Tax is boring. But if you’re a pro gamer, this is what you should know. It’s the 2nd video in Genesis Law Firm’s series on Esports and the Law.
[Enhanced Video Transcript:] Before I start, just a quick note to make: tax in America is a living nightmare. It can also be pretty boring as well. So, if you’re old enough to drink I suggest you pause this video now and go get yourself an alcoholic beverage, you’re gonna need it.
1. Why Need to Know about Tax. One of the best things about eSports is how international the industry is and how it can reach a wide range of audiences from all over the world. Every year you have hundreds of thousands of people physically attend the eSport competitions hosted in different countries. You have even more people who go online to platforms such as Twitch and YouTube Gaming to watch gamers take part in competitions. But with the international nature of eSports comes a lot of international tax issues because the money you generate, whether from paying competition, streaming your gameplay, product endorsements, selling merchandise, can be taxed by more than one country. When it comes to US federal income tax there are two big questions you need to ask yourself. First, am I a US taxpayer or am I a foreign taxpayer? The second question is, which country does the money I’m making come from? In other words, if you are making money from a country outside your home country, do you also need to pay taxes to that country where the money comes from?
2. Do I Need to Pay US Income Taxes? Let’s start with the first question. Am I a US taxpayer? Now, as with everything in US federal taxation it’s not as straightforward as you might think. So who is a US taxpayer? Well, if you are a company then you are considered a US taxpayer if the company was incorporated or created, or in other words, organized in the United States. If has been organized in the United States, then you are a taxpayer. If you are a human, then you’re considered a US taxpayer if you are either, one, a citizen of the United States, or two, a permanent resident of the United States, i.e. a green card holder, or three, you are substantially present in the United States, substantially present. If you fall under any of these three categories, then congratulations, lucky for you, you are now subject to taxation on all income from whatever source derived. What that means is you can potentially be taxed on all the income you make, even if the income is from outside the United States.
Out of the three categories I just mentioned, citizens, permanent residents and people who are substantially present in the US, the problem area is whether a person is substantially present. The other two are easy to determine, you are either a citizen or you’re not a citizen. You are either a permanent resident or you’re not a permanent resident. But what does it mean to be substantially present in the United States? Well, Congress has laid out a two-part test to help determine if you are substantially present. And the test goes like this. Part one, you are physically present in the US for at least 31 days during the current year. And part two, you are present in the US for at least 183 days taking to account this year and the two years before this year. It gets worse. There’s a formula for how to count whether you’ve reached 183 days. The formula there is one day in the current year equals to one day, one day in the year before equals to one-third of a day, one day in the year before that is one-sixth of a day. Okay, okay. Breathe, breathe. Don’t freak out, don’t freak out. It’s not as hard as you think. You will understand when we go through an example, right. So, let’s go through this example now.
3. Example. Let’s say we have a professional gamer called “Noobienoob”. Noobienoob is not a US citizen and not a permanent resident of the US. Noobienoob is from Norway but he regularly travels to the United States to take part in eSport competitions, meet his fans, discuss advertising opportunities et cetera, et cetera. In the current year, Noobienoob is physically present in the US for a total of 120 days. Last year, Noobienoob was in the US for a total of 150 days. The year before that Noobienoob was in the US for 90 days. Is Noobienoob a US taxpayer? And the answer is, drum roll, yes, he is. Let’s get to the two part test. Part one of the test, in the current year was Noobienoob in the US for at least 31 days? Yes, he was in the US, he was in the US for 120 days in the current year. Part two of the test, adding up this year and the two years before that, was Noobienoob in the US for at least 183 days? Yes. In the current year, he was in US for 120 days. Remember one day in the current year is one day, so he was here for 120 days. Last year, he was in the US for 150 days. One day last year is one-third of a day. So, one-third of 150 days is 50 days. The year before that he was in the US for 90 days, here one day equals to one-sixth of the day. So, one-sixth of 90 is 15 days, then what you do is just add up all the days. So 120 days, plus 50 days, plus 15 days equals to 185 days. So, yes, he was present for more than 183 days. Conclusion, Noobienoob is considered a US taxpayer. This is the case unless Noobienoob falls under the exception provided by the law.
4. Now What? If you are a US taxpayer, you’ll then need to work out how to handle both the money you make domestically and internationally. Some of the biggest problems you’ll face is understanding how to handle the money being earned from foreign sources. There really is a lot to cover here and there’s a lot of funny sounding technical terms such as GILTI, 245A Income, Subpart F. Don’t worry about that now. As I mentioned earlier, we will dedicate a video on this at a later date. You will also need to consider whether you need to pay tax to a foreign country in addition to paying tax in the US. If you are not a US taxpayer, then your tax home is in another country. But does that mean that you don’t have to pay any US taxes? No, you may still have to pay tax on any money you make that comes from the US if the income is effectively connected to a trade or business, or if the money is some kind of investment type income coming from the US like dividends from shares, interest payments from a bond, royalty payments from the US. To cover how all this works will take a lot of time. So again, we’ll have to reserve this for another video.
So, we’re gonna call that a day, right? So, thanks for watching. You’ve been watching Lemmy and this is eSports and the Law, live your life and do what you got to do.