"Legal" Tactics to Reduce IRS TAX Owed from Domain Revenue

I have a question,
Is the you spent registering domain names deductible?
I would imagine it would be.

yes it is a wash, but IRS still requires you to do the tax forms because they still see or have access to the 1099's that parking companies issue.

There's two good old radio shows on this topic by top domain attorneys over at Monikers WebMasters Radio. The old shows are available to listen to free. It seems to me that the laws are changing. Virtually nothing is cut and dry IMO. Most accountants don't really know says one radio show that stipulates we have to enlighten them.

On WebmasterRadio.fm every
Wednesday @ 7 p.m. ET
Listen to Archives shows for top legal advice IMO.
Paul

I have heard that you can donate domain names and write it off. I was told that you could not write off no more than you paid for it but I wonder if the name has a certified appraisal from an accredited domain registrar that was more than you paid for it if that would help?

It will be between January1st and 5th before I will know exactly how all this is going to play out.

MINDWRECKER.TV said:

I have a question,
Is the you spent registering domain names deductible?
I would imagine it would be.

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Yes absolutely. And you can renew your domains in advance for up to 10 years if you need to spend money before the end of the year.

Might also want to consider prepaying for your dedicated server or other business expenses.

DnPresident said:

I have heard that you can donate domain names and write it off. I was told that you could not write off no more than you paid for it but I wonder if the name has a certified appraisal from an accredited domain registrar that was more than you paid for it if that would help?

It will be between January1st and 5th before I will know exactly how all this is going to play out.

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Did you pay income tax on a domain that was subsequently valued much higher than the amount you paid for it? (that would be akin to when Oprah Winfrey gave away cars on her show and the IRS immediately said to the recipients, "Hey, you just realized $30,000 in net income so you owe us $7,500 in income taxes; so unless you are claiming the overage in the appraised value and have paid taxes on it, then no value has been established for it and there is nothing to write off). If not, then you cannot legitimately write off the donation of any amount greater than what you paid for it. You can never deduct more than you really paid.

The same would hold true for a diamond broker who finds a $1,000,000 diamond while on vacation in Arkansas, and then later loses it or sells it for one dollar. If he paid nothing for it, he can deduct nothing for it (except diamonds are insurable, but I don't know about domain names in the event you "lose" or misplace one). But of course if he paid $1 million and then sold it for a dollar, that is a different story; he would have deducted what he paid for it on his income taxes as a business expense during the year he purchased it.

Actually, to donate a domain name might be less advantageous of a write-off than keeping it and having it classified as an actual business expense because many charitable contributions are allowed only 50% of the amount of the donation.

Keeping it simple is always best. Once I paid my CPA $75.00 to amend my tax return which netted me an additional $50.00 refund. The IRS and I both lost on that one, but at least my CPA was happy

Sometimes you can find good answers at www.irs.gov.

Some people have bought high dollar domains and called them expenses on their tax returns. Other accountants will say you need to classify these purchases as capital gains.

panterrasbox said:

Did you pay income tax on a domain that was subsequently valued much higher than the amount you paid for it? (that would be akin to when Oprah Winfrey gave away cars on her show and the IRS immediately said to the recipients, "Hey, you just realized $30,000 in net income so you owe us $7,500 in income taxes; so unless you are claiming the overage in the appraised value and have paid taxes on it, then no value has been established for it and there is nothing to write off). If not, then you cannot legitimately write off the donation of any amount greater than what you paid for it. You can never deduct more than you really paid.

The same would hold true for a diamond broker who finds a $1,000,000 diamond while on vacation in Arkansas, and then later loses it or sells it for one dollar. If he paid nothing for it, he can deduct nothing for it (except diamonds are insurable, but I don't know about domain names in the event you "lose" or misplace one). But of course if he paid $1 million and then sold it for a dollar, that is a different story; he would have deducted what he paid for it on his income taxes as a business expense during the year he purchased it.

Actually, to donate a domain name might be less advantageous of a write-off than keeping it and having it classified as an actual business expense because many charitable contributions are allowed only 50% of the amount of the donation.

