Domainers: Do you use Inventory or Cap Gains treatment?

[Chappy]

Just wanted to find out how many of you treat your domains as Inventory (Schedule C) or treat them as Investments (Capital Gain, Schedule D treatment)?

There are the following basic methods that I see:

1. Domain Dealer
Treat domains as inventory
Expense cost of goods sold
Sales are ordinary income
No favorable treatment if held >1yr

2. Domain Investor
Treat domains as investments
Record capital gain on sales
Sales held >1yr get lower cap gains rate

Thanks

 

[fonzie_007]

If you are incorporated, you must use schedule C. If you are not incorporated, you can treat longterm sales at capital gains. However, domaining can't be your primary business--it must just be investment activity.

For most people, you should be either filing out a schedule C or declaring all domaining income as regular income.

FYI: If you incorporate, you are able to write off registrar costs. If you do NOT incorporate, you cannot write off these costs.

 

[Chappy]

According to the guide I'm reading, registrar costs are simply business expenses which you can write off even if you operate as a sole proprietor.

Not that that amounts to much for me....its the cost of buying domains that is the major cost...which is cost of goods sold if you use the inventory method.

 

[fonzie_007]

I'm assuming that if you are declaring yourself a SP, that you are incorporated. It is pretty stupid not to incorporate if you are running a business.

 

[Chappy]

SP, incorporate or LLC each have their own merits of course. I think I may go for an LLC but not quite ready yet.

 

[fonzie_007]

LLC is the way to go 99% of the time. I'd recommend doing it ASAP. You just need to pay a filing fee with your state and fill out a short form.

 

[Damion]

Question guys,
What items falls under registrar costs?

 

[MinionDH]

LLC is the way to go 99% of the time. I'd recommend doing it ASAP. You just need to pay a filing fee with your state and fill out a short form.

I completely agree. LLC is definately the way to go.

 

[fonzie_007]

Question guys,
What items falls under registrar costs?

If feasible, you should separate your registrar costs for renewal, hosting, other services, etc. Registrar costs usually should be expenses you incur yearly to maintain or keep your domains.

 

[Damion]

That's interesting!
Definitely something i should look into at some point in time.

Thanks!