How does LL compute income?

[Jennifer Boyle]

My understanding is that, when a resident has taken RL money out of SL via Tilia, LL annually reports the amount paid out to the concerned taxing authorities, although I presume that there is a threshold that must be reached for that to happen.

Is net or gross income reported? For example, if a U.S. resident pays in $3000 during a year and removes $1000, does LL report income of $1000 to the IRS?

[Modulated]

The threshold is much lower now for US residents : 600 dollars in transactions and its reported. Basically anything you take out, Lindens to dollars in my understanding can be considered income because it then has a cash value .

Edited June 26, 2022 by Modulated

[Jennifer Boyle]

7 minutes ago, Modulated said:

The threshold is much lower now for US residents : 600 dollars in transactions and its reported. Basically anything you take out, Lindens to dollars in my understanding can be considered income because it then has a cash value .

In the example I gave, the resident actually had a net loss of $2000 for the year, even though gross income was $1000.

Edited June 26, 2022 by Jennifer Boyle

[Silent Mistwalker]

2 minutes ago, Jennifer Boyle said:

In the example I gave, the resident actually had a net loss of $2000 for the year, even though gross income was $1000.

You are taxed on income, not profit.

LL will file a 1099 with the IRS and the amount it will show will be whatever amount was actually withdrawn from SL. LL will report the $1000USD since that puts it over the annual limit of $600US.

Edited June 26, 2022 by Silent Mistwalker

[Lindal Kidd]

2 hours ago, Silent Mistwalker said:

LL will file a 1099 with the IRS and the amount it will show will be whatever amount was actually withdrawn from SL. LL will report the $1000USD since that puts it over the annual limit of $600US.

If true, this is terrible...and terrible accounting. I mean, look:

• I earn $1,000 at my job. My employer withholds $250.00 for income tax purposes.
• I take the remaining $750.00 and buy $L to play Second Life
• I play SL for the rest of the year, and only have spent $100.00 worth of my $L.
• So I take the remaining $650.00 out of SL.
• It gets reported to the IRS.
• ...and now I am taxed AGAIN on money that I already paid tax on.

Anyone who buys more than a token amount of $L had better be able to show receipts!

Edited June 26, 2022 by Lindal Kidd
corrected a math error

[Ceka Cianci]

2 hours ago, Jennifer Boyle said:

In the example I gave, the resident actually had a net loss of $2000 for the year, even though gross income was $1000.

You figure that amount when you do your taxes..You report your gains and losses on your tax form.. LL only gives income you received if over a certain amount..

Just as it would be the same if subcontracting for any place or owning any business.. You save your receipts and weigh that against your income they show on the 1099 at tax time.

 

Edited June 26, 2022 by Ceka Cianci

[Love Zhaoying]

LL is notoriously bad at maths, so glad they aren't computing incomes!

[Love Zhaoying]

52 minutes ago, Lindal Kidd said:

If true, this is terrible...and terrible accounting. I mean, look:

• I earn $1,000 at my job. My employer withholds $250.00 for income tax purposes.
• I take the remaining $750.00 and buy $L to play Second Life
• I play SL for the rest of the year, and only have spent $100.00 worth of my $L.
• So I take the remaining $600.00 out of SL.
• It gets reported to the IRS.
• ...and now I am taxed AGAIN on money that I already paid tax on.

Anyone who buys more than a token amount of $L had better be able to show receipts!

Glad I'm spending my L$ instead of cashing out!

[Codex Alpha]

3 hours ago, Jennifer Boyle said:

My understanding is that, when a resident has taken RL money out of SL via Tilia, LL annually reports the amount paid out to the concerned taxing authorities, although I presume that there is a threshold that must be reached for that to happen.

Is net or gross income reported? For example, if a U.S. resident pays in $3000 during a year and removes $1000, does LL report income of $1000 to the IRS?

Any monies I 'cash out' to RL platforms I consider 'income' and declare it as such at tax time.

If you do this you shouldn't have any problem come tax time.

Keep in mind if you spent money on anything to obtain that income, you may be able to write that off against the income earned.

