Do I need to file Second Life income on my personal tax return?

[kaikaroon]

Hi, I converted about $40 dollars worth of Lindens to US cash that I made from paying for the Premium and then exported it to my Paypal account. Do I need to file this income on my personal tax return or does Linden Labs do that with the new Tilia system?

[Erwin Solo]

US$600 minimum before an entity is required to give you a 1099 in most cases.  See;

https://www.irs.gov/forms-pubs/about-form-1099-misc

TurboTax gives the filer an opportunity to declare small bits of miscellaneous income. I don't know what is the cutoff for applicability; I let TurboTax decide what to do. 

Edited December 1, 2019 by Erwin Solo
Added TurboTax sentences

[Rolig Loon]

It's your personal responsibility to fill out your tax forms properly. If you export enough money from SL to trigger the government's mandatory requirement, Linden Lab will send you a copy of what they send the IRS (Form 1099 something?)

Edited December 1, 2019 by Rolig Loon
typos, of course

[Selene Gregoire]

37 minutes ago, Rolig Loon said:

It's your personal responsibility to fill out your tax forms properly. If you export enough money from SL to trigger the government's mandatory requirement, Linden Lab will send you a copy of what they send the IRS (Form 1099 something?)

Yep. 1099-MISC.

https://www.irs.gov/faqs/interest-dividends-other-types-of-income/1099-misc-independent-contractors-and-self-employed/1099-misc-independent-contractors-and-self-employed-1

[kaikaroon]

Thanks for the replies everyone. So what I did was I paid for the premium for 1 year and then cancelled it and the Lindens I received were from the 300L weekly stipend. I didn't spend all of them so I decided to sell them and export the money back to my PayPal. Am I required to report this as miscellaneous income since my intent wasn't to make a profit and I'm not doing this continuously? I'm also not self-employed or selling anything. If I am required to report it, do I report it on the 1099-MISC, the W-2, or the 1040 form? Also, y'all said Linden Labs would send me a copy of the 1099-MISC if I trigger the required amount, I didn't receive anything expect a message saying the transaction was successful. Does that mean I don't have to report this income?

[DrawingRoom]

See below.  Apparently I do not know how to internet.

 

Edited December 5, 2019 by DrawingRoom
missed quote, etc.

[DrawingRoom]

42 minutes ago, kaikaroon said:

Thanks for the replies everyone. So what I did was I paid for the premium for 1 year and then cancelled it and the Lindens I received were from the 300L weekly stipend. I didn't spend all of them so I decided to sell them and export the money back to my PayPal. Am I required to report this as miscellaneous income since my intent wasn't to make a profit and I'm not doing this continuously? I'm also not self-employed or selling anything. If I am required to report it, do I report it on the 1099-MISC, the W-2, or the 1040 form? Also, y'all said Linden Labs would send me a copy of the 1099-MISC if I trigger the required amount, I didn't receive anything expect a message saying the transaction was successful. Does that mean I don't have to report this income?

Sometimes it's better to take very, very specific tax questions to a professional rather than a forum like this.  

[Selene Gregoire]

52 minutes ago, kaikaroon said:

Thanks for the replies everyone. So what I did was I paid for the premium for 1 year and then cancelled it and the Lindens I received were from the 300L weekly stipend. I didn't spend all of them so I decided to sell them and export the money back to my PayPal. Am I required to report this as miscellaneous income since my intent wasn't to make a profit and I'm not doing this continuously? I'm also not self-employed or selling anything. If I am required to report it, do I report it on the 1099-MISC, the W-2, or the 1040 form? Also, y'all said Linden Labs would send me a copy of the 1099-MISC if I trigger the required amount, I didn't receive anything expect a message saying the transaction was successful. Does that mean I don't have to report this income?

See mine and Rolig's posts above yours. My profession is accounting.

You do not need to report it as income on your 1040 if you do not receive a 1099. W-2 has nothing to do with this as it is not income you earned from wages. 

Edited December 5, 2019 by Selene Gregoire

[kaikaroon]

Thanks again for the replies. 

11 minutes ago, Selene Gregoire said:

See mine and Rolig's posts above yours. My profession is accounting.

You do not need to report it as income on your 1040 if you do not receive a 1099. W-2 has nothing to do with this as it is not income you earned from wages. 

I didn't know that I would have to report the income on a 1040 if I recieve a 1099. Thanks for telling me about that. We learn something new every day.

[Jaylinbridges]

2 hours ago, kaikaroon said:

I didn't know that I would have to report the income on a 1040 if I recieve a 1099

You paid $99 and got some of it back.  That's not really income.  And it's not a business.  LL won't generate a 1099 for $40/yr stipend refund on your premium.

If you get any 1099 and you are required to file income tax because you are above the minimum for filing a return, then you should add any 1099 income since the IRS also gets the same 1099 in their files.  And subtract any business expenses from that income.  If I deposit $100 into SL, and then take back $90 as a Process Credit into pay pal, that sure isn't income for me.  It is income for Linden Labs though, the 10% in processing fees they collected for taking and returning my money.

Edited December 5, 2019 by Jaylinbridges

[Ceka Cianci]

2 hours ago, Jaylinbridges said:

You paid $99 and got some of it back.  That's not really income.  And it's not a business.  LL won't generate a 1099 for $40/yr stipend refund on your premium.

