USA Users - SimFly Earnings Tax Implications

General
1

Greetings.

TL;DR - USA customers are required to report their PAX income, gains, and loses to the IRS regardless of if they have participated in the user marketplace.

I am not a tax professional. The following should not be construed as financial advice.

I had a very interesting “conversation” with GPT-5 regarding the tax implications now that SimFly allows PAX conversion to USD - according to GPT bottom line is we must now track and report this financial activity.

What we need to do as best as I can understand:

  1. Capture regular (e.g. weekly) screenshots of your PAX Wallet and FIAT Wallet.
  2. Capture regular (e.g. weekly) screenshots of the marketplace PAX sold screen. This will help you to determine/justify the equivalent USD value of PAX when you sell assets or spend PAX (for capital gain/loss calculation).
  3. Save these screenshots and keep them with your financial records.
  4. Report the activity as ordinary income and/or digital asset sales on your taxes.

I will include the complete GPT-5 session in follow-up posts so you can draw your own conclusions.

2

What are the tax implications related to SimFly.io? It’s my understanding the digital assets are represented (on the backend) by NFTs or other blockchain technology. Now with the ability to sell PAX Tokens for USD (as of 15 October 2025) what does this mean come tax time in the USA?

ChatGPT said:

Thought for 37s

Great question — and the Oct 15, 2025 switch to allow selling PAX Tokens for USD is the key change. Below is a practical, U.S.–focused view for both SimFly users and SimFly (the platform/business), based on current IRS and state guidance.

For SimFly users (players/pilots)

1) PAX Tokens are now a “digital asset” for tax purposes.
Once PAX can be sold for USD (i.e., it’s convertible), it fits the IRS “digital asset” umbrella (property for tax) and standard property rules apply. You must answer the “digital assets” question on Form 1040 and report taxable events. IRS

2) Earning PAX = ordinary income (when you control it).
If you receive/earn PAX (mission rewards, payouts, etc.) and you have dominion and control over it, that’s ordinary income at its fair market value in USD at receipt. This mirrors the IRS position on staking/other digital-asset rewards. Your basis becomes that USD value. IRS+1

3) Selling or spending PAX = capital gain/loss.
When you sell PAX for USD (or swap it, or use it to buy something), you have a disposition: amount realized minus your basis = gain or loss. Short-term if held ≤1 year; long-term if >1 year. IRS

4) Why Oct 15, 2025 matters.
Before convertibility, game currencies that cannot leave the game generally aren’t taxed when earned/used inside the game. After PAX becomes convertible to USD, earnings are taxable when received and later sales are separate gain/loss events. The Tax Adviser

5) Reporting mechanics you’ll likely see in 2025 filings (for the 2025 tax year).

  • Check the digital-asset box on Form 1040. IRS
  • Report dispositions of PAX on Form 8949/Schedule D (gains/losses). Ordinary income from earning PAX goes on your income schedules. (General IRS digital-asset reporting framework.) IRS
  • 1099-DA: If SimFly (or its payment/settlement partner) is treated as a broker or digital asset payment processor, you may receive Form 1099-DA for 2025 gross proceeds. (Final regs require broker reporting of gross proceeds for digital-asset sales beginning Jan 1, 2025; basis reporting phases in later.) Reuters+3IRS+3IRS+3

6) Keep records.
Track dates, amounts, USD values when earned and when sold, and wallet/account identifiers; the IRS stresses recordkeeping for digital assets. IRS

For SimFly (the platform/business)

1) Could SimFly be a “broker” under the IRS rules?
If SimFly (or an integrated provider you use) effects sales of digital assets for users (e.g., matches customer sell orders, processes digital-asset payments, or redeems PAX for USD on users’ behalf), the platform or the provider may fall under the digital-asset broker definition and be subject to Form 1099-DA reporting for customers beginning with transactions on/after Jan 1, 2025 (gross proceeds), with additional basis/gain reporting ramping later. Evaluate flows carefully against the final regs and the “digital asset payment processor” category. IRS+1