Keeping it simple is always best. Once I paid my CPA $75.00 to amend my tax return which netted me an additional $50.00 refund. The IRS and I both lost on that one, but at least my CPA was happy

Sometimes you can find good answers at www.irs.gov.

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My question is: If you buy one or several " HIV related " domain names at $1 or $1,000 each and the name/s is appraised by Godaddy for a minimum of $30,000 each...You then donate the names to an interested aids organization for the appraised amount. If this is allowed the donation of the appraised amount would off-set any additional taxes owed in your advantage. Is this allowed?

I guess you could compare your diamond reference above in the same way...Let's say you buy a diamond at an auction or from a private seller for $1 or a $1000 and later have one or several certified appraisals of 30,000 Then you for what ever reason decide to donate the diamond to an interested diamond organization for the appraised amount...What's the difference except that one is tangible?

-RJ- said:

Some people have bought high dollar domains and called them expenses on their tax returns. Other accountants will say you need to classify these purchases as capital gains.

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Just curious: has any accountant who "specializes" in this "volunteered" here
or anywhere else? You know, just to give general ideas but not necessarily a
specific or so like some lawyers do.

DnPresident said:

My question is: If you buy one or several " HIV related " domain names at $1 or $1,000 each and the name/s is appraised by Godaddy for a minimum of $30,000 each...You then donate the names to an interested aids organization for the appraised amount. If this is allowed the donation of the appraised amount would off-set any additional taxes owed in your advantage. Is this allowed?

I guess you could compare your diamond reference above in the same way...Let's say you buy a diamond at an auction or from a private seller for $1 or a $1000 and later have one or several certified appraisals of 30,000 Then you for what ever reason decide to donate the diamond to an interested diamond organization for the appraised amount...What's the difference except that one is tangible?

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both cases have been dissallowed by the IRS because to many people were buying tangible items for x dollars and getting appraissals for xxx and then trying to claim xxx as a deduction. Only the price you paid can be deducted
from taxes, unless you are ready to go to court with IRS to prove the value,They in fact have even cracked down on the donate a vehicle programs for the very same thing.

-RJ- said:

Yes absolutely. And you can renew your domains in advance for up to 10 years if you need to spend money before the end of the year.

Might also want to consider prepaying for your dedicated server or other business expenses.

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If I remember right the tax guy told me you had to have the domain for one year and one day before you could get the full deduction but I could be mistaken.

DnPresident said:

If I remember right the tax guy told me you had to have the domain for one year and one day before you could get the full deduction but I could be mistaken.

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he was probably reffering to selling a name and claiming long term capitol gain, the rate for that is lower than short term capitol gains. IE: you must own stock for 1 year before being able to sell as long term capitol gains
correct me If i am wrong but this is the way i understand it

Tax Expert Dialougue

Is there anyway to get "an expert" to come here on NP to have a discussion with us on the topic? Maybe we can all submit questions for him which he can reply maybe in the chat room? Thoughts?

I park most of my domain names with parked, and you have to file a W-9 to get your domain income from them. THe w-9 is basically used by independent contractors to report earnings. Even if you file the W-9, you need to make more than $600/year on each W-9(maybe you have multiple businesses/work you did with different entities) for you to pay any income taxes on it. I haven't made up to $600 in parking income, so i doubt i will owe the IRS part of my domaining income.

Did you know?

Did you know that if you are going to sell a portfolio of Domains or a single domain for a large amount (Over $20,000) you can do the following?

Create a LLC
Put the domain/s in the LLC
Sell the LLC as a whole

And guess what.. your tax liabilities have just be cut in half.

danielr said:

Did you know that if you are going to sell a portfolio of Domains or a single domain for a large amount (Over $20,000) you can do the following?

Create a LLC
Put the domain/s in the LLC
Sell the LLC as a whole

And guess what.. your tax liabilities have just be cut in half.

