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Sudane Erato

So LL will be sending 1099s, beginning with 2018

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I spend the vast amount of what I earn in SL shopping. I am a mega addicted shopper!!! Honestly, if I have to pay taxes on the game money I earn so that I can shop, I think I'd rather go play in another online game where you can't cash out!! For the casual creator who only sells in order to finance her shopping addiction this is quite the eye opener.

I do cash out from time to time to pay for my annual premium and to keep a balance in my paypal to pay for Netflix, Hulu, and the occasional loan to my son when the end of the month came too soon. Well, time to rethink I guess. :) 

Edited by Blush Bravin

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5 minutes ago, Blush Bravin said:

For the casual creator who only sells in order to finance her shopping addiction this is quite the eye opener.

If your income isn't too high from retirement or other earnings in RL your taxes might not be affected much...but yeah..pretty disconcerting to learn these rules for those financing their SL with a bit of earnings here :(

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1 hour ago, Blush Bravin said:

I spend the vast amount of what I earn in SL shopping. I am a mega addicted shopper!!! Honestly, if I have to pay taxes on the game money I earn so that I can shop, I think I'd rather go play in another online game where you can't cash out!! For the casual creator who only sells in order to finance her shopping addiction this is quite the eye opener.

I do cash out from time to time to pay for my annual premium and to keep a balance in my paypal to pay for Netflix, Hulu, and the occasional loan to my son when the end of the month came too soon. Well, time to rethink I guess. :) 

They can't say that lindens have NO real world value and then tax you on "money" that you make AND SPEND within a game.  

 

The article says "Linden $ sale transaction volume".   I am taking that to mean selling your lindens for RL money.  The idea that people SHOULD be claiming SL income on their taxes is NOT new. That hasn't changed at all. Along with the claiming of the money, the costs of doing business can be subtracted just like any other business.  Really, nothing has changed except some people will get reporting forms (and as I understand it that isn't really all that new either) --- and as it has been said in this thread the 1099s were mentioned when the reporting (and proving who you were in RL) came into being a few years ago. 

 

The Lab perhaps should have worded the article a bit differently and they may come back and explain a bit more -- who knows. 

Also for those who also sell and cash out in Sansar the money from Sansar will be added to your SL dollars so that you receive one 1099 from Linden Lab -- this stated in product meetings.   I doubt that there are many folks that fall into that category :D. 

PS. The money you sell for paying your premium fee is a cost of doing business so also as said -- it cancels out on paper. 

Edited by Chic Aeon
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PFFFT

Has anyone done their taxes yet this year?  I see business deductions that are no more!  Thanks a lot, you know who  :(

CPA no longer can be classified as a business expense..

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People are missing the real message here.

I few key phrases are: "Some of you" - obviously referring to U.S. residents. "...we are adhering to respective state laws for reporting taxes..." (emphasis is mine) -  many states have income taxes, others do not. Each state has its own laws and some have more stringent and liberal laws than others. Furthermore, it also is mentioned (and should be obvious to anyone experienced in paying taxes) that there is a threshold you must reach before this applies to you and each state has different thresholds, some are far lower than others. I'll presume this new requirement does not apply to 95% of SL users.

So, all you virtual Real Estate moguls and AFK Brothel owners: here's your comeuppance. Bahahahaha!

I think this is a good thing.

 

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4 hours ago, Alyona Su said:

People are missing the real message here.

I few key phrases are: "Some of you" - obviously referring to U.S. residents. "...we are adhering to respective state laws for reporting taxes..." (emphasis is mine) -  many states have income taxes, others do not. Each state has its own laws and some have more stringent and liberal laws than others. Furthermore, it also is mentioned (and should be obvious to anyone experienced in paying taxes) that there is a threshold you must reach before this applies to you and each state has different thresholds, some are far lower than others. I'll presume this new requirement does not apply to 95% of SL users.

So, all you virtual Real Estate moguls and AFK Brothel owners: here's your comeuppance. Bahahahaha!

