Here is what will happen. Trust me, I know. Just completed an audit from last year, not domain related. An omitted form.
As mentioned, when you reach a certain amount of revenue (in this case, anything above $600.00 you have to fill out a W-9 form) you AND the IRS are both sent a 1099-misc. You can choose to do whatever you want to do with the one you receive...paper airplane, toilet paper, target practice...but guess what the IRS does with theirs? They keep it nice and clean and handy to see if you claimed it as income.
I just got audited on March 1st of 2007 for tax year 2005. 11 months after filing and while I am trying to finish up this years taxes, they drop that BS on me. It was a paper audit meaning forms and such to go through and fill out.
In 2005, we sold a bunch of stock through eTrade and turned around a month or so later and repurchased stock with those proceeds. In the meantime, eTrade sent to me and my Uncle Sam a 1099-misc for each sale of the stock. There were different companies and sales so each one gets its own seperate 1099.
When it came time to do taxes in early 2006, when the computer program I use was doing the calculations, apparently when it came time to do the Schedule D for stock capital gains/losses the program must have felt it was an even swap (sold stock/stock purchase) and decided a Schedule D was not necessary to file when I did file electronically.
So, lo and behold, on March 1, 2007 I get a package from the IRS saying I have XX,XXX unclaimed income on my 2005 return and I owe them X,XXX unless I can show where it was claimed.
Yes, time to FREAK OUT! I started going back through last years receipts but I also began to notice the amount they were saying was unclaimed could only be from one source...the sale of the stock.
Sure enough, when I pulled out all those receipts and totalled them up, that was the exact amount.
I called the IRS office in Philadelphia. I was on hold for 42 minutes listening to classical music. Why were they playing Nutcracker Suite? Was this a cruel joke or left over Christmas music? Anyways, the robot on the other end (a real person but I felt like she was reading from a script) told me what I needed to do.
So a week or two of aggrivation. The final amount of unclaimed income was $14.53, the total remaining from the stock purchase.
To point to all of this is the 1099 you get from Google AdSense, Sedo, or any other source is filed with the IRS. It is claimed and taxable income.
If you treat domains like a business, it has it's pluses. You may have to pay taxes on sales and parked income, but you also get to write off a ton of business expenses.
For those that think the sale of a domain name does not have to be reported, most of the time you are right. But if you sell one for XXXX or XXXXX, chances are the other party is claiming that as a business expense and has records.
Plus, if you piss someone off or they are simply anal about all records, someone can easily file a 1099 on you.
I have been doing my own taxes for over 30 years. I play by the rules. That keeps me out of trouble. This is the first time I have ever been audited. This was a case where the computer program thought it was smarter than me or the IRS.
Bottom line, if you have a 1099, guess who also has a 1099? they will contact you.
lpxxfaintxx said:
Hi,
I have just been reinstated to Google Adsense, and this time I am going to take it seriously. I am underage, but I have a website making over $600 a year. Even though I am under 18 years old, do I still have to pay taxes to the IRS? My parents are well aware of my website(s) and set up banking accounts, SSN, and all that stuff. I have full permission from my parents to participate in the Google Adsense program, buy domains, buy hosting, etc.. The checks from Google are currently being sent in my name, and my info (reminder: I'm not 18 yet). The bank has no trouble successfully adding the funds to my account.
Anyways, I've read that if you make over $600 a year, you must pay income tax. I have loads of question about this... What will their reactions be when they recieve taxes from a 14/15/16 year old?
You should still treat this as a business as obviously this is making money. Therefore, you can also have some deductions. The info up top is for those who think they can get away with not claiming income as income.
Doubtful you will have enough income to claim as taxable income. But you may still need to file a form 1040ez to show the amounts received on the 1099. Great possibility that you will not need to pay any taxes if you are under the minimum.
But seeing that the IRS also gets the same info from the same 1099, they may want to know at some point why you are not filing. Sure, they could look up in the database your age, etc. But, it's easier just to send you a letter when their bells and whistles go off.
Keep good records. Consider establishing yourself as an S Corporation or an LLC. May need to include you parents as partners (on paper) and may need their sigs.
Great questions, great insight you have, and possibly a great future. Play by the rules and stay out of the sights of the IRS and tax man. Check the internet on rules for age limits on S Corps and LLC.
Also, check the IRS site on minimun tax and age restrictions. You are not too young to have a business therefore you are not too young to potentially have to claim an income or minimally account for the 1099's you receive.
