With the April 15 tax deadline approaching for Americans, some might be wondering about what they do and do not need to disclose on their Form 1040 as it relates to gaming. The situation just got a little more complicated due to a change by the IRS.
The IRS recently removed wording from its website that said Americans needed to disclose whether or not they received, sold, exchanged, or acquired a financial interest in Fortnite or Roblox virtual currency during the 2019 tax year. Millions of Fortnite and Roblox players would presumably be impacted, as they would need to disclose this as taxable income.
The wording was discovered by Coin Center director Jerry Brito. The IRS removed the language after Bloomberg Tax followed up with the government group, though it has yet to comment officially on the matter.
A spokesperson for Epic Games told Bloomberg Tax that Fortnite’s virtual currency, V-Bucks, should not be included as a taxable interest because they cannot be exchanged for money. Roblox, however, allows players to cash out their virtual currency–Robux– for real money. A spokesperson for developer Roblox Corp. clarified that Roblox users who want to cash out must have IRS forms on file with the developer. The company also reports all payouts to the IRS.
It’s a complicated situation. While the IRS has removed Fortnite and Roblox from its wording for virtual currency taxable income, taxpayers might still be scratching their heads because the definition of “convertible virtual currencies” is still the same.
The Entertainment Software Association chimed in with its own statement that in-game currency that cannot be cashed out, as is the case in many games, and should not be treated thee same as Bitcoin and other virtual currencies that hold more real-world cash value.
“Game economies are typically closed economies where currencies cannot be cashed out or traded,” the ESA said. “Financial regulators who have considered the status of game currencies in detail have treated them distinctly different from Bitcoin and similar virtual currencies precisely because they cannot be cashed out. We think that is the appropriate approach and are hopeful that on closer consideration the IRS will correct its guidance.”
If you’re wondering what you should disclose on your taxes, you should talk to a tax professional.
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