The Tax Man Cometh - For Your Bitcoins

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Hiding your Bitcoins? You better watch out, the IRS could be coming for you!

If you're playing a massively multiplayer online game like World of Warcraft (yes, the report actually cites WoW by name) but don't convert your in-game gold to real-life dollars, you haven't made any money and you don't owe any income taxes on your gameplay. If you trade virtual goods and services for virtual currency, you "may" have earned income, and you have to report it. If you trade real-world goods and services for virtual currency, that might also result in taxable income.
 
Unless blizzard reports to the IRS all your gold to cash earnings, I don't see how they can track what you owe.
 
Unless blizzard reports to the IRS all your gold to cash earnings, I don't see how they can track what you owe.

And unless part of the subscription / user creation process involves gathering the user's SSN/TIN, they can't report squat technically speaking. There wouldn't be any way to accurately report it.
 
So this means you can write off your game subscription fees, a portion of your internet access fees, a portion of your electricity bill, and a portion of your rent / mortgage right?

Since you're using all those servers to "earn" money, they are now a business expense.
 
So this means you can write off your game subscription fees, a portion of your internet access fees, a portion of your electricity bill, and a portion of your rent / mortgage right?

Since you're using all those servers to "earn" money, they are now a business expense.
You probably could to a certain extent, although probably like gamblers there are limits to what you can deduct. You'd probably have a hard time arguing the primary reason you are in that residence is for your business, even with a home run business you have to show (or say) that you do X% of business in the home.

Taxes should be straight forward though, if you make real money out of it, then it's taxable period. The whole "if you trade for virtual currency you MAY owe taxes" is so laughable its stupid. It reminds me when Barry Bonds was going to break Roger Marris' home run record, people were saying "oh the person who catches that ball will have the tax liability of something that could be worth millions" "what if a kid catches it..." (yeah congress made special exemptions for kids), all sorts of silly arguments, all of this based upon if the person wants to keep the ball not sell it. Unfortunately no one caught it, as that could have been a really fun wake up call to how retarded our tax system is.
 
So this means you can write off your game subscription fees, a portion of your internet access fees, a portion of your electricity bill, and a portion of your rent / mortgage right?

Since you're using all those servers to "earn" money, they are now a business expense.

In order to claim any rent/mortgage as business expense you need to have a dedicated home office, a space that is solely used for business purposes and not dual-used. Electricity should be easy if you have dedicated mining boxes as their usage can be determined and documented. Forget about game subscriptions and internet access. The easiest way to claim internet access is to have a separate account that's dedicated to the business.

None of these are issues for those who generate bitcoins outside of some sort of massive scheme. For the overwhelming majority of folks on here bitcoins are likely just a hobby income.
 
And unless part of the subscription / user creation process involves gathering the user's SSN/TIN, they can't report squat technically speaking. There wouldn't be any way to accurately report it.

And that is exactly what tax agencies will require them to do, collect the information or collect the tax off the top.
 
One of many reasons why a straight consumption tax is appealing. Regressive natterers can bugger off.
 
As long as I can pay my taxes on virtual transactions with virtual money that's fine. And if the government is going to tax virtual money then they need to track the real value. I don't know about you but I would love to grind for a week in WOW then pay my taxes with WOW gold. :)
 
Obama is gonna go after WoW players not supporting in-game universal healthcare by stealing bit coins from guilds not participating.

All your ISK are belong to us.
 
hold on

bitcoins don't even exist in the material plane

they going to start taxing my dreams next?

sorry, I just don't think they have jurisdiction
 
Really? Tax virtual currency? I can see the next "sin" tax will be for playing video games and computer games. Violent video games will get an extra tax. XBOXes with Kinect could be used to monitor how long someone has been playing a video game. If they have been sitting the whole time while playing, that player is going to get taxed. Reason being, all that sitting around is contributing to the rise of healthcare costs. If they smoke and play video games, there will be an extra tax. Never mind that they paid the "sin" tax for buying cigarettes in the first place. PC gamers get taxed even more. Running those 1000 watt power supplies just consumes power that could be used for other purposes.

Of course, this is all sarcasm, but if Mayor Bloomberg of New York City could enact this, he would.
 
