Income tax question

[rxcknrxll]

Here is a question that I have not been able to get answered competently...perhaps the Fastlane community can help me out: If I live in Indiana, own a company based outside the US and operate exclusively online, making sales in Second Life.com...in Linden dollars, do I owe income tax to anyone? Do I pay US income tax in this situation? Do I pay multiple national income taxes? The lines get blurred in some situations. I'm trying to suss it out.

 

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[Diane Kennedy]

Here is a question that I have not been able to get answered competently...perhaps the Fastlane community can help me out: If I live in Indiana, own a company based outside the US and operate exclusively online, making sales in Second Life.com...in Linden dollars, do I owe income tax to anyone? Do I pay US income tax in this situation? Do I pay multiple national income taxes? The lines get blurred in some situations. I'm trying to suss it out.

US Citizens are taxed on world wide income. So, yes, you have to pay US tax. If you also pay tax in another country, you will get tax credit for that tax (so it's not doubly taxed) if there is a tax treaty with that country.

Usually US has tax treaties with countries we're not fighting with. If there's any question, I'd ask a professional first before you start making money in other jurisdictions.

 

[randallg99]

US Citizens are taxed on world wide income. So, yes, you have to pay US tax. If you also pay tax in another country, you will get tax credit for that tax (so it's not doubly taxed) if there is a tax treaty with that country.

Usually US has tax treaties with countries we're not fighting with. If there's any question, I'd ask a professional first before you start making money in other jurisdictions.

the IRS makes it difficult for one to denouce USA citizenship to avoid taxes... they smell tax dollars like a fox in the night.

 

[Diane Kennedy]

the IRS makes it difficult for one to denouce USA citizenship to avoid taxes... they smell tax dollars like a fox in the night.

AND the Heroes Earnings Assistance and Relief Tax Act of 2008 which is getting so much press right now (extends GI benefits) includes an Exit Tax for Americans leaving. It includes a 51% tax on any pensions the "rich" American has who is living. "Rich" is defined as making more than $139K per year.

I did a quick search on Google to see if anyone is talking about the Exit Tax and found that a paper in Canada had picked up the story. Does anyone else find that ironic?

 

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[rxcknrxll]

Thank you all very much for the responses. I totally understand that no one is dispensing legal advice here. I just have been thinking about these things lately. One item that has not received a response yet is that my original question referred to earning money on Second Life, in their currency. It's called the Linden. If you make a profit in this digital currency, which exists exclusively in cyberspace, is there a taxing entity that overseas that? There is a currency exchange, and I understand if my company pays me a salary in "real" money, surely that is income and would be taxed appropriately. Most people are not making any money on Second Life of course, but there are a few who are, and to me it raises some really interesting questions. Is anyone familiar with the site and how it works?

 

[Diane Kennedy]

Thank you all very much for the responses. I totally understand that no one is dispensing legal advice here. I just have been thinking about these things lately. One item that has not received a response yet is that my original question referred to earning money on Second Life, in their currency. It's called the Linden. If you make a profit in this digital currency, which exists exclusively in cyberspace, is there a taxing entity that overseas that? There is a currency exchange, and I understand if my company pays me a salary in "real" money, surely that is income and would be taxed appropriately. Most people are not making any money on Second Life of course, but there are a few who are, and to me it raises some really interesting questions. Is anyone familiar with the site and how it works?

I have no idea what Linden is. Does it have value in the real world? If so, it's taxable. If it exists solely in Cyberspace, then you'll have to check in with the Cyberspace taxing authorities. (ie...none that I know of)

 

[andviv]

If it exists solely in Cyberspace, then you'll have to check in with the Cyberspace taxing authorities. (ie...none that I know of)

... don't worry, we will find ways to tax it, rest assured of that

 

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[rxcknrxll]

I have no idea what Linden is. Does it have value in the real world? If so, it's taxable. If it exists solely in Cyberspace, then you'll have to check in with the Cyberspace taxing authorities. (ie...none that I know of)

I thought Second Life was a game. Kind of silly really. And truth be told, that's what most people use it for. But then I read into it a little more and found that a few smart people are using it as a business platform. Many companies have set up shop there and some are making a significant profit. They have their own currency, so it's kind of literally like a sovereignty in that regard. There is a currency exchange, so you can trade currency between Lindens and any currency in the world. So the Lindens do have actual value in the real world. If you make a profit in Second Life, you can take that money with you anywhere.

I'm not aware of any taxing authorities in cyberspace. So what's up? If I can operate online and earn a profit without being subject to tax, isn't that kind of a big deal? Of course any money I took from my company as income would be subject to income tax, but what about the rest of my company profits? Tax free? I just wanted to bounce the idea off you guys to see any feedback you may have to offer.

 

[bflash98]

I remember reading an article about this on cnnmoney.com. Here is the link http://money.cnn.com/2007/03/02/technology/sl_taxes/index.htm
Basically it says if you convert your virtual assets to actual $ it is taxable and that the IRS has not clarified what happens to virtual earnings. Though in this article and a couple more I read people expect the IRS to start taxing virtual assets/earnings.