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We created a game which users can convert their money to virtual money but they also can withdraw 90 percent of their money back anytime.

We also established our LLC company for that.

So if user payed 100 dollar we will have total balace 100 dollar and we will pay 30% taxes which is 30 dollar (balance 70 dollar) and when user take back their own money back (90dollar) we will have -20 dollar? So in this situation how taxes will work?

closed as off-topic by Grade 'Eh' Bacon, Hart CO, Pete B., Nathan L, Dheer Mar 5 '18 at 18:58

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  • Does your game also have the possibility of winning extra virtual money that can then be converted to real money? – Ben Miller Mar 5 '18 at 12:14
  • No there is not that possibility – John Robertson Mar 5 '18 at 12:26
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    I'm voting to close this question as off-topic because the user is asking critical questions along the lines of "is it legal to create an online bank in the US" - this extends well beyond personal finance and into business finance at a level requiring strong professional opinions. Not appropriate for this site. – Grade 'Eh' Bacon Mar 5 '18 at 16:55
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So if user payed 100 dollar we will have total balace 100 dollar and we will pay 30% taxes which is 30 dollar (balance 70 dollar) and when user take back their own money back (90dollar) we will have -20 dollar?

No, you only pay taxes on your profits. It sounds like your company is acting like a bank, but you are offering 0% interest and charging a 10% deposit fee. Your profit in this case is at most 10% so if your tax rate is 30%, you would only pay tax on the $10 in your example, which is $3. You give $90 back to the customer which leaves you with $7 after taxes.

As a side note, I don't really understand this business model. Why would you want to deal with holding money like a bank? In the $100 example why not just charge the $10 you want to keep and skip the additional deposit and withdrawals?

  • Yeah, our company also works like an online bank for users. – John Robertson Mar 5 '18 at 15:36
  • Is is legal to create online bank in U.S or I need some certifications? – John Robertson Mar 5 '18 at 15:37
  • @JohnRobertson - I don't know what regulations are involved. I would recommend speaking to an attorney who specializes in banking. – TTT Mar 5 '18 at 16:29
  • @JohnRobertson I’m assuming your game also allows users to spend this virtual currency in game, so if they deposit $100 you might end up with $100 in profit if the player spends it all, right? – Ben Miller Mar 5 '18 at 16:55
  • @BenMiller - that would certainly answer my side note query. Like a token based system where you can get a refund for your unused tokens, minus a 10% fee. – TTT Mar 5 '18 at 17:19
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When the player withdraws the $90, you can deduct this as a business expense. Assuming the 30% tax bracket, this would reduce your taxes by $27, so you would have paid a net $3 in taxes on your $10 hold-back. You'd list this on your tax return under "refunds".

You probably want to read up a little on taxes to understand the ideas of "income" and "expenses", and what expenses are tax deductible and when. That's a big subject, more than I'm going to cover in one brief forum post.

If players are regularly depositing and withdrawing money, then maybe you don't want to call the original $100 "sales", you want to call it a "deposit" and call yourself a bank, as @TTT says. Banks in the US are heavily regulated. If you want to be a bank, you need to talk to a lawyer.

  • If what the OP is doing is legal (which I am making no comment on), then it is quite likely that when the $100 is initially deposited it is likely not considered $100 of revenue, because even at that time it would be known that $90 would be delivered back in the end. For example, a security deposit is not necessarily income to the receiver - it would be considered a liability held on behalf of the renter until such time as it is used to cover renter damage (at which point the expense of the damage would offset the 'revenue' of using the deposit for that purpose). – Grade 'Eh' Bacon Mar 5 '18 at 17:14
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    @Grade'Eh'Bacon - I don't think we have enough information to know that's true. Imagine a token based system where you buy tokens in advance before you use them to play the game, but if for some reason you change your mind and don't want to play any more you can cash out your remaining tokens for a 10% fee. In that scenario I think this answer works fine. – TTT Mar 5 '18 at 17:16
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    @TTT Very fair - but we also don't have enough information to claim that it would be revenue. At least a caveat to that effect in this answer would increase its value. One doesn't have to be a bank, to consider a deposit as non-taxable. – Grade 'Eh' Bacon Mar 5 '18 at 17:18

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