[Silent Mistwalker]

1 hour ago, Lindal Kidd said:

If true, this is terrible...and terrible accounting. I mean, look:

• I earn $1,000 at my job. My employer withholds $250.00 for income tax purposes.
• I take the remaining $750.00 and buy $L to play Second Life
• I play SL for the rest of the year, and only have spent $100.00 worth of my $L.
• So I take the remaining $650.00 out of SL.
• It gets reported to the IRS.
• ...and now I am taxed AGAIN on money that I already paid tax on.

Anyone who buys more than a token amount of $L had better be able to show receipts!

That's not how it works. You are not being taxed twice.

[Love Zhaoying]

5 minutes ago, Silent Mistwalker said:

That's not how it works. You are not being taxed twice.

I have a helpful meme.

 

[Crim Mip]

3 hours ago, Jennifer Boyle said:

In the example I gave, the resident actually had a net loss of $2000 for the year, even though gross income was $1000.

If you were running an actual business in SL and that $3000 was solely for that business, then yes you could write it off against profits. You'd best have good documentation though. Otherwise, no, it doesn't matter what you paid in. You owe taxes on that $1000

[Jennifer Boyle]

Let's see. According to what most people are saying. if I buy some Lindens with real money, I don't need all of them, and I return them for a refund, the refund is reported as taxable income. No other business of which I have ever heard does such a bizarre thing. They don't even do it if the purchase and refund are in different years.

28 minutes ago, Crim Mip said:

You'd best have good documentation though.

Like what? I don't think I've ever seen an invoice or a receipt for an inworld transaction. There is the online transaction record that is transiently available that I can download, which often doesn't provide good documentation of the reason Linden dollars changed hands. Easily-altered IM and chat logs, maybe? Good documentation, by real-world standards just doesn't exist inside SL, to my knowledge.

[Jaylinbridges]

Explain how buying $750 usd in Lindens (minus the LL fees for buying), and then requesting that same amount in Lindens back to USD and to your RL accounts, counts as income?  Assume you had no business or job where you could earn any income in SL, hence no business deductions.  You paid extra fees for the privilege of owning linden tokens, which you decided to convert back to dollars in Tillia, and send them back to your RL bank (for more fees of course).   Earned income is NOT simply my after tax income I moved between accounts.  This is taxation twice, if your RL income tax situation causes this NON income to be taxed again.

I can count to two.  Learned that a few years ago...

 

 

Edited June 26, 2022 by Jaylinbridges

[Lindal Kidd]

6 hours ago, Silent Mistwalker said:

That's not how it works. You are not being taxed twice.

Then please explain how it DOES work. The example I suggested follows exactly from what you said:

9 hours ago, Silent Mistwalker said:

LL will file a 1099 with the IRS and the amount it will show will be whatever amount was actually withdrawn from SL. LL will report the $1000USD since that puts it over the annual limit of $600US.

As I said before, it seems to me that you will be double taxed, unless you are able to provide the IRS with receipts showing that you paid more into SL than you took out.

I'm not saying that you are wrong; I'm saying that if you are RIGHT then we are all going to have to be diligent about keeping records about our SL expenditures.

[Quistess Alpha]

Maybe I'm a bit too high up on my white horse, but if you "play the game right" you should only ever let L$ to USD flow in one direction each tax-year.

Ex. Say I budget myself to 100USD (+premium) to spend on SL per year, so I buy 25000 L$ on January 1st. 2020. I party a lot and don't do much "work" by january 1 2021 I'm down to 5000 L$ so I buy another 20000. Then  start a generally successful club, and howdy do, January 1st 2022 I have 35000 linden in the bank. Sell off the 10000 linden and buy some fancy cake and ice-cream or something with the ~41USD.

[Ceka Cianci]

6 hours ago, Jennifer Boyle said:

Let's see. According to what most people are saying. if I buy some Lindens with real money, I don't need all of them, and I return them for a refund, the refund is reported as taxable income. No other business of which I have ever heard does such a bizarre thing. They don't even do it if the purchase and refund are in different years.

Like what? I don't think I've ever seen an invoice or a receipt for an inworld transaction. There is the online transaction record that is transiently available that I can download, which often doesn't provide good documentation of the reason Linden dollars changed hands. Easily-altered IM and chat logs, maybe? Good documentation, by real-world standards just doesn't exist inside SL, to my knowledge.

