Monday, August 8, 2011

The Diablo III tax question

There are obvious dangers in getting your tax advice from a gaming blog instead from an expert, but Stabs has good advice on your tax liabilities from Diablo III RMT AH sales. He is completely right in stating that your taxes are your personal responsibility, not Blizzard's, and you should inform yourself whether you need to pay taxes on the money you make from selling Diablo III items for real money in the AH. It is quite likely that if you make serious money from this activity, you'll need to pay taxes on that.

The far more interesting question is whether you would have to pay taxes if you don't make any real money from Diablo III auction house sales. Basically it could be argued that if a virtual item is worth real money, gathering those virtual items is an income, and thus taxable. The horror scenario is that the legendary Sword of Uberness which is worth $1,000 on the AH drops for you, and you'd have to pay taxes on those $1,000 even if you never sold the sword.

Now I am not a lawyer, nor a tax accountant, but I find that scenario somewhat unlikely. For example there are Olympic medals for sale on EBay (I checked and saw a gold medal for sale for $15,000). Thus Olympic medals clearly have a monetary value if you'd chose to sell them. Nevertheless winners of Olympic medals aren't taxed on those medals as a form of income. They'd be taxed on the sales if they sold the medal, but not as long as the monetary value was hypothetical before any sale took place. Basically the question is at which point in time you actually made a taxable income, at the point where you gained the item you could sell, or at the point where you actually sold it. I'm pretty certain it is the latter. If you create a vase out of clay, you'd be taxed on selling it, not the moment you take the finished vase out of the oven.

Blizzard getting you in trouble by sending the list of the items and gold that dropped for you in Diablo III to the IRS is not going to happen. Blizzard getting you in trouble by sending a list of your real-money AH sales to the IRS is far more likely. And even there the trouble might only start the moment you cash out that real money. You might want to reconsider your plans of quitting your job and becoming a Diablo III item farmer. Or as Benjamin Franklin said: "in this world nothing can be said to be certain, except death and taxes".

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