I think this is a good thing.

Federal laws sometimes supercede state ones.

But the main issue is not how tax code changes affect land barons or big earners here -- drastic changes can result for those earning very little as well.
Most people in SL earn just a bit of money each month, but this 'chunk of change' is added income to their regular job earnings, their retirement benefits, or their disability payments. Sometimes the additional earnings can place them into a higher tax bracket, or trigger other unwanted results such as changes in disability payments. It can disqualify people from food assistance or Medicaid.
There's a lot of loopholes though, so best to contact an accountant or attorney.

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Just found out I have a Class C Business (sole proprietor) and so these sweeping tax code reforms (at least the ones eliminating business deductions) won't affect me.

I just hope the landlords are Class C as well, because if they can't deduct sims as a business expense yet have to pay income tax on their earnings.... their cost will be going up considerably.

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I enjoy reading threads like this. On one hand we have a TOS that says L$ are game tokens and aren't worth money, on the other, they're telling us we have to file taxes on said tokens. Downright meme worthy. 

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4 hours ago, Gadget Portal said:

I enjoy reading threads like this. On one hand we have a TOS that says L$ are game tokens and aren't worth money, on the other, they're telling us we have to file taxes on said tokens. Downright meme worthy. 

You can say that again.

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7 hours ago, Gadget Portal said:

I enjoy reading threads like this. On one hand we have a TOS that says L$ are game tokens and aren't worth money, on the other, they're telling us we have to file taxes on said tokens. Downright meme worthy. 

Only after you've sold those game tokens because the money you receive for said game tokens is taxable income. :^)

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On 2/9/2019 at 12:41 PM, Luna Bliss said:

Just found out I have a Class C Business (

I am an LLC Corp, but that doesn’t make difference, IRS just cares how many Dollars you take out.

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2 hours ago, Wulfie Reanimator said:

Only after you've sold those game tokens because the money you receive for said game tokens is taxable income. :^)

But how are we selling them for taxable income if they're worthless game tokens? Doesn't the one thing negate the other? How can we have both? What happens if you divide by 0?!

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22 minutes ago, Gadget Portal said:

But how are we selling them for taxable income if they're worthless game tokens? Doesn't the one thing negate the other? How can we have both? What happens if you divide by 0?!

I honestly can't tell if this is a joke or not.

For the benefit of those who would sincerely think like this; Income is income is income, it doesn't matter whether the thing you're selling "has no value" or not or "isn't real." (Let alone the fact that someone willing to pay for something already means it has value.) You could be selling sand from the side of the road and you'd still have to file taxes on the money you made if you got past a certain point.

Edited by Wulfie Reanimator

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Actually you have to report all the money you take out of SL, but PayPal only has to report it if it is over the limits. 

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13 hours ago, Pamela Galli said:
On ‎2‎/‎9‎/‎2019 at 12:41 PM, Luna Bliss said:

Just found out I have a Class C Business (

I am an LLC Corp, but that doesn’t make difference, IRS just cares how many Dollars you take out.

How our businesses are classified is in reference to the new sweeping tax code changes for 2018 -- a different issue from whether our unconverted $L is considered money for tax purposes. They say the goal is to simplify taxes, but I suspect it is to squeeze more money out of the poor and middle class (or if not deliberate it will have that effect).

For some businesses (depending on how your business is classified) the itemized business deductions are no more!

Other changes, I'm discovering, might benefit me. I guess I shall see if I ever manage to get my taxes completed this week.

Edited by Luna Bliss
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LL only reports on lindens you sell for US$. It's been suggested that you must report lindens spent as lindens within Second Life, but I'm not following that advice. 

