Tax on Domain Sales in the US

[SheikhOvais]

Let's say I have sold $1 million worth of domains in less than a year (I wish, lol). What would be the tax on this income in the US? I mean, would that amount be taxable? Or can stay in my personal bank account (without taxed)?

Note: I am not a US resident, but I use my cousin's bank account for transactions, legally.

Please guide.

 

[ebk]

As far as I know, it would be reported as income and taxed at the standard rates (per locale.)

 

[Casey L]

If you do it on the side then just report it as income. If you form a business around it then report it as self employment income and it will get taxed at a different rate

 

[SheikhOvais]

If you do it on the side then just report it as income. If you form a business around it then report it as self employment income and it will get taxed at a different rate

And that "different rate" would be "less than" the non-business rate or "more than" that?

 

[Casey L]

The US self employment tax rate is around 15%, which can be more or less than your income tax rate depending on how much you get paid from your normal job, rentals, etc. Income tax rates vary from 10%-39%

 

[SheikhOvais]

Also wondering "when" would the tax be applied? Right after I earn $1 million (let's say in less than 3 months) or the tax would be applied/deductible on the total amount after one year?

 

[21x20]

If you earn $1 million, ask an accountant.

But typically it is profit. You tax profit in the year you collect it. You sell today and make $1,000,000 it's reported on your 2016 return.

 

[korganian]

Where did you get that idea pogba? Self employed people pay the same federal tax rates as anybody else in the U.S. The difference is that they also have to pay the employer's portion(half) of the FICA taxes as well, which is an extra 7.65%.

 

[dna]

You pay your taxes according to the rules of the country in which you are a citizen.
In the US you should treat a domain name sale as capital gains, which is your sale price
minus your costs, including yearly registration costs. Assuming you have held the domain
name for a year...the capital gains tax rate is much less than the income tax rate. You are
essentially treating a domain name sale as a stock sale.

 

[SheikhOvais]

Thank you all who shared such a helpful information.

Another question regarding expenses.

So I have earned two million dollars in one year from selling domains (let's suppose and wish, hehehe) and from that amount I spent; let's say 50% cash on purchasing other domains (drop catches, hand regs, semi-premiums), a house, and a car.

Question is: Would tax be applied on the "remaining 50%" amount I am left with OR would I be taxed for the full two million dollars?

From what I know so far, I will be taxed for the amount I am left with; right! Would appreciate what the US tax law says about it.

 

[creataweb]

Thank you all who shared such a helpful information.

Another question regarding expenses.

So I have earned two million dollars in one year from selling domains (let's suppose and wish, hehehe) and from that amount I spent; let's say 50% cash on purchasing other domains (drop catches, hand regs, semi-premiums), a house, and a car.

Question is: Would tax be applied on the "remaining 50%" amount I am left with OR would I be taxed for the full two million dollars?

From what I know so far, I will be taxed for the amount I am left with; right! Would appreciate what the US tax law says about it.

Your best bet would be to contact a tax professional. It gets complicated.

 

[korganian]

Thank you all who shared such a helpful information.

Another question regarding expenses.

So I have earned two million dollars in one year from selling domains (let's suppose and wish, hehehe) and from that amount I spent; let's say 50% cash on purchasing other domains (drop catches, hand regs, semi-premiums), a house, and a car.

Question is: Would tax be applied on the "remaining 50%" amount I am left with OR would I be taxed for the full two million dollars?

From what I know so far, I will be taxed for the amount I am left with; right! Would appreciate what the US tax law says about it.

You don't get any tax deduction for buying a car or a house. Your expenses have to be business related to quality for a business tax deduction.

 

[fatter]

Last I checked with USA irs they said domain sales legislation still hadn't passed congress, so it was a gray area, Some domainers claim capitol gains like stock purchases, others business income schedule C. The agent I spoke with after being bounced around for 3 days because most agents had no idea, is that it is income, and until the irs takes people to court and they have case law to back them up, its still a grey area, but that was four years ago. I would hope they have ruled since that it is the same as buying and selling stocks, because capitol gains it much cheaper then declaring it income.

If you use your cousins bank account I would definitely get an accountant that knows the domain business, If you are transacting large sums of money the bank has to notify the feds, plus you may create a mess for your cousin

 

[SheikhOvais]

Last I checked with USA irs they said domain sales legislation still hadn't passed congress, so it was a gray area, Some domainers claim capitol gains like stock purchases, others business income schedule C. The agent I spoke with after being bounced around for 3 days because most agents had no idea, is that it is income, and until the irs takes people to court and they have case law to back them up, its still a grey area, but that was four years ago. I would hope they have ruled since that it is the same as buying and selling stocks, because capitol gains it much cheaper then declaring it income.

If you use your cousins bank account I would definitely get an accountant that knows the domain business, If you are transacting large sums of money the bank has to notify the feds, plus you may create a mess for your cousin

Thanks for your detailed response, really appreciate it.

Just two days ago I was thinking that there are tax brackets in the US for individuals and business (something like that), so considering my primary question, in which tax bracket I would come if I sell $1million worth of domains?

I know I can get a proper answer from an account/tax consultant, but if anyone has info or similar experience, I would appreciate for the heads up. I only want to know the % of tax deductible from that $1million.

Thanks all.

 

[SheikhOvais]

Where did you get that idea pogba? Self employed people pay the same federal tax rates as anybody else in the U.S. The difference is that they also have to pay the employer's portion(half) of the FICA taxes as well, which is an extra 7.65%.

Found this article what @pogba mentioned about. I think he is right, the tax for Self-employed is 15.3%, or that's what I think it is!!!

http://www.accountingcoach.com/blog/what-is-the-self-employed-persons-fica-tax-rate-for-2016

If that's not the case, I think the tax rate is 39%, WHOOOWWWW... US really has some serious tax %%%.

 

[korganian]

Found this article what @pogba mentioned about. I think he is right, the tax for Self-employed is 15.3%, or that's what I think it is!!!

http://www.accountingcoach.com/blog/what-is-the-self-employed-persons-fica-tax-rate-for-2016

If that's not the case, I think the tax rate is 39%, WHOOOWWWW... US really has some serious tax %%%.

LOL. The 15.3% tax is just the extra employment taxes they add on to the federal tax rate!

 

[fatter]

korganian is right the 15.3 percent is just the social security tax

 

[SheikhOvais]

LOL. The 15.3% tax is just the extra employment taxes they add on to the federal tax rate!

You mean 15% + 39% = 54% tax is payable???

If so, doesn't it sound waaaaaaaaaaaayyy tooooooooooo muchhhh?

 

[korganian]

Dang right it's too much. The worst part is that it goes to support our oppressive government that ruins our economy and our lives in general.

 

[korganian]

Trump just gave a speech today in Detroit where he said ." Turning to taxes, Trump said no business should pay more than 15 percent of its income in taxes, a major drop from the current 35 percent corporate tax rate. Vote for Trump!!!

Meanwhile, Hillary said in her speech that she is going to raise taxes on the middle class and her audience actually applauded!!! Duh.