Income Tax Question

[jaremo04]

A little help, please ...

Does anyone know how to treat domain names at income tax time? For example, if I bought 400 names in 2008 and sold 5, how do I treat all of this for my 2008 taxes. Are the 400 names considered inventory? Or do I take the 5 I sold and use their cost (@$35) as Cost of Goods Sold and the total sales prices as Gross Sales? What about expired names ... how do they fit into the tax picture?

Is there a good source for domain tax information?

Thanks so much in advance.

 

[Michael]

A lot of people I've talked to put registration fees as "Rent or lease" >> "Other business property" (line 20-b on the Schedule C). If you bought a domain in the aftermarket for $10k, you'd have to amortize that over several years though. Your gross sales go in box 1 of the Schedule C.

Why is your cost per domain at $35? I really hope you didn't register 400 domains at Network Solutions when you can get better service for $9 at Moniker, Enom, Godaddy, or just about any other registrar on earth. $14,000 compared to $3,600... that'd be a pretty massive mistake.

Disclosure: I'm not a tax attorney so please don't misconstrue this as tax advice. Always consult a professional.

 

[jaremo04]

Not $35 each

In fact, my hypothetical example was meant to be 5 domains @ $7 = $35. I just look dumb.

Thanks for your help.

 

[Michael]

No, that was my mistake, you clearly said COGS so I should have realized what you meant.

Also, just to add, be careful with how you claim the revenue. It is my understanding that how long you held the domain before you sold it determines if you have to claim the revenue as capital gains or not.

Tax law in this business is a huge gray area, so if you find a savvy accountant he can save you money and keep you out of trouble.

 

[jaremo04]

Thanks Michael.

Any other words of advice from other domainers??

 

[yandig]

Here's an interesting link with more info:
http://answers.google.com/answers/threadview/id/288629.html

 

[jaremo04]

Thanks Yandig. A little more information than I was hoping for. It seems that dealing with domains names purchased for resale as INVENTORY items might be the easiest.

Other opinions?