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1099-k Discrepancy


Polyester Partridge
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I am wondering if anyone else has had a similar issue to what I am currently dealing with. I received my 1099-K about a week ago and noticed the numbers on there were way off from what I've personally been keeping track of. There is a $799.52 (additional) difference between the records on the website and the 1099k that I was sent. 

 I contacted concierge help, who told me to contact Tilla which I did through their website. They didn't respond to me so I contacted concierge again after a few days they got me in touch with Tilla. 

Tilla has been brushing me off for the last week sending a form letters that say "The Form 1099-K reflects your gross proceeds for all Linden sales transactions on the platform—it does not reflect net gain, profit, or anything other than gross proceeds." and "Linden Lab does not provide tax advice". 

I've tried calculated it several times ways using the information on the top of the Account History/Statements page, including island fees, and never seem to end up at the numbers they sent to me on the form. Unless there is something hidden that I don't know about I'm not sure how they calculated the numbers sent to me.

Edited by Polyester Partridge
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My issue is that I got one... but I shouldn't have based on the following:

Quote

What is a Form 1099-K? Why would I receive one from Linden Lab, and when?

This form is used to report to the IRS the gross proceeds earned from L$ sales transactions in a calendar year. Linden Lab is required to file this form for US residents who reach certain transaction thresholds. For U.S. residents with 200 or more L$ sale transactions with a total amount of gross proceeds in excess of $20,000 in a calendar year, we are required to file a Form 1099-K with the IRS reporting those transactions for that year.

Even if I combine my Tilia and Linden Research ones... I never hit $20,000 nor 200 transactions (not even a quarter of that). So now my issue is if I have the form... even though it NEVER hit enough to matter, does this even count? I just pay for my sims directly within LL/Tilia's system using the L$ proceeds from friends who contribute to the payment. If this is going to involve tax tangoing, I'll just take my services elsewhere (and in this day and age, there are plenty of other places now).

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38 minutes ago, Flame Swenholt said:

My issue is that I got one... but I shouldn't have based on the following:

Even if I combine my Tilia and Linden Research ones... I never hit $20,000 nor 200 transactions (not even a quarter of that). So now my issue is if I have the form... even though it NEVER hit enough to matter, does this even count? I just pay for my sims directly within LL/Tilia's system using the L$ proceeds from friends who contribute to the payment. If this is going to involve tax tangoing, I'll just take my services elsewhere (and in this day and age, there are plenty of other places now).

I can think of a couple of possible explanations (note I don't KNOW this is what happened). 

First off things changed on August 2, 2019 as you may know and now LL (Tilia division) is supposed to keep records on everyone with a USD balance.   So it is POSSIBLE that the info you are quoting above is no longer valid (I know it USED to be valid but things have changed some).  

 

Secondly and in regard to the money counted that you did not send to Paypal ---  There are apparently some "newish" laws that are trying (or maybe DO ) tax game currency even when used "in game".    Hopefully that is not what you are facing.  The article I read left lots of questions in my mind.   So that anything turned into USD balances becomes taxable.   You will need to research that more. Since I don't DO that any longer I just read for interest. No longer relates to me. 

 

Meanwhile paging @Grumpity Linden may get the answer you need. I would be interested to know also :D. 

 

 

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image.png.b692c4d7a80cf80200ccf98024eb648f.png

Well, I found the answer to my issue anyway. As far as i can tell, gross proceeds includes every linden transaction in second life, if someone is giving you lindens for your sim and you process that to USD that counts as profit on your taxes.This changes things quite a bit.

I was also sent this: 

 Please be advised that the IRS reporting requirements for Second Life are based on Lindex sells to your USD balance. 
To receive one:
 
* You must have had at least 200 transactions in the previous year, whose total value is equal to or greater than $20,000
* Your gross proceeds from those transactions exceed the state's threshold (see below for variations by state)
 
State thresholds:
Arkansas (AR) - $2,500
District of Columbia (DC) - $600
Massachusetts (MA) - $600
Mississippi (MS) - $600
Missouri (MO) - $1,200
New Jersey (NJ) - $1,000
Vermont (VT) - $600
All other states - $20k

 

Edited by Polyester Partridge
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Seriously? Then why isn't the number of payment transactions documented on the 1099-K? If that's the case, I'll have to seriously rethink our splitpay systems which operate on a daily function and even then, that's very misleading to not reflect that on the form.

EDIT: And still, I haven't done a process of credits in a long while because the amount I earn isn't enough to pay for a sim and that's it. So i'm being taxed for imaginary money that hasn't even become USD?

Edited by Flame Swenholt
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This is absurd. I have always been taxed on my net profit, not on my before expenses income, like everyone else in America.  Why should I pay taxes on the USD I spend on my four sims???  Or the ten percent it costs to sell Lindens or the 15 percent I pay to process credit. Ridiculous. 
 