 

Until I convert those lindens into US dollars they are game tokens in my book. I don't make enough for it to really be an issue anyway. Another good reason to just be a lazy creator who only puts in time doing what she enjoys and not because I want to make money. :) 

Edited by Blush Bravin
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What I'm unclear about is, say, I sold a full-sim landscape and decided to use those $L to pay for a few tips within SL, or donate to a charity, or buy a new avatar or outfit -- are those $L actual income that should be reported for tax purposes even though I never converted them to usd?
I know my CPA would say those $L are now classified as a "convertible currency" and so should be reported as income if I earned them. And I can see this is true reading the actual tax laws on governmental websites.
The question is, does LL have the power to classify these $L as something different and so override the present currency laws?
 

I have to say, it's annoying. I mean I feel like the IRS is following me around in SL --  for example, I have to get out my little ledger and record a spontaneous tip given at a concert. Maybe it's just the price of turning SL into a real business :(

Edited by Luna Bliss

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On the OP - this is not new - LL have been classed as a TPSO (Third Party Settlement Organization) for some time now, and have issued 1099Ks as a result.   However the thing that is not settled for me is are L$ a virtual currency or a game token.  If the former, the recent IRS guidance does count. If the later, does it?   I know a lot of merchants have used the token method for tax purposes so pay taxes on the point they convert into USD as that's now income.     However, if virtual currency the treatment from the IRS was refocused (due to Bitcoin etc) which makes it a much broader reporting need.

 In November 2018 the IRS published more guidance some bits from that below around virtual currencies:

(1) Virtual currency you are holding is treated as "property" by the IRS .

(2) Virtual currency is not treated as currency that could generate foreign currency gain or loss for U.S. federal tax purposes.

(3) A taxpayer who receives virtual currency as payment for goods or services must, in computing gross income, include the fair market value of the virtual currency,  
measured in U.S. dollars, as of the date that the virtual currency was received.
(See Publication 525, Taxable and Nontaxable Income, for more information on miscellaneous income from exchanges involving property or services.).
So this seems to apply in your example of selling a sim.

But to then confuse us some more:

(4) For U.S. tax purposes, transactions using virtual currency must be reported in U.S. dollars. Therefore, taxpayers will be required to determine the fair market value of virtual currency in U.S. dollars as of the date of payment or receipt. If a virtual currency is listed on an exchange and the exchange rate is established by market supply and demand, the fair market value of the virtual currency is determined by converting the virtual currency into U.S. dollars (or into another real currency which in turn can be converted into U.S. dollars) at the exchange rate, in a reasonable manner that is consistently applied. (It doesn't state you have to sell the L$ to realize the fair market value, just simply determine it).

Also I noted in recent advice (again assuming L$ is a virtual currency and not a token), if you pay somebody in L$ e.g. you have a contractor, blogger manager etc - they are also required to report that L$ income using the same rules above (and far wider rules ofc) and if you pay them over $600 USD in the year if you are treating them as an independent contractor there is more reporting for you to do.  It gets even more tricky if they are a NON US person as there are withholding requirements to navigate.

With wider points: let's say you sold that sim for over USD 600 equivalent so for the purchaser and seller:

(5)  Payment made using virtual currency is subject to information reporting to the same extent as any other payment made in property. For example, a person who in the course of a trade or business makes a payment of fixed and determinable income using virtual currency with a value of $600 or more to a U.S. non-exempt recipient in a taxable year is required to report the payment to the IRS and to the payee. Examples of payments of fixed and determinable income include rent, salaries, wages, premiums, annuities, and compensation.

 Question is how would you know where your sim purchaser lived, or if you are the purchaser yourself where the seller lived (this would fall on LL I guess who facilitate sim transfers and still technically own the sim - who knows haven't read the TOS in a while?).

The million dollar question for me.  Is L$ really a virtual currency or a game token.....   🙄

Does LL being a TPSO point to virtual currency or just because they facilitate the exchange and cash out to USD is that why they are classed as one - needs a professional to figure that out.

