Easy tax question...please help!

[gramathy2]

Thanks in advance for any replies...

I was just wondering what the minimum amount earned is for you to have to worry about taxes from domain parking revenues...

and what if you don't earn more than you spent on the names??

Thank you!

 

[nielsencl]

You have to look at your entire income(in the US), not just for parking.

But this is a great question...! To start with I have to tell you I am not a tax professional and you need to verify what I tell you, since tax laws change and I may have some facts screwed up.

I would treat your domaining and anything else you might do, like web design, sites earning via AdSense, or programming as a business. This can be in addition to a regular job. If you make a lot of money (and you declare it) you will have to pay taxes on it. The amount of taxes will vary, but I always figure it will be about 30%-35%. I say it's this much because you not only have to pay federal and state taxes, but also Social Security. When you work for a company, you only pay half of the SS. When you work for yourself, you pay all of it or about 16% I think.

If you make a lot, you should pay quarerly estimated taxes, but if you just wait until tax time the penality you pay should not be too much. This depends on how much you make of course. I had to pay about $80 one year, so it's not alot, but why pay more than you have to?

The thing about having your own business is that you can lose money for I think 3 years to start with. This means you could buy domains like crazy, not have any income to speak of, and wind up getting a tax deduction on your regular income because you spent so much on your "business". You will want to get a good computer tax program or work with an accountant or tax person to know how this all works. I pay our tax guy about $300-400 each year to do our taxes. It's quite a bit, but he finds things that I could never do and saves us money. His fee is also tax deductable...!

Also, anything related to domaining or your business can be a tax deduction, within reason. So domain purchases, renewals, escrow fees, hosting fees, template purchases, magazine subscriptions (Modern Domainer, Domainer's Magazine, Fast Company, Wired, PC Week, etc.), your ISP fees, and anything related to your computer can all be deducted from your taxable income. You can also deduct for a home office, but I found out that when you sell your home, you have to factor that back in, so I don't deduct that.

You have to keep records of everything, and you should use a program like Quickbooks.

And if you sold a domain at a loss for some reason, you can claim that as a business loss. Say you sold a domain for $100 less than you paid for it because all 200 those .info names you bought during a drunken weekend when they were only $0.99 to register. Many are nice names that you don't want to let go because later on they will make you a nice profit. So you make a quick sale to get the renewal fees. You lose $100 and you can deduct this from your income. Well, you don't pay $100 less in taxes, you just don't pay taxes on $100 of money you made, which lower your taxes by $20-$30 perhaps. Not a lot, but if you get a lot of deductions it can add up.

On the other hand, I bought a domain here on one of the sales that was going on for $5. 6 months later I was contacted by a domain broker and wound up selling that domain for $1,000! Well, I have to pay taxes on the profit of $995. But, if I understand it correctly, that will be capital gains and NOT regular income, which means the taxes may only be 15%.

Sorry to ramble on, but I was thinking this might help others with the same kind of questions. [ Corrections to anything I said are welcome. If you PM me I can just edit my post. ]