Domaineers and Taxes

[PowerUp]

Hi, do domaineers get income tax?

Is trading domain names considered an income or a capital gain? Will the IRS know about this if you don't report?

 

[Domagon]

Do a search on here / google for more details - this question gets frequently asked.

In brief, a domain name sale may be treated as a capital gain or income depending on the context of how it held, utilized, accounted for, etc.

The link below, while it doesn't directly answer your question, may be helpful...

http://www.avivadirectory.com/domain-law/

Ron

 

[cache]

I am sure buy/sale is capital gains, but how do you write off the adsense income
agains multiple year domain holding?

 

[Domagon]

You don't. Adsense is regular income.

But you could add the renewal costs to increase your cost basis, which at resale time will reduce the capital gain incurred.

Assets, income, distributions / payroll (you have to get the money out some how), etc all should be tracked separately.

There are numerous accounting methods / procedures, so my answer is limited to my experience in the domain name business, and may not be applicable to your particular situation.

If your business has grown to the size that you are looking at decent size tax liabilities, then hiring an accountant (not a tax preparer, but a CPA or similar) is the way to go - even despite their fees, you're likely save money over doing it all yourself; more free time to run your business

Ron

 

[srisri24]

If you make a $10 sale, IRS may not be able to know, But if you make 100K sale, IRS will definetly know about it. And proft caused out sale is definetly taxable, so you can only pay less tax by keeping a record of all your expenses which includes:

1. Domain registrarion and renewal charges.
2. Hosting and software charges
3. development charges
4. Your computer and hard ware cost.
5. Even your internet connection charges can be tax saving.
6. You can simply hire your two minor children: For example, if you hire your two minor children and pay $6,400 to each of them, you save $3,968 on your income tax (6,400 x 2 x 0.31, assuming you are in 31% tax bracket). Your children would claim $4,400 as Standard Deduction and if invest $2,000 in Traditional IRA, would pay "0" tax on their income. This technique not only saves you income tax, but also $1,958 on your liability for social security taxes (12,800 x .153).

I may miss few other things that you could show as legitamate expenses out of the sale.

But yeah, capital gains are Taxable.

 

[PowerUp]

1. I live in Asia and if I sell a domain to somebody in US, then in which country will I be liable for tax? In my local country or US?

If the answer to (1) is local tax, and if my local tax law states that capital gains are exempted from tax, then does that mean I don't have to pay any tax on the profits I make?

I know if buying and selling domain happens on rare occasions, then it will be deemed as capital gains. And if i buy and sell often, or if I depended on the profits on my domain sales for a living, then the IRS will see the gains as an income gain, hence subject to income tax.

Are there ways to ensure that the profits from domain trading is viewed more towards capital than income?

 

[srisri24]

1. I live in Asia and if I sell a domain to somebody in US, then in which country will I be liable for tax? In my local country or US?

If the answer to (1) is local tax, and if my local tax law states that capital gains are exempted from tax, then does that mean I don't have to pay any tax on the profits I make?

I know if buying and selling domain happens on rare occasions, then it will be deemed as capital gains. And if i buy and sell often, or if I depended on the profits on my domain sales for a living, then the IRS will see the gains as an income gain, hence subject to income tax.

Are there ways to ensure that the profits from domain trading is viewed more towards capital than income?

Taxation is always complicated!!

It depends in which country you live in. For example you live in INDIA:

1. Profits/gains are subjected to taxation.
2. If you sell just domains, there is not much problem, but if you sell developed websites, that means it attracts various other taxes. And also you need to have an EIC(export imort code). Tax people see it as services being exported. As i said, if the money involved is peanuts, you dont have to worry much. If it generates $$$$ then you will be in problem, if you dont show them in tax returns.
3. How you are going to recieve the money to your country from USA? Now a days there is a lot of observation going on all the $$$$$ that crosses borders. So becareful if a lot of money is involved, tax man can bell your door any time.

 

[Napkin.com]

If a sale is treated as a capital gain
can you re-invest the proceeds into another
domain and not pay taxes?

The same way we do a 1031 exchange in real estate:

Buy a house for 100K, sell it for 150K,
but don't pay tax on the 50K if you re invest in another property.

 

[nuDy]

I think that the law require to pay taxes on everything that you've gained. In order to pay taxes, you have to register your activity. Domain business is not exactly that, because you register a domain name and you find a buyer who give you a higher price than the reg fee. I think it is the same as if you buy a car and than sale it for a higher rate.

XF.com, is right! If you buy 2-3 domains and sale them, I don't think it is illegal not to pay taxes, but if you start a huge business and you have CONSTANT gaining, you have to pay taxes!

On the other hand, if you sale your domain to non-US citizens, practically your business is not located in US and, in my view point, you don't have to pay taxes.

ANYWAY, I recommend you all to turn to the law, because not paying taxes is a strong non-observance of the law.