2) If PAX or other SimFly assets are implemented as NFTs:
NFTs are “digital assets.” Some NFTs can even be treated as collectibles depending on the underlying right; the IRS has proposed an “NFT look-through” approach while it finalizes guidance. If SimFly ever sells NFTs to U.S. customers, be mindful of this classification and its higher maximum 28% collectibles rate for certain gains on the customer side. IRS+1

3) State sales tax can apply to NFT/digital product sales.
Sales/use tax is separate from income tax. Several states (notably Washington) have published rules indicating retail sales tax and B&O tax can apply to NFT sales depending on what the NFT entitles the buyer to (e.g., digital art/benefits). If SimFly sells NFTs or other taxable digital products to WA customers, you may have to collect sales tax based on sourcing rules and report B&O. Check each state where you have nexus. Washington Department of Revenue+2BDO+2

4) SimFly’s own federal income tax

  • Primary revenues (e.g., marketplace fees, spreads, redemption fees, subscription income) are ordinary business income.
  • If SimFly holds inventory/treasury PAX or other tokens and later disposes of them, SimFly recognizes gain/loss under property rules.
  • If SimFly itself “stakes,” “mints,” or otherwise earns tokens, those receipts can be ordinary income when SimFly has dominion and control. (Rev. Rul. 2023-14 analogy.) IRS

Quick scenarios (what changed on/after Oct 15, 2025)

A. User earns 1,000 PAX on Oct 20, 2025; FMV = $0.10 each at receipt; sells all on Nov 10, 2025 for $0.14 each.

  • Ordinary income (2025): $100 (1,000 × $0.10) at receipt.
  • Short-term capital gain: $40 on sale (1,000 × ($0.14 − $0.10)). IRS

B. User earned non-convertible PAX in September 2025, when PAX couldn’t be cashed out; converts to USD after convertibility begins.

  • Pre-Oct 15 in-game accruals (non-convertible) generally weren’t taxed when earned inside the game. The taxable events happen once PAX is convertible and the user either (i) first has dominion/control over convertible PAX (ordinary income at that time’s FMV) or (ii) disposes of it for USD/other property (gain/loss). The precise timing hinges on when dominion and control over convertible PAX is obtained. The Tax Adviser+1

C. SimFly facilitates users’ cash-outs to USD and falls within “broker/payment processor.”

  • Expect 1099-DA issuance for users with 2025 gross proceeds, plus backup-withholding/compliance obligations under the transitional framework; coordinate KYC/TIN collection and data pipelines accordingly. IRS+1

What to do next

  • Users: Track your PAX earn dates/values and sale dates/values. Be prepared to report ordinary income (when earned/controlled) and gains/losses (when sold/spent). Watch for a 1099-DA from SimFly or its payments partner for 2025 sales proceeds. IRS
  • SimFly ops/finance: Map your exact role in PAX redemptions (custodial vs non-custodial, who executes the sale, who sets/quotes prices) against the broker rules and the digital asset payment processor definition; align contracts and systems to support 1099-DA, buyer state sourcing, and any state sales tax on NFT/digital-product sales. IRS+1

If you want, tell me (a) whether SimFly or a third-party processor actually executes the USD redemptions and (b) the states where SimFly has users or economic nexus; I can sketch your exact 1099-DA flows and a state sales-tax matrix for NFTs/digital products.

3

This is all very complicated, I need it explained in simple terms a layperson can understand. Scenario: I own SimFly assets which were purchased for 5000 PAX prior to Oct 15. I also control/own 100 PAX tokens earned since Oct 15. I intend to retain/hold onto the assets long term so there will be no sale/transfer for the foreseeable future. I opt to sell my 100 PAX tokens to another user for 80 $64 USD net. I have the $64 in my SimFly FIAT wallet - it has not been withdrawn to a bank/financial institution. Explain how I should file my taxes.

ChatGPT said:

Got it — let’s strip away the legalese and just walk through this like a normal person figuring out taxes.

:puzzle_piece: What’s actually happening

You basically have two things:

  1. SimFly assets you bought before Oct 15 (using 5,000 PAX).
  • Before Oct 15, PAX couldn’t be exchanged for money.
  • That means those purchases were inside-the-game activity — no tax at that time.
  • As long as you still just hold those assets and don’t sell or trade them for money, there’s no taxable event yet.
  1. 100 PAX you earned after Oct 15, when PAX could be sold for cash.
  • Those 100 PAX are now real digital assets, because they can be turned into USD.
  • The moment you earned them, the IRS says you had ordinary income equal to their value at that time.
  • Later, when you sold them for $64, that sale creates a capital gain or loss compared to what they were worth when you earned them.