LL's TOS points to a game token. 3.1.    "Linden Dollars" are virtual tokens that we license. Each Linden Dollar is a virtual token representing contractual permission from Linden Lab to access features of Second Life. Linden Dollars are available for Purchase or distribution at Linden Lab's discretion, and are not redeemable for monetary value from Linden Lab."  and further in "You acknowledge that Linden Dollars are not currency or any type of currency substitute or financial instrument, and are not redeemable for any sum of money from Linden Lab at any time."

I spoke to two CPAs and both differed on opinion!  So it's tough for any merchant really to get this right I suspect unless LL come out and clarify their TPSO status rationale and whether the L$ is a virtual currency or a token. Also we do need to clarify if a token falls under the IRS definition of Virtual Currency (both CPAS differed on this one thought yes, one thought no) which is in opposite to LL TOS technically but linked still to the TPSO part and the fact whilst LL won't buy them other residents do so they have "value".

 

 

 

 

 

Edited by Charlotte Bartlett
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7 minutes ago, Charlotte Bartlett said:

You acknowledge that Linden Dollars are not currency or any type of currency substitute or financial instrument, and are not redeemable for any sum of money from Linden Lab at any time."

Bingo. 

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8 minutes ago, Pamela Galli said:

Bingo. 

it's what I have always used too. But reading the IRS paper that came out in November 2018, I have to say I think Luna's CPA may be on to the fact that regardless of the TOS.  L$ because it is exchanged for USD between players via a TPSO it's has become a virtual currency under IRS treatment.     Unless LL give us more guidance, it's us merchants who will end up navigating whether our particular CPA got it right or wrong.  The TOS does help I think though as a defense if we have got it wrong along with the CPA I hope!

 

Edited by Charlotte Bartlett

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Also this isn't a new question - I found a piece back in 2013 from Inara Pey along with Mona Eberhardt and Trinity Dejavu asking the very same question as FinCen definition would tack it as a virtual currency despite the TOS wording which was changed from currency to token historically....

Who knows!  I am going to follow my CPAs advice and hope for the best but may put additional funding aside in case it is a virtual currency.

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Comparing L$ to Bitcoin, which absolutely is a virtual currency, to me shows a clear difference. Bitcoin is not controlled by one company. Bitcoin is accepted as currency for goods and services, granted it's limited in who will accept it, but it is accepted globally. The value of L$ is controlled by Linden Lab. L$ are not accepted for goods and services outside of Second Life.

I think we're in one of those developing situations where no one is quite sure what it is or how to classify it. But if it's not technically a virtual currency yet, you can be sure that it will be soon enough. The IRS will be sure to make it happen.

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4 minutes ago, Blush Bravin said:

But if it's not technically a virtual currency yet

The Linden dollar was classified as a virtual currency in 2013.  It is a "convertible currency" and is subject to taxation. 

** I posted all the links to this earlier.

Edited by Luna Bliss

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https://en.wikipedia.org/wiki/Economy_of_Second_Life

The virtual world Second Life has its own economy and a virtual token referred to as Linden Dollars (L$). In the SL economy, users (called "residents") buy from and sell to one another directly, using the Linden, which is a closed-loop virtual token for use only within the Second Life platform. Linden Dollars have no monetary value and are not redeemable for monetary value from Linden Lab.

The wiki this is quoted from was last updated on 30 November 2018, at 19:00 (UTC). So it is up to date.

I see no evidence that Linden Lab classified it as a virtual currency.

I see no evidence that US treasury classify it as a virtual currency.

Just because your CPA interprets it to be doesn't make it so. We've seen accounts posted in these pages where CPAs don't agree. 

So until someone with more expertise posts something here that is verifiable then I will continue to question the value of a game token. The question is not in regards to what is it after being cashed out but while it still exists in SL as a game token.

 

Edited by Blush Bravin
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Linden Lab has good motivation to fight that classification. Who in their right mind is going to want to participate in a virtual world where you have to file tax returns on the game money you earn and spend within that virtual world? By your definition even those who NEVER cash out one dollar would have to file a tax return based on that game income. 

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