I am going to continue following my CPAs advice: I pay taxes on my income/salary, not on my expenses. 

Edited by Pamela Galli
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43 minutes ago, Pamela Galli said:

This is absurd. I have always been taxed on my net profit, not on my before expenses income, like everyone else in America.  Why should I pay taxes on the USD I spend on my four sims???  Or the ten percent it costs to sell Lindens or the 15 percent I pay to process credit. Ridiculous. 
 

I am going to continue following my CPAs advice: I pay taxes on my income/salary, not on my expenses. 

Those expenses can all be taken off AS expenses in your Form C unless things have changed recently.  As I said in my post, the article I read left questions in MY mind.   I quit cashing out in August so no longer an issue for me. 

Form 1099s have NEVER been about net profit. Somehow I think you are confused.    Even if the "new laws" about virtual currency are true and upheld --- legitimate expenses should be able to be claimed against that GROSS number.   

Not an accountant but self employed most of my life. 

Take a deep breath are REREAD.

Ahhh. Missed that post about Lindens to USD as I suspected.   Agree that is nasty.  That IS sort of what the article I read said.   You can still take any legitimate expense (like land tier) off as a business expense  -- again unless that changed lately too.  Check with your accountant or do more research.

 

Thinking that it was a very good time to RETIRE and only use lindens ^^. :D

Edited by Chic Aeon
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3 minutes ago, Chic Aeon said:

Those expenses can all be taken off AS expenses in your Form C unless things have changed recently.  As I said in my post, the article I read left questions in MY mind.   I quit cashing out in August so no longer an issue for me. 

Form 1099s have NEVER been about net profit. Somehow I think you are confused.    Even if the "new laws" about virtual currency are true and upheld --- legitimate expenses should be able to be claimed against that GROSS number.   

Not an accountant but self employed most of my life. 

Take a deep breath are REREAD.

 

That is where things are going to get drastically difficult to follow: sim prices changed this year, and in my case, I paid strictly using the USD balance on my SL account, not via cash out and then repay that way (yes, some people do this).

So my issue is... where are my receipts of the payments then for payments in their own system to report expenses against the gross amount of payment? On top of that, if I never cashed it out then why is it being reported? I only wish I could have cash out as much that Linden Lab/Tilia claims I did.

Edited by Flame Swenholt
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1 minute ago, Chic Aeon said:

Those expenses can all be taken off AS expenses in your Form C unless things have changed recently.  As I said in my post, the article I read left questions in MY mind.   I quit cashing out in August so no longer an issue for me. 

Form 1099s have NEVER been about net profit. Somehow I think you are confused.    Even if the "new laws" about virtual currency are true and upheld --- legitimate expenses should be able to be claimed against that GROSS number.   

Not an accountant but self employed most of my life. 

Take a deep breath are REREAD.

My business is incorporated. I get paid a salary, which is whatever is left over after all the fees and tier etc. are paid. I will be damned if I have to pay freaking taxes on expenses instead of income. And while Amazon pays nothing!

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1 hour ago, Polyester Partridge said:
Please be advised that the IRS reporting requirements for Second Life are based on Lindex sells to your USD balance. 
To receive one:
 
* You must have had at least 200 transactions in the previous year, whose total value is equal to or greater than $20,000
* Your gross proceeds from those transactions exceed the state's threshold (see below for variations by state)
 
State thresholds:
Arkansas (AR) - $2,500
District of Columbia (DC) - $600
Massachusetts (MA) - $600
Mississippi (MS) - $600
Missouri (MO) - $1,200
New Jersey (NJ) - $1,000
Vermont (VT) - $600
All other states - $20k

And that, right there, may be the culprit. I do fall in one of those states, and the amount earned is slightly above the state threshold.

However, this still doesn't help with expense reporting, since Linden Lab doesn't notify me on sim payments last I checked, and thus I have no receipt except in their own system.

Edited by Flame Swenholt
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11 minutes ago, Flame Swenholt said:

That is where things are going to get drastically difficult to follow: sim prices changed this year, and in my case, I paid strictly using the USD balance on my SL account, not via cash out and then repay that way (yes, some people do this).

So my issue is... where are my receipts of the payments then for payments in their own system to report expenses against the gross amount of payment? On top of that, if I never cashed it out then why is it being reported? I only wish I could have cash out as much that Linden Lab/Tilia claims I did.

Again, Grumpity or Brent (think I got that although I don't know if he is still here) should answer this.  BUT.

I can see that is an issue since you didn't KNOW you needed to keep track of that stuff ahead of time.  I can only tell you what the article said.  

When you changed your linden dollars to USD they "became" real money under the new somewhat foggy law.   It doesn't matter if you  cashed out processing to Paypal, it was DOLLARS that you used to pay for things (in game).    So the new law on virtual money is treating anything changed into dollars as taxable.