:dollar_banknote: Step-by-step for your situation

Event What it means How it’s taxed
You earned 100 PAX after Oct 15 It’s like getting paid for a side gig. Whatever those 100 PAX were worth the day you received them counts as ordinary income. Ordinary income (goes on your tax return like self-employment or “other income”).
You sold those 100 PAX for $64 USD You disposed of property. You compare what you sold them for ($64) to what they were worth when you earned them. Capital gain/loss on the difference. Likely small, and short-term (because you didn’t hold them more than a year).
The $64 sits in your SimFly wallet (not yet withdrawn) The IRS considers that you already received the money when it hit your wallet — withdrawal to a bank doesn’t matter. The taxable event already happened; withdrawal timing doesn’t affect it.

:receipt: How to actually report it

1. On your federal tax return (Form 1040)

  • Check “Yes” to the digital-asset question (because you received and sold digital assets).
  • Report the income from earning the 100 PAX:
    • On Schedule 1 (line 8z “Other income”) or Schedule C if it’s part of a business or side activity.
    • Example: if 100 PAX were worth $0.60 each when earned → $60 of ordinary income.
  • Report the sale:
    • On Form 8949 and Schedule D (capital gains).
    • Sale price = $64, basis = $60 → $4 short-term capital gain.

Your 5,000-PAX asset purchase before Oct 15 isn’t reported yet, because you haven’t sold or cashed out anything connected to it.

:books: Simple summary

  • :white_check_mark: Before Oct 15 PAX → in-game only → no tax until sold for money
  • :white_check_mark: After Oct 15 PAX earned → taxable income when earned, plus gain/loss when sold
  • :money_bag: Holding funds in wallet ≠ tax-free; it’s taxed once you have control of the money
  • :page_facing_up: Report on 1040: one entry for income, one entry for sale

:coin: Example using your numbers

Step What happened Value in USD Tax treatment
Earned 100 PAX worth $0.60 each $60 Ordinary income
Sold for $64 — $64 $4 capital gain
Total taxable in 2025 — $64 total ($60 income + $4 gain)

That’s it — the IRS just wants to see the fair value when earned and any difference when sold.

4

What if I purchase additional in-game assets (now after Oct 15th) for either PAX or USD but I don’t sell them and keep them in-game long term?

ChatGPT said:

Excellent follow-up — this is a really important distinction, and it’s much simpler than it first seems once you separate what triggers a tax event from what doesn’t.

Let’s unpack this clearly.

:video_game: Buying in-game assets after Oct 15 (when PAX is real money)

Here’s the big idea:

Buying something is not taxable — selling or earning something is.

So when you spend PAX or USD inside SimFly to purchase a hangar, airplane, route, etc., you’re not taxed at that moment, because you’re simply exchanging one property (PAX or cash) for another property (the digital asset).

But the type of property you give up affects what records you keep.

:coin: Case 1 – You pay with PAX

  1. When you spend PAX, it counts as disposing of that digital asset.
  2. The IRS says: whenever you dispose of a digital asset (even to buy something), you must recognize gain or loss on that PAX.

Example

  • You earned 100 PAX worth $60 total (so your cost basis = $60).
  • You later use those 100 PAX to buy a SimFly aircraft when the same amount of PAX is worth $70 USD.
  • You have a $10 short-term capital gain ($70 − $60) even though you didn’t receive cash.

:light_bulb: Why? Because you effectively sold your PAX for property worth $70.
:receipt: You’ll report that gain on Form 8949 / Schedule D, just like a sale.

:dollar_banknote: Case 2 – You pay with USD

If you buy the same asset using USD from your SimFly wallet, there’s no gain or loss at purchase time:

  • You already recognized income when that USD hit your wallet (from selling PAX).
  • Spending those dollars in-game is no different from buying anything else with cash — not taxable when spent.

