses.

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