With the introduction of virtual currency into many web-based transactions, including but not limited to, gaming, what type of tax responsibilities does virtual currency carry? In some systems, virtual currency can be redeemed for "real money" or "real products" which can be construed as income. Are there or will there be repercussions for dealing in virtual currency to avoid paying taxes and if virtual money is converted to actual cash will the same tax liabilities hold?
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In general, any income you accrue must be reported as such to the IRS including income earned through virtual currency transactions. In addition, the acquisition of a virtual good or currency that has a defined real world value can be considered a taxable event as a prize winning. Having said that, I don't know that these potential tax implications could be considered "downsides" unique to virtual currency as these provisions are general and would apply to any income you earn and prizes you might win, not just those obtained via virtual currency (and yes that includes having the winning NCAA brackets at the office). |
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