Virtual Taxation Report Due in August

It would appear the US Federal Government may finally be taking notice of virtual economies, as it is being reported that a report on the matter is due in August. Of course, an in depth dissection will appear on this site once the report is issued.

If I had to make a prediction, I assume that in-game income will be taxed as ordinary income, earned on cashing out from the system and counterbalanced against payments into the system. That would be the most logical and simple approach given the current income tax system.

Of course, just because this is the most reasonable outcome does not mean it will be the actual outcome. There are a whole host of possible classifications. Income from games could be classified as gambling winnings, which are subject to a higher tax and withholding rate than ordinary income (see IRS, forms W2G and 1040). They may even attempt to assign a tax base system to virtual property itself, much like real property gains or loses in value.

Of course, an advisory doesn’t necessarily mean a regulation. Check back in August for a complete analysis once the report is made public.

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About Mark Methenitis

Mark Methenitis is an attorney in Dallas Texas. Mark received his Juris Doctorate and his Master of Business Administration from Texas Tech University and his Bachelor of Arts from The University of Texas.

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