Question about the fun stuff! (taxes)

Hi there NamePros forum.

As I start to make my journey into the wonderful realm of domaining -- there was a question that came up. Being my first real year as a domainer, I wondered about taxes and at what point that selling domains is considered a one man business instead of a one man hobby.

I haven't sold anything on GoDaddy or Afternic where they require a certain level of information -- but just some small sales (under 600$ on Flippa). However, I intend to do more and go further with domaining.

At what point would I have to file for something and not stay as a hobbyist? Where would that route take me -- and how would I go about this on the journey to become a professional domainer -- going the extra mile to become official?

I reside in the US, live in Hawaii with the military -- and home of residency is in Georgia.

Thank you,
-GR

 

Keep in mind that as far as the IRS is concerned, even hobbies are taxable, especially if they generate revenue.

The following article may help: https://www.namepros.com/threads/u-s-irs-domain-business-tax-information.779754/

You may also want to consider dedicating a domain to your primary operating brand and filing for an assumed name certification in your respective county: https://www.namepros.com/threads/fr...rtnership-assumed-name-certification.1010399/

More business/start-up information that pertains to legalities and taxes: https://www.namepros.com/threads/from-freelancing-to-a-start-up-protecting-your-brand-name.1015749/

I hope that helps,

 

Interesting. Where is the line drawn on this- for example does it have to be consistent revenue to be considered taxable? Does Granny who likes to knit the occasional pillow and sell it on Ebay have to report it, what about a family who has a yard sale? The little girl who opens a lemonade stand in front of her house every weekend?

I'm sure the occasional hobbyist domain sale would not be considered reportable, however as a primary or or even secondary consistent source of income it really should be considered a business, thereby your customers should be taxed and in turn you would pay taxes.

 

Here's a direct answer from the IRS

It should be noted that a non-taxable hobby is one that does not have a clear intention to generate any revenue. Once you cross that threshhold into premeditated "For Profit" hobbyism, you must pay taxes. Here's the full article at the IRS to help explain better: https://www.irs.com/articles/tax-tips-people-who-earn-income-hobby

I hope that helps,

 

On the flip side of this can we write off all the tens of thousands of fees that we have made throughout the years from this expensive hobby ,or at least carry them over till we are in the black.

 

There are some interesting questions about taxes. It seems that domain names are virtual assets which are leased, so they don't have any value until you transfer the lease. So what happensif you exchange them for another virtual asset like Bitcoin.

Another possibility isto sell the name for Britannias. Now the Britannia is an english coin, and it is legal tender with a fact value of £100, but because it is solid gold, it will cost you over £1,000 to buy one from the Royal Mint. Because it is currency, it is exempt from capital gains tax and VAT. So if I sell a name for 10 Britannia, will I have to pay tax on the £1,000 value of the currency, and not pay tax on the over £10,000 that I will receive for the sale of the coins?

 

Great questions! I can only really reference U.S. IRS Tax laws and guidelines. In the U.S. Cryptocurrencies are taxabe. Reference: https://www.irs.gov/uac/newsroom/irs-virtual-currency-guidance

When it comes to precious metals being used:

Source: https://www.jmbullion.com/investing-guide/taxes-reporting-iras/capital-gains/

 

@DomainSherpa created DNTaxGuide.com for this purpose.

http://www.domainsherpa.com/dntaxguide-domain-name-tax-guide-for-investors/

GL!

 

Thank you for all the wonderful replies! I noticed that if it's over 20,000USD or 200 transactions its considered to be a business. Anything below is considered more of a garage sale.

Should I add sales tax for my domain webshop if that's the case? As it is reportable from payment processors at that mark. I don't intend hitting that threshold, but would rather be on the safe side.

I will look into all of these resources. Would you recommend me looking into getting an LLC and making a small business account?

 

In the UK HMRC has turned its attention to those who sell on eBay and other platforms.

I don't think there is a line that has to be crossed before tax is payable.

 

But it's interesting that gold coins that are legal tender are tax exempt ( VAT, CGT and inheritance), but silver coins are not.

 

Register as a business... charge sales tax and claim your expenses.
If you even remotely plan to make money and think you may have to pay taxes in the future then the sooner you claim your expenses (ie renewal fees) the better.

Taxes are unavoidable and Paypal and bank transfers are perfectly traceable. PayPal is on the Radar in Canada so I can bet it is the same in the states. Bank transfers and deposits are obviously also tracked.

Go into business assuming you will be successful and that starts by acting as a legitimate business. If I sell a domain in Canada I charge sales tax and this is never a problem because end users can claim the taxes back for their business. Sales outside of your home country are usually sales tax exempt but still taxable on an income level.

 

This applies to PayPal only. You must meet both criteria before they generate a filing to you and the IRS. 20,000 AND 200 or more transactions.

Any of the escrow services I am sure report to the IRS but if you are not in the US I guess the rules might be different. If you make one good sale a year I think its a short or long term capital gain in the US.