You don't return them for a refund to linden lab..

You either buy lindens or you sell your lindens.. All buying and selling is done through the lindex exchange between you and other users.. LL is just the middle man pretty much charging fees.

If you buy lindens there may be a sales tax depending on your state and if they hit you with a sales tax..

When you sell lindens ,if you sell enough lindens over a years time you'll be sent a 1099 form for the income tax, which is a different tax than the sales tax..

sales tax is a state tax on purchases.

income tax is a federal and some states tax on earnings.

If you keep good records you can many times cancel things out by itemizing and writing things off and weighing taxes you paid out.

Also keep track of the fees you pay with each transaction as well..you may be able to write those off as an expense.

a lot of things depend on where you get charged.. if you are using something like paypal keep track of their fee's and the exchange fee's that get charged through lindex..

I haven't cashed out in years so I don't know how they do all that these days..

 

ETA: if you think LL's exchange is crazy.. try doing someones taxes that decided to play with bitcoin for a year.. omg  you will be pulling your hair out..

That's when I swore off doing other peoples taxes.. this was my last year.. hehehehe

 

 

 

Edited June 27, 2022 by Ceka Cianci

[Drayke Newall]

From here Linden Lab Official:Required Tax Documentation FAQ - Second Life Wiki :

What is IRC Section 6050W, and how do I know if it affects me?

This US tax law requires Linden Lab to report to the IRS the total amount of money paid to any US resident whose L$ sales transactions reach certain thresholds in a calendar year. 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. We will send you a copy of this form.

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.

------------------

Whether this threshold is the latest who knows as LL are notorious for not updating the wiki. A 2019 blog entry links to the wiki so I assume it is up to date since then. That said, per your question it is Gross not net. 

Edited June 27, 2022 by Drayke Newall

[Jennifer Boyle]

46 minutes ago, Drayke Newall said:

From here Linden Lab Official:Required Tax Documentation FAQ - Second Life Wiki :

What is IRC Section 6050W, and how do I know if it affects me?

This US tax law requires Linden Lab to report to the IRS the total amount of money paid to any US resident whose L$ sales transactions reach certain thresholds in a calendar year. 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. We will send you a copy of this form.

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.

------------------

Whether this threshold is the latest who knows as LL are notorious for not updating the wiki. A 2019 blog entry links to the wiki so I assume it is up to date since then. That said, per your question it is Gross not net. 

Thank you for that. It answers my question with fact, not speculation.

It tells me the threshold is so high that I can forget about it.

I had thought, after reading many of the responses, that the thing for the member with $1000 in their account in my example to do would be to leave it there and use it to pay for a Premium Plus annual membership for the next four years. Ironically, if you use your US dollar balance to pay for SL expenses, there's no tax liability at all.

[Jennifer Boyle]

1 hour ago, Ceka Cianci said:

You don't return them for a refund to linden lab..

You either buy lindens or you sell your lindens.. All buying and selling is done through the lindex exchange between you and other users.. LL is just the middle man pretty much charging fees.

The US dollars is all the IRS cares about. I pay Tilia dollars in order to buy Lindens. Tilia pays me dollars after I sell Lindens. Those other theoretical residents have nothing to do with the dollars. Tilia is the only entity with which I exchange US dollars.

Just curious. Most of my Lindens go, through a third party, to pay for my land tier, so they go to LL. If I keep buying  Lindens from residents and paying them to LL, won't the number of Lindens available fall? Many, many people pay large amounts for land tier to LL. If everyone is buying from other residents to pay LL, why isn't the supply of Lindens drying up, and why isn't the Linden to dollar ratio decreasing?

[Phil Deakins]

10 hours ago, Lindal Kidd said:

• I earn $1,000 at my job. My employer withholds $250.00 for income tax purposes.
• I take the remaining $750.00 and buy $L to play Second Life
• I play SL for the rest of the year, and only have spent $100.00 worth of my $L.
• So I take the remaining $650.00 out of SL.
• It gets reported to the IRS.
• ...and now I am taxed AGAIN on money that I already paid tax on.