:chart_increasing: What happens later

As long as you simply hold those in-game assets and don’t sell or transfer them for real-world money:

  • :white_check_mark: No income tax is due while you hold them.
  • :white_check_mark: No capital gains to report.
  • :memo: Just keep a record of what you paid (in USD value) — that’s your basis.
    If you ever sell or cash-out the asset in the future, your gain or loss will be sale price − basis.

:prohibited: No tax events

Action Taxable? Why
Buying SimFly assets with USD :cross_mark: Purchase, not sale
Buying SimFly assets with PAX (worth same as when earned) :cross_mark: No gain/loss if value didn’t change
Holding or using those assets in-game :cross_mark: No sale or income yet

:white_check_mark: Tax events

Action Taxable? Why
Spending PAX that increased in value :white_check_mark: Capital gain/loss You disposed of property
Selling in-game assets for USD :white_check_mark: Capital gain/loss You realized value in money
Earning new PAX or USD in-game :white_check_mark: Ordinary income You received something of value

:receipt: Simple way to track

  1. Note the USD value of PAX when you earn it (that’s your basis).
  2. Note the USD value of anything you buy with it (that’s the amount realized).
  3. Keep screenshots or transaction logs if possible — IRS wants fair-market-value evidence.

:magnifying_glass_tilted_left: Summary

Event Tax impact
Earn PAX Ordinary income at fair market value
Buy assets with PAX May trigger small gain/loss if PAX value changed
Buy assets with USD No immediate tax
Hold assets long term No tax until sold for real money
5

I am unsure how I can calculate the cost basis for PAX as the USD amount other players are willing to pay for them changes regularly. How do I for instance screenshot the marketplace completed PAX sales screen, deduct the SimFly service fee (20%), and average the net USD sale rate?

ChatGPT said:

That’s a fantastic and very realistic question — you’re thinking exactly like someone who’ll have an easy time at tax season.
Let’s slow it down and walk through how to establish and document the cost basis for PAX (and later calculate gains or losses), even when market prices fluctuate and SimFly takes a service fee.

:puzzle_piece: Step 1: Understand what “cost basis” means in this context

Your cost basis is simply what the PAX was worth in U.S. dollars when you got it — not what someone might pay later.

  • If you earned PAX (mission reward, etc.), use the fair market value (FMV) in USD at the time you earned it.
  • If you bought PAX with USD, your cost basis is the actual amount of USD you spent, including any SimFly fees at purchase.

The challenge is that the FMV changes constantly — so you’ll use average market price around the time of the transaction to get a reasonable, defensible estimate.

:dollar_banknote: Step 2: Use marketplace sales data to find FMV

If SimFly shows a PAX-to-USD marketplace with completed sales, that’s your best price source.

Here’s what you can do:

Option A – Manual screenshots (perfectly fine for IRS documentation)

  1. Go to the SimFly PAX marketplace > Completed Sales section.
  2. Take a screenshot showing:
  • Date/time
  • Price per PAX (or total sale and quantity)
  • Service fee % (20%) if displayed
  1. Save it with a filename like
    2025-10-20_PAX-FMV-Screenshot.png

If you do this once or twice per week (or each time you earn a major batch of PAX), you’ll build a strong paper trail.

Option B – Spreadsheet or log method (for average price)

Make a small table like this in Excel or Google Sheets:

Date Total PAX sold Gross USD Fee (20%) Net USD Net per PAX Notes
10/16/25 200 $160 $32 $128 $0.64 Post-Oct-15 average
10/18/25 100 $80 $16 $64 $0.64 Confirmed sale
10/22/25 150 $126 $25.20 $100.80 $0.67 Marketplace up

Now take the average net per PAX across a few nearby transactions. That’s your fair market value (FMV) per token on the day you earned or sold it.

:backhand_index_pointing_right: Example: if you earned PAX on Oct 19, you could average Oct 16–22 market data and say “FMV = $0.65 per PAX.”