If you want to read more you can probably find information in this by looking up something like "taxes, virtual currency, and Fortnight" as it was Fortnight (think I have that correct) that was in the spotlight on this.

I wasn't LOOKING for the article at all when I came across it, so of course didn't bookmark. 

Edited by Chic Aeon
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8 minutes ago, Chic Aeon said:

Again, Grumpity or Brent (think I got that although I don't know if he is still here) should answer this.  BUT.

I can see that is an issue since you didn't KNOW you needed to keep track of that stuff ahead of time.  I can only tell you what the article said.  

When you changed your linden dollars to USD they "became" real money under the new somewhat foggy law.   It doesn't matter if you  cashed out processing to Paypal, it was DOLLARS that you used to pay for things (in game).    So the new law on virtual money is treating anything changed into dollars as taxable.

If you want to read more you can probably find information in this by looking up something like "taxes, virtual currency, and Fortnight" as it was Fortnight (think I have that correct) that was in the spotlight on this.

 

Agreed, and in essence, that does make sense. However, last I checked, it was Linden Lab that did the charges for sim payments, so why there is no receipt of that at all if done internally within their system is a grave error on their part. It also makes running my sim, which is just for hanging out and not for profit, now even more questionable if I now have to operate as a mini company just to effectively own it (again, all earnings go to paying the sim and nothing else).

EDIT: Found the solution: go to Account Summary, and you will be able to see all transactions involved, including sim payments. I will have to generate 12 PDFs, but I can get the results and thus a total of expenses.

Edited by Flame Swenholt
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1 minute ago, Flame Swenholt said:

Agreed, and in essence, that does make sense. However, last I checked, it was Linden Lab that did the charges for sim payments, so why there is no receipt of that at all if done internally within their system is a grave error on their part. It also makes running my sim, which is just for hanging out and not for profit, now even more questionable if I now have to operate as a mini company just to effectively own it (again, all earnings go to paying the sim and nothing else).

It IS messy. While I quit cashing out because of the Tilia TOS and the SSN issues, I am really not regretting that these days.  Agreed that there should be a way to find out what you paid in sim fees. You can probably estimate I guess -- especially if you really don't have "profit". Of course if you sim IS just for "hanging out" then it wouldn't qualify as a business expense anyway.   

There are plenty of articles about virtual currency being bundled in with bitcoins and the like. Things may change in the future.  IF everyone would have KNOWN about this it would have been easier to deal with.  For sure.  Recently the IRS apparently took away statements about Fortnight "tokens" from the official  literature but the articles I read suggested that game money was STILL taxable. 

 

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Okay, I have a even bigger problem: the numbers do not match up.

On January 2019, the form claims ~$235, but the amount on the site says $225 (the amount needed for the sim payment). This trend seems to follow for all the months on the forms and in relationship to the receipts I can pull up (very well summarized at that) on the account summary.

Is Linden Lab writing on the form based on L$ value BEFORE processing fees?! How the heck does that make sense?

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4 hours ago, Flame Swenholt said:

Okay, I have a even bigger problem: the numbers do not match up.

On January 2019, the form claims ~$235, but the amount on the site says $225 (the amount needed for the sim payment). This trend seems to follow for all the months on the forms and in relationship to the receipts I can pull up (very well summarized at that) on the account summary.

Is Linden Lab writing on the form based on L$ value BEFORE processing fees?! How the heck does that make sense?

Yes, fees would be one of the things that would be a cost that you would take off of the Schedule C form. 

 

image.png.4a499d5fca8d3623f0ee655b6510b2f6.png

 

AGAIN. 1099 is reporting GROSS proceeds. 

Edited by Chic Aeon
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5 hours ago, Pamela Galli said:

My business is incorporated. I get paid a salary, which is whatever is left over after all the fees and tier etc. are paid. I will be damned if I have to pay freaking taxes on expenses instead of income. And while Amazon pays nothing!

1099 forms report GROSS income  NOT NET. You PAY taxes on NET.   You would NOT be paying on the amount on the form you received. Your accountant would take off all fees and costs (you sim payments, computer and office needs, his charges etc.).  

 

I can't say it any more clearly so I will give up here.   

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  • Administrators

As was mentioned, you can generate the reports needed from the Account History/Statements page while logged in to your account.  If you feel there could be a discrepancy with the numbers, please do feel free to contact support and we will help you get the information you need.

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You can't deduct accounting  costs anymore on  an individual  return as I read it,  check if you  may be able to  on your business return. Take all your costs and revenues to an accountant who understands internet businesses.

My understanding is once a Linden becomes a dollar, whether or not PayPal is involved,  it reenters the real taxable world , but that's only the income side of the balance sheet-- you need to have your expenses offset it. Like tier - your tenants pay you say $30,000 cashed out but you pay Linden let's say $28,000 tier---  $2000 is the profit BUT you bought terrains, trees, etc. to help offset .

Schools should teach basic accounting, this thread makes me sad.

 

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