In general, tax is paid when money changes hands. First, tax is deducted by the employer. Using extremely rough figures, US$1000 earned and taxed means that you can buy US$800 worth of stuff. NO YOU CAN'T! When you pay, say US$200 of it, for an item or service, you only get US$160 value. The other US$40 is the country's form of sales tax. So every US$1000 you earn is only worth US$600 to you. There are some exceptions but, in general, you are taxed twice on the money you earn.

In other words, when you use the money you have, you are "taxed AGAIN on money that [you] already paid tax on". Money has no value unless you use it, and when you use it, you are taxed again on it.

 

Edited June 27, 2022 by Phil Deakins

[Sid Nagy]

I wish that I have to pay 10,000,000 euro income tax over 2022.
I would even go with a big chocolate cake to the tax office to hand in the tax form peronally then.
That's all.

[Ceka Cianci]

34 minutes ago, Jennifer Boyle said:

The US dollars is all the IRS cares about. I pay Tilia dollars in order to buy Lindens. Tilia pays me dollars after I sell Lindens. Those other theoretical residents have nothing to do with the dollars. Tilia is the only entity with which I exchange US dollars.

Just curious. Most of my Lindens go, through a third party, to pay for my land tier, so they go to LL. If I keep buying  Lindens from residents and paying them to LL, won't the number of Lindens available fall? Many, many people pay large amounts for land tier to LL. If everyone is buying from other residents to pay LL, why isn't the supply of Lindens drying up, and why isn't the Linden to dollar ratio decreasing?

Ya, When I used to cash out it was before Tilla was around so I should probably do a bit more research on how they do it nowadays then I guess.. hehehe

I had the old system stuck in my head for some reason.. I completely forgot about Tilla for some reason ..

[Theresa Tennyson]

12 hours ago, Lindal Kidd said:

If true, this is terrible...and terrible accounting. I mean, look:

• I earn $1,000 at my job. My employer withholds $250.00 for income tax purposes.
• I take the remaining $750.00 and buy $L to play Second Life
• I play SL for the rest of the year, and only have spent $100.00 worth of my $L.
• So I take the remaining $650.00 out of SL.
• It gets reported to the IRS.
• ...and now I am taxed AGAIN on money that I already paid tax on.

Anyone who buys more than a token amount of $L had better be able to show receipts!

When you buy Lindens, you use money to buy property. When you sell Lindens you sell that property to someone else. The situation is exactly the same as if you'd bought a car and then sold the car later in the year at a loss.

Your example would require someone to buy a massive amount of Lindens they have no immediate plans to use and sit on them, and then sell them to someone else at a later date. That's not the way people normally use online entertainment environments with microtransations. It is how people launder money, though.

[Alwin Alcott]

2 hours ago, Jennifer Boyle said:

Most of my Lindens go, through a third party, to pay for my land tier, so they go to LL.

If I keep buying  Lindens from residents and paying them to LL, won't the number of Lindens available fall?

Many, many people pay large amounts for land tier to LL.

If everyone is buying from other residents to pay LL, why isn't the supply of Lindens drying up, and why isn't the Linden to dollar ratio decreasing?

the first    You don't pay in L$ for the land, but to the landlord, they convert it to USD and pay LL ( as you know LL doesnt take ány substantial payment in Linden Dollars.)

second .. LL supplies quite some amounts of L$ every week in the form of premiumstipends. They also can( not sure if they actually do) make moves in the market by intervention at the Lindex.

third ... that's in USD, not L$

fourth .. all transactions are circular, you pay a creator( or any other product/resident), the creator buys textures, the creator uploads, a.s.o .. and the creator sells to cash out :  and who buys ?... yes residents... LL does not sell you L$ or buy it... 
LL has quite some sinks for the L$, uploadfees, MP % of purchase, partnering... those also help to keep the rates in balance.
Some people think LL also enters the Lindex with those amounts, but that's not very likely as standard, it would flood the lindex and rates would be a falling curve. If they do it's more to expect in situations the rates are on a bumpy ride.( i think!)


As long L$ sales, and buys are in a sort of balance, the market won't have huge shocks in values, thats quite easy to see at the lindex.

hope i did write this a bit as i thought