:abacus: Step 3: Calculate your basis and gain/loss

Say you earned 100 PAX on Oct 19 when average net rate = $0.65
→ Basis = 100 × $0.65 = $65

Later, you sell those 100 PAX when the net market rate = $0.70
→ Sale proceeds = $70
→ Gain = $70 – $65 = $5 short-term capital gain

Record that in your log like:

Date earned Qty Basis per PAX Total basis Date sold Sale price per PAX (net) Total proceeds Gain/Loss
10/19/25 100 $0.65 $65 11/05/25 $0.70 $70 +$5

:receipt: Step 4: IRS only cares that you used reasonable, supportable evidence

You don’t need perfect prices or blockchain precision.
The IRS expects you to use “reasonable methods” to determine fair market value. What matters is:

  • You’re consistent (same calculation method each time).
  • You can show your math (screenshots, spreadsheets, marketplace data).
  • You keep those records for at least 3 years.

If the IRS ever asked, you could show:

“Here are screenshots of SimFly’s marketplace on the day I earned the tokens. I used the average net sale rate after the platform’s 20% fee to value my earnings.”

That’s more than sufficient documentation.

:toolbox: Quick Recap

Step What to do Why it matters
1 Record when you earned or bought PAX To know the date and time to match FMV
2 Check the SimFly marketplace completed sales Real-world value benchmark
3 Deduct the 20% service fee to find net USD IRS cares about what you would receive
4 Average nearby sales to smooth volatility Reasonable FMV method
5 Save screenshot + log entry Proof for your tax file
6 Use that value as your basis for later gain/loss Needed for Schedule D
6

Let’s say I take a screenshot of the SimFly marketplace completed sales screen every Friday. This screen shows the date, time, and the amount the PAX sold for but the 20% SimFly service fee is not displayed but is well documented. I earn PAX at a rate of a few dollars per day so frequently it is being earned between those captured screenshots. Is a weekly screenshot sufficient to justify my cost basis calculation?

ChatGPT said:

Yes — a weekly screenshot is absolutely sufficient, as long as you follow a consistent, reasonable method and can explain how you arrived at your USD values.

Let’s break this down clearly and simply:

:puzzle_piece: What the IRS actually requires

The IRS does not require real-time or daily price records for digital assets.
It only requires that you:

  1. Use a reasonable and consistent method to determine fair market value (FMV).
  2. Keep verifiable documentation (e.g., screenshots, logs, marketplace data).
  3. Be able to show how you calculated USD values if ever asked.

A weekly snapshot of SimFly’s actual completed sales prices easily meets this standard for an “active but low-volume” user.

:spiral_calendar: Why a weekly screenshot works

  • You have a documented price source (SimFly’s own marketplace).
  • You’re capturing real completed sales, not guesses.
  • You apply the 20 % fee consistently when calculating your net value.
  • You earn small amounts daily, so weekly averages smooth out fluctuations without materially changing results.

That’s exactly what the IRS means by a reasonable approximation of fair market value.

:light_bulb: How to make it bullet-proof

  1. Take your screenshot every Friday — date/time visible.
  2. Store it safely (cloud folder labeled by date).
  3. When calculating your earnings for that week:
  • Use that Friday’s average market rate (or a 7-day rolling average if you prefer).
  • Subtract 20 % to get the net rate you would actually receive.
  • Apply that net USD rate to all PAX earned during that week.
  1. Record your totals in a spreadsheet like:
Week ending Screenshot filename Gross $/PAX Less 20 % fee Net $/PAX PAX earned USD value (basis)
Oct 18 2025 2025-10-18_PAX_market.png 0.80 0.64 0.64 50 $32.00
Oct 25 2025 2025-10-25_PAX_market.png 0.75 0.60 0.60 55 $33.00
  1. Keep these records with your tax documents (just like keeping brokerage statements).

:receipt: How you’d explain it if ever asked

“Each Friday I recorded SimFly’s published PAX marketplace prices showing completed sales.
Because SimFly charges a 20 % service fee, I reduced the posted prices by 20 % to determine the net fair market value.
I applied that weekly average to all PAX I earned that week.
Here are my screenshots and spreadsheet.”

That’s a textbook-compliant, defensible method under IRS digital-asset guidance.