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Genius! Thanks a lot for pointing that technique out.

kemjika11 said:

I park most of my domain names with parked, and you have to file a W-9 to get your domain income from them. THe w-9 is basically used by independent contractors to report earnings. Even if you file the W-9, you need to make more than $600/year on each W-9(maybe you have multiple businesses/work you did with different entities) for you to pay any income taxes on it. I haven't made up to $600 in parking income, so i doubt i will owe the IRS part of my domaining income.

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I am pretty sure that if you have income, it gets taxed, unless you are low income. Just because you don't receive more than $600 doesn't mean you don't have to report it. They have to send you a 1099 if they pay you more than $600 in one year.

This link to IRS website is for agents who are investigating web based businesses, I finally found something from them backing up the claim that (domain brokers) I think the irs treats people who reg/buy names and sell them for a profit are called domain brokers not the same use we domainers refer to as brokers. if you read in the question and answer section at the bottom domain brokers income is tentatively treated as Capitol, which means to me if reg is over a yr then long term capital gains would apply, this is intersting reading for anyone with a web business

I am not sure if I am reading it right though because it is called capital
and you can amoritize see bottom

What domain names have been registered either by you or on your behalf? What domain names do you have control over? Please include the date of registration and the name of the registrant.

Explanation - The domain name is the web site address used to find the site on the Internet. As a revenue agent, you already know the importance of conducting a tour of a business. If you were auditing the XYZ chain of bookstores, you would look to see the addresses of the separate bookstores, how many cash registers each had, etc. Each web site is just like a separate bookstore in the physical world with a separate cash register. In the world of electronic business, each domain name gives the taxpayer a storefront with its own unique cash register. Identifying the number of web sites a taxpayer has is no different than trying to identify all the possible business sites or cash generators on your tour of a more earthbound business.

Domain name information can be obtained from InterNic. InterNic is the directory service under contract with U.S. Government to register and track domain names. InterNic’s registry includes the name, address and phone for the registrant, the billing and technical contact points, the host site name and its Internet Protocol (IP) address. Domain names may be acquired from domain name brokers. Third party domain name brokers gang register domain names with InterNic for a nominal fee on the speculation that the name may appreciate in value. The resale value may exceed several hundred or even several thousand dollars. These names are tentatively believed to be capital in nature with the cost being amortizable.

http://www.irs.gov/businesses/small/article/0,,id=141491,00.html

Advertising is 100% deductible which will help me a lot..

I found this link informative http://www.kiplinger.com/features/archives/2007/01/businesstaxopedia.html

fatter said:

Some countries do exempt foreign income but the fine print says you must reside in the country where income was made IE: when my son works overseas he is exempt from that work, but his foreign investments are not exempt

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I'm putting my findings here incase I forget.
Schedule 6, para 28 of the ITA 1967 states that ( I can't remember the exact words but it goes along like this) .... income accruing from outside the country and received in the country is exempted from tax.

So basically my parking and domain income is exempted from tax. WOOHOO.

PowerUp said:

I'm putting my findings here incase I forget.
Schedule 6, para 27 of the ITA 1967 states that ( I can't remember the exact words but it goes along like this) .... income accruing from outside the country and received in the country is exempted from tax.

So basically my parking and domain income is exempted from tax. WOOHOO.

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As far as your parking revenue, your parking income is accruing with the parking company. Are they located outside the country? If your a U.S citizen why wouldn't you owe tax for your income?

DnPresident said:

As far as your parking revenue, your parking income is accruing with the parking company. Are they located outside the country? If your a U.S citizen why wouldn't you owe tax for your income?

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I'm a non-US citizen. I live in Asia.

