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Do you pay taxes for domain sales?

Labeled as discuss in General Domain Discussion, started by Rory Ivey, Feb 8, 2016

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  1. Rory Ivey

    Rory Ivey Top Contributor VIP Gold Account

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    I was wondering who has experience when it comes to paying taxes(federal and state) on larger domain sales... lets say 4- 6 figure sales?

    I am figuring that he business starts to become serious and you are making good profits then taxes will come in the picture. I live in New York by the way.

    If you make good sales and process it through escrow.com or another platform do you have to report it on taxes and pay taxes on it? How much do you have to pay(use and example)?

    Thanks!
     
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  2. offersity

    offersity Established Member

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    The big bro expects you to report when you make more than $600 in a year.

    If you are not incorporated, you are basically a self employed or contractor when it comes to tax. You set aside roughly 20% of your income to pay big bro later at tax time.

    * not an accountant or a lawyer here
     
  3. stub

    stub DNStore.com PRO VIP ★★★★★★★★★★

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    I think you should be declaring and paying state and federal taxes on any size of domain profits. I also think you need the services of a good accountant in deciding what your profits or losses are in your domain business, BEFORE you start declaring and paying any taxes.
     
  4. Rory Ivey

    Rory Ivey Top Contributor VIP Gold Account

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    So if I get debt and losses from domaining, then that should be subtracted from my profits thus reducing my taxes?
    So names i buy but could afford to renew or names Im always renewing would be declared as losses?
     
  5. stub

    stub DNStore.com PRO VIP ★★★★★★★★★★

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    Correct. There are probably more ways to calculate your domain profits or losses than you can shake a stick at. Which is why you need an accountant to decide which is the best method, not just today, but for the future. BEFORE you start declaring and paying any taxes. I have not a clue how the US tax system works. So I cannot help you on the details. But I'm pretty sure a good accountant can reduce or eliminate your planned tax declarations and payments :)
     
  6. Casey L

    Casey L Top Contributor VIP

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    If you have relatively small sales compared to your day job paycheck, then you can report domain sale income as miscellaneous income on your 1040. If you do a lot of business with domaining, it might be advantageous to form an S-corp, where you can keep track of revenue (sales, parking) and expenses(renewals, purchases), and by doing so, get taxed on your business profit or have tax deductions based on your business losses.

    Disclaimer: I'm not a tax professional, I recommend consulting with your accountant before finalizing anything. Best of luck.
     
  7. james haw

    james haw Top Contributor VIP

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    I'm in the UK not US but I imagine the basic premise is similar, you just need to find out how taxable income is defined and what to do with it. In the UK, it's essentially:

    Add up all taxable income, deduct any tax-free allowances from taxable income. If there is any remainder we pay tax on it (roughly).

    But as stub stated, there are many ways to calculate and define "allowance" and "deductions", and you should seek advice on that.

    If you are actively buying and selling and making profit, such as domain names, then you are trading and should declare it as income, because that's what it is (again US may differ).

    But just check your local or GOV information centre and seek advice on that and how to do your taxes, there should be some free advice to get started.

    This may help:
    http://taxes.about.com/od/income/a/Self-Employment-Income.htm
     
  8. James Rayers

    James Rayers The Business Name Co VIP ★★★★★★★★★★

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    If you make money via any method, anywhere in the world you can expect to pay taxes. Of course the rate you pay will vary.

    Fundamentally all money you make needs to be declared, but there is certainly a threshold below which you are unlikely to get chased up.

    If you're employed and paying taxes anyway it's always best to get on top of it and have an accountant who can handle both your employment income and your self-employment income.

    I would think it's very unlikely you can claim your losses in domaining against your employment income unless you are self-employed for all your work.
     
  9. lotk

    lotk Top Contributor VIP Blue Account ★★★★★★★★★★

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    *Disclaimer: I am not a tax professional. Always speak to your accountant before filing.

    In my experience, you can make filing taxes very complicated to save money but in the end mine is fairly simple:
    Gross Revenue (domain sales + any other revenue stream like parking, adsense, etc.) - Domains Purchase Costs (only for the domains sold that year) - Expenses (renewals, hosting, etc.)

    Best of luck!
     
  10. Rory Ivey

    Rory Ivey Top Contributor VIP Gold Account

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    Thanks, I'll look into it. I'm not employed.
     
  11. DNScholar

    DNScholar DNScholar.com

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    You can take help from online tax tools and finally from authorized tax planner.
     
  12. iowadawg

    iowadawg Top Contributor VIP ★★★★★★★★★★

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    If you make money, report it.
    Then go from there on whether you have deductions to lower what you made.

    EG: not domains, but a few years back, my wife won quite a bit at the casino (big freaking time!).
    Now the casino, by law, keeps track of all transactions, so they had a good list of what we had spent that year.
    One of the reasons one must belong to the casino as it were to get a casino account card.
    THus come tax time, it was not as bad as it could have been!
     
  13. cocaseco

    cocaseco Top Contributor VIP

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    You need to keep track of all sales and expenses, regardless of how big or how many sales you have. Assuming you meet the $600 annual limit as previously posted. Sales are revenue and need to be reported regardless of its $1k or $100K. Expenses, such as renewal fees and commissions, are deductions. Deductions offset your revenue, leaving you with a net loss or gain. In either case you are required to claim it on your taxes. If you are not organized into an LLC/S-Corp/C-Corp etc, then by default you are a Sole Proprietor. A Sole Proprietor reports their business results on your personal tax return.

    Surprisingly it doesn't seem that most domaining companies file 1099's for revenue paid to you, but that is illegal (over the required limit) and I believe they will eventually be required to do so. The exception would be a foreign company is obviously not bound to all of the same laws. The point being that without a 1099 filing, you are on your own as to what you report. But if a 1099 is filed, you absolutely better make sure you declare the income or you have a good chance of being flagged.
     
  14. cocaseco

    cocaseco Top Contributor VIP

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    Actually you can. As long as you itemize, you can take business expenses as a deduction against your total tax liability. Business activity is not excluded simply because you have a full time job. A salary is simply another source of income, just like domaining. Of course that also means reporting income.

    I forgot to add above that I am only speaking of US taxes. No idea what other countries require.
     
  15. Recons.Com

    Recons.Com Top Contributor VIP

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    How do you treat the money you spend on purchasing the names?

    If you treat it as inventory, then you cannot make a deduction for profit purposes until you actually sold that name.
     
  16. Markith

    Markith Established Member ★★★★★★★★★★

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    Do we know which domain companies file 1099's? GD/Afternic? Sedo? Flippa?

    I've always reported w/ or w/o a 1099, I'm just curious. It'd be nice if the companies let you know a 1099 was coming too. I've heard horror stories of it getting lost in the mail etc. then someone finds out years later by the IRS....
     
  17. cocaseco

    cocaseco Top Contributor VIP

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    I don't know of any and have never received one, including this last year. As I said, if they are foreign owned, like SEDO, then maybe they don't have to. But the American ones should, unless they have found some loophole. Given the amount of money that changes hands, I would imagine the IRS will soon be on them to report. And just like you described, it can cause problems if it got lost and you weren't expecting it anyway. That's one reason you should just report it all.
     

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