Yet another reason not to play MMO's, apart from the fact that they've all become cash-grabs first and games second.
 
This is an issue that has been discussed over and over again for many years and it all boils down to this one question:
Is your virtual goods and currency you convert to real life money taxable?​
As a licensed tax preparer, I can't avoid the legal issues of hiding taxable income from my clients. All earned and unearned income (if taxable) has to be reported to the IRS. It all depends on how much you've earned though.

To an extent, any virtual goods and currency you convert to real life money may be considered self-employment income to the IRS. And, to the IRS, any self-employment income earned at $400 or higher, $108 or higher if a priest or similar, is considered taxable income. You'll have to pay for the taxes earned on that income and report it on your Form 1040 when tax time comes around.

However, that brings up another question: Are you working for that money?

Working for that money implies you earned income that you physically worked for. Self-employment income falls under that condition. If it is earned income and thereby self-employed income, you could take deductions off of it such as any business expenses. That and report any gains and loss on that business.
Would the computer you use to attain the virtual goods and currency and sell it off on an RMT (real-money trade) website for real money be considered a business expense?

Would the multiple mini-computers you use to mine for Bitcoins be the same way?

Would the computer you use to sell the weapons and gear you acquired in Diablo 3 and sold on the Diablo 3 RMT auction house be a business expense?

Or, the electricity and ISP fees you pay for it as well?​

Of course, another question comes up: If it is considered a self-employment business, are you providing a service or product in exchange for bitcoins; or earned real life money on the selling of your virtual goods similar to selling products in a store?

That continues to bring up other questions then:
For many years, the players (and included by default, the Bitcoin miners) have been earning real life money through RMT and have not been taxed on it. These amounts to anywhere from a few dollars to tens of thousands of dollars or higher. And, yes, a bitcoin exchange can be considered a real money trading site given that you are converting virtual currency for real life money. That's a lot of tax revenue not collected right there considering the government runs on tax revenue.

But, by in large, it's going to take the IRS and Congress to change the tax law to define what is earned income and taxable income. They would have to define it specifically that any virtual goods and currency you convert to real life money be taxable and be considered self-employment income. And, that providing a service or product in exchange for virtual currency be taxable.

We're still tied to the idea that any service or tangible goods and products that are bought and sold are taxable. The idea that a virtual currency or product can be bought and sold like items in a store, or providing service in the exchange for virtual currency, is still a relatively new idea. Something that is new to politicians, economists, and people in the IRS.

Will they tax it eventually? Probably. It's going to take time as it has to get through Congress and eventually the IRS to redefine a lot of tax laws, rules, regulations and dollar amounts on how much is taxable. Congress will find some way to extract tax dollars out of it one way or another.
 
It's not a US currency, and if I bought something from a store overseas, I don't owe the IRS a penny.
 
It's not a US currency, and if I bought something from a store overseas, I don't owe the IRS a penny.

Then, that brings up another issue. Hahaha

If Bitcoins are foreign currency and you're earning Bitcoins from providing a service or selling a product, or converting it to real life money, would that be considered foreign income?

And, in some ways, foreign income is taxable and reported on your tax return. Also, hiding taxable income earned or hiding it offshore to avoid taxes is a punishable offense to the IRS.

This is why our tax system, simply put, is very fucked up. It needs a complete and utter overhaul from the ground up.

Too many questions, loopholes, regulations, rules, penalties, and confusing dialog is what our tax laws are.
 
It's really not confusing at all, if you earn any kind of income then the IRS wants a part of it. How big of a part is another matter, but there's literally no legal way to earn income that's not taxable in some way or another unless there happens to be an exemption for a certain amount.

That people act all surprised about this is the confusing part.
 
hold on

bitcoins don't even exist in the material plane

they going to start taxing my dreams next?

sorry, I just don't think they have jurisdiction

The IRS states you must pay taxes all on all income from all sources derived. Thus if you buy something physical with the bitcoin, according to the IRS, you would owe taxes all the value of the thing which you bought. This could also be applied to "buying" cash with bitcoin.