If you get any 1099 and you are required to file income tax because you are above the minimum for filing a return, then you should add any 1099 income since the IRS also gets the same 1099 in their files.  And subtract any business expenses from that income.  If I deposit $100 into SL, and then take back $90 as a Process Credit into pay pal, that sure isn't income for me.  It is income for Linden Labs though, the 10% in processing fees they collected for taking and returning my money.

It is considered income..it's just not enough to worry about..

If I pay for a service that costs 99.00.Then  that is how much the service and everything that comes with it costs..

if they refunded me so much for some reason or prorate for some reason and send me money back,that's not income,that's just getting a deal..

But if part of the service is giving me credits to use in world and I cash it out through the exchange for real world currency..then that is generating income. Linden is not giving me a real world currency back..

The money is coming from another source through the exchange that bought your lindens with real world currency..

So they basically spent $99.00 for the premium service and made 40.00 from the service, because the linden credits are part of the premium service,where you can use them in world or cash them out for income..

[Jaylinbridges]

2 hours ago, Ceka Cianci said:

So they basically spent $99.00 for the premium service and made 40.00 from the service, because the linden credits are part of the premium service,where you can use them in world or cash them out for income..

They didn't "make" $40 from the service, since they paid $99 for the service.  But if you insist this is a real business, then list $99 as a business expense, and $40 as income.  Your net business income is negative $55, which you should claim as a business deduction for tax purposes.  The $99 is a service fee, with debatable value.  Business fees are deductible.  Not many businesses would survive spending $99 for every $40 earned.

 

[Ceka Cianci]

27 minutes ago, Jaylinbridges said:

They didn't "make" $40 from the service, since they paid $99 for the service.  But if you insist this is a real business, then list $99 as a business expense, and $40 as income.  Your net business income is negative $55, which you should claim as a business deduction for tax purposes.  The $99 is a service fee, with debatable value.  Business fees are deductible.  Not many businesses would survive spending $99 for every $40 earned.

 

I'm not insisting it's a business,just that it is generated income..You said,That's not really income.

I was just saying ,it is.

You don't have to be a business to generate income...

They paid linden 99 for premium membership..One of the many perks of the membership is,you get so many lindens per week..A Currency that is only good in this world..

They took their lindens that they got from their membership,then turned around and sold them to someone else for 40.00.

That's generating income.

There really is no reason to worry about washing it out,because it's not enough to trigger a 1099-MISC income

If it were a big enough amount,it would trigger a 1099-MISC Income form.

The amount doesn't change it from income to not really income..

 

 

 

 

 

[Lindal Kidd]

Jaylin is correct, but hasn't quite hit the mark.

Selene's answer is, for practical purposes, the right one:  The amount is too small to matter (under $600) and there is no 1099 to worry about.  So ignoring it should be safe.

BUT...

To be entirely technically, rule-stickling correct, the $99.00 for a Premium membership is a hobby business expense (unless a business is conducted with a reasonable expectation of profit, and actually makes a profit in at least 2 out of 5 years, the IRS considers it a "hobby").  The $40 returned from the business is hobby income.  Hobby expenses can't be deducted from hobby income so as to claim a loss.  However, $40 of the expense can be deducted against the $40 income, leading to a net of $0 and no tax due.

[Selene Gregoire]

1 hour ago, Ceka Cianci said:

I'm not insisting it's a business,just that it is generated income..You said,That's not really income.

I was just saying ,it is.

You don't have to be a business to generate income...

They paid linden 99 for premium membership..One of the many perks of the membership is,you get so many lindens per week..A Currency that is only good in this world..

They took their lindens that they got from their membership,then turned around and sold them to someone else for 40.00.

That's generating income.

There really is no reason to worry about washing it out,because it's not enough to trigger a 1099-MISC income

If it were a big enough amount,it would trigger a 1099-MISC Income form.

The amount doesn't change it from income to not really income..

 

This is correct.

Quote

U.S. Code § 61.Gross income defined

(a)General definition Except as otherwise provided in this subtitle, gross income means all income from whatever source derived, including (but not limited to) the following items:

(1)

Compensation for services, including fees, commissions, fringe benefits, and similar items;

(2)

Gross income derived from business;

(3)

Gains derived from dealings in property;

(4)

Interest;

(5)

Rents;

(6)

Royalties;

(7)

Dividends;

(8)

Annuities;

(9)

Income from life insurance and endowment contracts;

(10)

Pensions;

(11)

Income from discharge of indebtedness;

(12)

Distributive share of partnership gross income;

(13)

Income in respect of a decedent; and

(14)

Income from an interest in an estate or trust.

 

https://www.law.cornell.edu/uscode/text/26/61

Edited December 5, 2019 by Selene Gregoire

[Selene Gregoire]

18 minutes ago, Lindal Kidd said:

(under $600) and there is no 1099 to worry about

This is also correct.

Quote

File Form 1099-MISC for each person to whom you have paid during the year:

• at least $10 in royalties or broker payments in lieu of dividends or tax-exempt interest;
• at least $600 in:
  • rents;
  • services performed by someone who is not your employee;
  • prizes and awards;
  • other income payments;
  • medical and health care payments;
  • crop insurance proceeds;
  • cash payments for fish (or other aquatic life) you purchase from anyone engaged in the trade or business of catching fish;
  • generally, the cash paid from a notional principal contract to an individual, partnership, or estate;
  • payments to an attorney; or
  • any fishing boat proceeds,

https://www.irs.gov/forms-pubs/about-form-1099-misc

[Tolya Ugajin]

You should talk to a tax accountant or attorney in the nation and state/province you are in.  Relying on free legal or tax advice, which is what you are asking for here, is not a good idea.