 

From my understanding unless it has changed from 5 years ago,Congress hasn't written domain tax law yet, so until case law is established(IRS taking taxpayers to court) It is not black and white yet, the IRS agent said if I file schedule C, I would be safe, I know a lot of domainers do long term capitol gains ,which is much cheaper, I just don't want to be the one they make case law from.

 

If you get audited for any reason and they look at your bank account or paypal and you have even 2-3 income transaction they will tax you and make you pay penalties for not declaring income. Just because you have a day job does not mean your night job is tax exempt. All income regardless from where must be lumped together and claimed or you will be charged with tax evasion. There might be a minimum criteria to declare you a business but there is no minimum criteria for having to claim income.

So if you claim income you might as well claim expenses to offset the costs of your transactions. The sooner you start the more money you will save. Mind you that you save more not claiming the income but that comes with big risk and if you make any kind of serious sale they will eventually catch you. You cannot make anonymous deposits to your account. The tax people will want to know where it is from and if you paid taxes on it.

I don't mean to lecture here but I have run a number of companies and eventually it will be your turn and you will get an audit letter. Claiming ignorance and saying "I did not know" does not save you from penalties.

I sincerely try to help domainers when I preach this..... be ever so careful, pay your tax and claim your expenses. That lowers your tax base and you will sleep a lot better.

 

Exactly! I know first hand that even if someone made no income for a full year (That was me, traveling cross country, hitchiking, back in the early 90's), that you still have to file for the year, even with $0 income. The agent I spoke with stated that if I made $10 from panhandling, technically, I should report it, but that they aren't going to ask me if I made any money that way that year.

I think the sooner domain investors start looking at domains as a serious business model, the more successful they will be in strategic "business" related decision making.

 

My wife and I opted for a partnership filing because we enjoy the mom and pop small business feel with our lifestyle, as well as the comfort of having full control of our business.

It's only $25 or so dollars to get an assumed name certification in your county, with which you can open a dba at the bank with. You can then head over to the county licensing office and get your license fairly inexpensively, depending on all the fields you add to the license.

You should research the different filing types and then choose the one that best fits your lifestyle and business plans.

 

Thank you so much for the quality replies. I would just have to figure out whether or not I would have to file for that licencing here in the state of Hawaii (due to it being my location) or my home of record in Georgia as I am military (where I pay taxes).

LLC seems expensive through legalzoom -- I'm taking it babysteps right now.

 

If Georgia is your residence and you are on tour (2 or 3 years) in Hawaii, then you would use your Georgia residence. You can have a partner in Georgia file for you or hire a business attorney to do it on your behalf there.

Additionally, all your business documents should be formed were you reside, unless you are going for an LLC. Which can be filed anywhere just about. Your assumed name certification and licensing should remain in the state you have legal residence. Additional licensing may be required if you will be locally conducting business in Hawaii. If it all remains digital and ownership records point to your state of residence, that's the state taxes will apply and you are working remotely (temporarily) while in Hawaii and intend to return to your state residence at some point.

I'm not an attorney and the above is just my personal opinion. You'll want to consult with a small business attorney to make sure you comply with the laws.

I hope it at least helps point you in the right direction.

 

Just go talk to an accountant, best thing you can do.

 

FYI ,godaddy can give details on spread sheets going back years about all money going in and out ,to give your accountants when buyers start making a lot of money ,or in case of a huge sale the reg fees can be carried over as losses or expenses, I think this can be done pretty cut and dry because domains really have no value until they are sold ,not the ones most people buy or hand regged anyway ,I would like to add to the last member that said see an accountant , I would consult with an accountant that is a domainer or hire him to advise your regular tax guy.

 

So basically the gist of it is...every penny earned, won, found, given or gained, whether through a declared business or a personal venture, must be reported to the authorities so they can determine what their cut is. Considering your gig a business or hobby is really up to you, the taxman doesn't give a hoot as long as they get a piece of the revenue, too.

 

The wages of sin are supposedly death, but after the taxes -- it's just a tired feeling.
Through domaining I can finally buy a box of poptarts -- read it all in my next tell all novel!

 

I have never gotten a business license for domaining, I just use my name and ss" on a schedule C,as a sole propieter. You could check but I am not sure why you would need one.
joe T

 

Hey Joe

If you make any kind of money you need to charge sales tax. One way or another the government will come after you if you don't charge sales tax. You can be a sole proprietor (like me) but that does not exempt one from paying and collecting sales tax.

So what most domainers don't realize is they think if they get caught that they will just have to pay income tax. In fact, if it is considered any type of business the government will also make you pay whatever taxes should have been collected.

Tax rates vary from state to state or province to province but there are few places in the world that don't charge sales tax. Failure to collect them will cost one in the end because the domainer will have to pay the lost sales tax and all penalties thereof.