No in game currency trading as far as video games are concerned, no, there would have to be a gross mis-interpretation of the federal governments abilities to pass that. Because there is no difference between WoW gold and using money in monopoloy. Neither are legal tender, so they have no socially agreed upon value.
 
So what I take away from this is the fact the IRS is clueless and inept. A vast majority of online gold farmers/crafters/botters>sellers are doing so not of their own free will. There have been several exposes over the last few years detailing how countries such as China and North Korea force prisoners in work camps to often "work" by doing these activities in order to feed money back into their own economies. So essentially the IRS now wants to tax the proceeds of slave labor in the bulk of the cases that are profitable enough to go after.
 
So essentially the IRS now wants to tax the proceeds of slave labor in the bulk of the cases that are profitable enough to go after.

Doesn't really matter whether it's slave labor, if they generate income and operate on US soil then need to pay tax. It's a really simple concept.
 
It's not a US currency, and if I bought something from a store overseas, I don't owe the IRS a penny.
If you get paid in non-US funds from work you do in a foreign country and you're a US citizen you fucking owe the IRS. Same idea here.
 
Just another cash grab from our socialist government. They have to pay for welfare and universal healthcare somehow. And since the economy is shit, they are going after anybody who has a pulse and any income at all.
 
Unless blizzard reports to the IRS all your gold to cash earnings, I don't see how they can track what you owe.

Don't know if you missed it but there was a small news event recently about what the government can and can't see. I am sure blizzard's servers aren't part of that data mining at all. :cool:
 
Don't know if you missed it but there was a small news event recently about what the government can and can't see. I am sure blizzard's servers aren't part of that data mining at all. :cool:

People love to talk about how stupid and inept the US Federal Government but damn, it's done some incredible things over the years. Nuclear bomb, man on the moon, the ability to track all calls and emails, etc. The US Federal Government may be many things but stupid really isn't one of them.
 
I think a lot of the stupid is done on purpose and out of spite because of partisan politics. One side hates a particular thing and can't really do away with it but they can throw a huge monkey wrench in it and turn it into something horrible.
 
I think a lot of the stupid is done on purpose and out of spite because of partisan politics. One side hates a particular thing and can't really do away with it but they can throw a huge monkey wrench in it and turn it into something horrible.

No doubt, this is simply human nature.
 
The IRS states you must pay taxes all on all income from all sources derived. Thus if you buy something physical with the bitcoin, according to the IRS, you would owe taxes all the value of the thing which you bought. This could also be applied to "buying" cash with bitcoin.

No in game currency trading as far as video games are concerned, no, there would have to be a gross mis-interpretation of the federal governments abilities to pass that. Because there is no difference between WoW gold and using money in monopoloy. Neither are legal tender, so they have no socially agreed upon value.

what about a case like EVE where ISK has real value because PLEX is worth real money
~500,000,000 ISK = 1 PLEX = ~$20USD
 
what about a case like EVE where ISK has real value because PLEX is worth real money
~500,000,000 ISK = 1 PLEX = ~$20USD
I think the argument for whether or not it should be taxable lies in whether you use said "electronic transaction" to make real world transactions. If you get a bunch of gold in a game, you don't need to get taxed on it even though there are people who sell gold for real money, if you use that gold to buy a "weapon" (in game) you don't need to get taxed on it even though people sell those "weapons" for money. If you turn around and trade your "weapon" for a PS4 however, you just showed you have real world value on it, and should be taxed accordingly.

The IRS absolutely HATES the bartering system, because it's very easy to pull off without any records of the transaction occurring, however they do in fact have laws in place that take care of that situation, stating that if you barter the full market value of what you receive (whether it's a good or a service) is what you need to declare as income. The same thing goes for digital goods, as long as you keep it in the realm of digital it's no problem, once it hits real world, then it's a problem.

Even though Bitcoin is by definition digital, it actually pushed itself into the real-world, so by default it's not a digital good, but in fact a real world good.
 
People love to talk about how stupid and inept the US Federal Government but damn, it's done some incredible things over the years. Nuclear bomb, man on the moon, the ability to track all calls and emails, etc. The US Federal Government may be many things but stupid really isn't one of them.

Federal government created agencies. The people involved did all that magic. :)
 
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