DN Tax Impact

[evenflow]

Does anyone know how the IRS treats the annual costs of holding a domain?

Are annual registration fees tax deductible?

 

[jehnidiah]

If you're in the "business" of domain trading, owning, selling, etc., then it is a business expense. You'd need to debit accounts payable and credit cash in your books, in case they audit.

^^disregard, haha. I had just woken up from my afternoon nap.

 

[jdk]

Wouldn't you use the domain as an asset i.e.) domains .... or something? Accounts payable is fine, but domain names aren't considered cash are they? Unless, you are in the practice of sloppy accounting

 

[.edu]

A domain would usually be considered an intangible asset & would NOT be considered a business expense & can be depreciated/expensed by its fair market value divided by determined useful life which ever is shorter and not to exceed 7 years. Your original entry would be cost of purchase if this was the situation. If you are to register domains and sell them for a profit, then your domains would be treated as inventory. Going this route, your domains are still an asset and can not be expensed. Your annual cost would be considered a cost of one unit & can be written on your books as your cost of goods purchases. If you renew a domain, you treat is just like a new reg. This situation, you will write in your books a loss no matter if you let it drop or renew it.

 

[AdoptableDomains]

A domain would usually be considered an intangible asset & would NOT be considered a business expense & can be depreciated/expensed by its fair market value divided by determined useful life which ever is shorter and not to exceed 7 years. Your original entry would be cost of purchase if this was the situation. If you are to register domains and sell them for a profit, then your domains would be treated as inventory. Going this route, your domains are still an asset and can not be expensed. Your annual cost would be considered a cost of one unit & can be written on your books as your cost of goods purchases. If you renew a domain, you treat is just like a new reg. This situation, you will write in your books a loss no matter if you let it drop or renew it.

I think treatment also depends on your tax status. As a proprietor, partnership, or other "cash accounting" based business, you can cost it as you pay the reg/renewal fees. A corporation is generally on an accrual basis and may have to prorate the cost over the registration year if not the same as the tax year.

In any case, I don't believe you need to treat an intangible domain registration as "inventory". Although courts have generally held domains as being owned assets, they are really no more than a irrevocable lease (on the part of the regisrar as long as you pay the renewals and don't violate the TOS. It's not a physical asset, and unless you reg for many years, not a long term asset. It should probably be treated more like an office lease or subscription. The domain market is so volatile and questionable, that I don't think you could really justify "fair market value" at more than either the reg. fee or your cost to acquire it.

I've found it easier to treat my domain business as a proprietorship on a "cash basis". In this manner, I just take all income from January 1 to December 31 and subtract all expenses from the same period, including new reg fees and renewals to come up with taxable income or loss. It also makes accounting and tax returns much easier and less expensive.