:rocket: Summary

Principle Your Practice Result
Use fair market value Friday screenshots of completed sales :white_check_mark: Meets requirement
Keep proof Saved screenshots + spreadsheet :white_check_mark: Verifiable
Apply method consistently Same fee and timing every week :white_check_mark: Reasonable
Daily precision not required Weekly average is fine for small daily earnings :white_check_mark: Accepted standard

:white_check_mark: Bottom line:
A weekly screenshot + consistent calculation method is more than adequate documentation for your PAX cost-basis estimates.
If you ever start earning or trading large amounts (say, hundreds of dollars per day), you might increase frequency to twice per week, but for now, weekly is perfectly defensible.

7

That is for sure interesting. Hopefully there are different tax declaration rules for each country, every user should get some info about.. if I’m not mistaken in Italy I think there’s a limit of 3000€ . Below this income per year, you don’t need to declare anything. Anyway everyone can surely get some info about it

8

IMPORTANT - USA customers must properly report to the IRS SimFly PAX Wallet transactions on/after Oct 15, 2025.
This is true regardless of whether you have purchased or sold PAX, assets, or transferred USD to your bank.

10

PAX or USD in the fiat wallet? I doubt PAX is taxable

11

I am going to err on the side of caution and:

  1. Keep detailed records of my PAX earnings along with the cost basis at the time of earning.
  2. Report it on my taxes.

I have asked the question multiple ways and they all result in the same answer: now that PAX is convertible to USD, it is taxable as income when earned and subject to capital gain/loss when spent. That income event happens when the tokens are credited to you, even if you keep them in the in-game wallet.

Details/explanation:

Once a game token is convertible to USD, U.S. tax rules treat it like property (a “digital asset” / “convertible virtual currency”), which means (1) it’s generally taxable as ordinary income when you earn/receive it and (2) you’ll also have capital gain/loss when you later sell/convert/spend it. Simply holding it does not by itself trigger tax, but the earning event typically already did. IRS+1

Here’s the relevant authority, mapped to PAX:

  • IRS: virtual currency is property; some are “convertible” (have real-currency value). If an asset has those characteristics, it’s treated as virtual currency for federal income-tax purposes. PAX that can be cashed out to USD fits the “convertible” bucket. IRS
  • Income when you earn it. If you receive a digital asset in exchange for services/activities, you recognize ordinary income at its USD fair-market value at receipt (this is also your basis). That applies whether you’re an employee, contractor, or just earning rewards in a platform. IRS
  • Taxable when you dispose of it. Selling/exchanging a digital asset for USD—or using it to buy goods/services—is a taxable disposition that produces capital gain/loss relative to your basis. Report dispositions on Form 8949/Schedule D. IRS+2IRS+2
  • “Holding only” isn’t a transaction. Merely holding a digital asset during the year (no earn/sell/spend) doesn’t by itself require “Yes” to the digital-asset question or produce gain/loss, though the earning moment—when PAX hit your wallet—may have already created ordinary income. IRS
  • Game-currency nuance (important for PAX): IRS materials distinguish closed-loop, non-convertible game currency from tokens that can be sold outside the game. Final regs explain that video-game tokens that can be sold outside a closed environment are not excepted—i.e., they’re within digital-asset rules. Since PAX can be exchanged for USD, that places it on the taxable side.
12

oh wow, this is concerning… so even the ownership of assets… a full internal taxation system even if never cashing out in USD? Seems excessive, but it is USA, so wow. I guessed only the actual USD income needed to be declared and subject to tax, not the in game currency. Pay attention that cannot be “converted” but can be sold for USD. Same thing with licenses, airplanes, and airports. Those when sold give you USD, so you must report to IRS how many virtual airplanes you own? this is interesting for the USA to do…

13

Mind you all of this information is coming from GPT-5 so there may be errors…but here’s what it says in response to your last post:

In the U.S., taxes apply only when virtual items or tokens have real-world value. Before October 15 2025, PAX and SimFly assets (planes, airports, licenses) were part of a closed in-game system, so there was no taxable income just for owning or using them.
Once PAX became convertible to USD, it turned into a “digital asset” under IRS rules—meaning income is recognized when PAX are earned, and capital gain or loss occurs when those tokens or in-game assets are sold for USD.
You don’t report how many planes or airports you own; you only report actual income or realized gains in USD value. Holding or playing isn’t taxable—earning or selling for real money is.

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