Sedo 1099-misc

Hi,
I received from Sedo 1099-misc in which Sedo listed in box 9 'payer made sales $5000 or more of consumer goods etc..' . Domains are not consumer goods , right ? I went directly to irs office and they never heard about selling domains or what is and which forms to use to file income taxes . One irs agent told me..box 9 is schedule c... but this is for business and in irs booklet is qoute like ..dont use schedule c if you selling ocassionallllly/ or sporadic...
Second irs agent over phone have not idea also . Turbotax people , spoke to few 'tax pro ' and got different answers and forms , hrblock people, have no clue .
Can anyone who already filed taxes , tell us how they reported sales of domains and which form, schedule d or schedule c or else ?
It is shame for irs.gov where is listed many type of incomes to report such as//illegal sales of drugs, bribery, if you stole , etc but no word about domains . It is 21 st century and we have catch 22 here .
Also , big firm like Sedo should explain people where and how to report income from sales . I think is capital gains , as many of us, but it is important what irs examiner think . One examiner can say 'ok' second one 'wait a minute ..'
If someone filed in 2006 , please tell us how you did it .

Feniks said:

Hi,
I received from Sedo 1099-misc in which Sedo listed in box 9 'payer made sales $5000 or more of consumer goods etc..' . Domains are not consumer goods , right ? I went directly to irs office and they never heard about selling domains or what is and which forms to use to file income taxes . One irs agent told me..box 9 is schedule c... but this is for business and in irs booklet is qoute like ..dont use schedule c if you selling ocassionallllly/ or sporadic...
Second irs agent over phone have not idea also . Turbotax people , spoke to few 'tax pro ' and got different answers and forms , hrblock people, have no clue .
Can anyone who already filed taxes , tell us how they reported sales of domains and which form, schedule d or schedule c or else ?
It is shame for irs.gov where is listed many type of incomes to report such as//illegal sales of drugs, bribery, if you stole , etc but no word about domains . It is 21 st century and we have catch 22 here .
Also , big firm like Sedo should explain people where and how to report income from sales . I think is capital gains , as many of us, but it is important what irs examiner think . One examiner can say 'ok' second one 'wait a minute ..'
If someone filed in 2006 , please tell us how you did it .

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Part of the problem with your situation is sedos 1099 by putting over 5k in goods they may have messed you up for filing schedule d, IRS has not determined a black and white answer yet because there is little case law to support a specific way of claiming sales. The irs gave me the same answer as you if you sell a few names and it isnt your main business to flip domains you can file the schedule D. long term capitol gains if owned for more than a year and treat it just like buying a stock low and selling high, if owned less than a year then short term capitol gains. I beleive the long term capital gain is 15 percent for most people. which isnt bad. But being sedo put 5k in sale of goods block, that is the second way to claim domain sales on a schedule C. which treats domain selling as your primary business, just like a retail store outlet buying items wholesale and selling at a higher price. These are just there recomendations of the 2 ways to report income. There is a 3rd way they told me about that is if you actually considered your name a brand/TM and it was your main business and it was sold then it could be treated as property sale like selling a trademark/license etc

You might call IRS and ask if you can file a schedule D with an explanation of 1099 being filled in wrong by sedo

Thanks Fatter

Finally I cleared couple things . I made also one mistake and apologize to Sedo . It is difficult to get someone on phone and I get someone finally . Sedo DID not report anything on box 9 or any box for domain sales . They reported just ppc . I was told that is our responsibility to report sales and how to do it and which forms is up to us . I agree Fatter with you for schedule d but not sure for trademark way because you have to own first trademark , IMHO .
BTW they dont report for anyone sales to irs , just ppc . It is gray area also for irs , because if you use schedule d irs can ask you where is 1099-b . Internet is here about 20 years and they dont have yet any rules about domains , and domains cant be property , since they expiring , more like transfer of service . But irs have rules and instructions for ;..if you sell illegal drugs , get bribe , stole anything etc you must pay taxes and report amount you stole , see irs.gov .
I guess it will be easy for police in future to catch all robbers , they have to read income tax returns .
I can see ' if someone bought you glass of wine or beer report on line 21 .
Went to cpa , will pay $300 for service but have no choice , despite I can file myself , but audit from irs is 10 times less for cpa returns .
One lady at irs , eye to eye contact asked me ' what is domain name ????"
If there are not rules it is easy to get in trap , they can say whatever they want .