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Tax question

Located in Legal Discussion, started by DomainCairn, Jan 31, 2017

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  1. DomainCairn

    DomainCairn Established Member

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    Not sure what thread this belongs on, but its almost tax time and I was wondering how most domainers go about claiming any profits they made from selling domains on their federal income tax.

    For those who have done this in the past --- For example, If you made $1,000 by selling a few domains, but it cost you $300 to purchase them to begin with. Do you claim $1,000 or $700 on your taxes?

    For reference, I am from the US and have been doing my own taxes for over 12 years and I prefer to keep it that way. I just need some guidance this year as this will be the first time I will have to claim domain sales. I am hoping other domainers who have more experience on the matter can chime in on how they claim domain sales on their federal income tax.
    I realize talking to a lawyer would be optimal but was hoping for some input on people who have already done it in the years past.

    thank you!
     
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  2. jberryhill

    jberryhill Top Member John Berryhill, Ph.d., Esq. PRO VIP ★★★★★★★★★★

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    I hate to say it, but you should really consult with a tax attorney. An initial question is whether you are conducting a "hobby" or a "business". You are looking at the very narrow issue of whether you can offset the $300 (in what year) against the current sale of $1000. But are you also conducting a business where you are paying renewals for all of your other domain names, and can you deduct those from the profit of your overall business?

    If it is a domain name that you picked up a few years ago, and you sold it last year, then the most common answer is that it is treated as a capital gain (potentially long term, depending on the circumstances). But it is also going to matter whether this domain name was aquired for resale, or whether it was otherwise used as a business asset in the time you held it.

    It's very hard to come up with a hypothetical tax question relating to domain names where the answer does not depend on facts not given in the hypothetical. You might find this discussion interesting: http://www.early-retirement.org/forums/f28/profit-from-domain-name-sale-76380.html
     
  3. deez007

    deez007 The More I Learn The Less I "Know" VIP

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    Also if you going to be declaring ur domain sales then be sure to declare all related expenses as well that are related to your domaining business/hobby.

    Internet Connection / Laptop / Home office (lights/electricity) not sure about the US but in many countries you can actually charge yourself "rent" if you have a home based business/office. Declare as many expenses as you can even paid software that you use and paid memberships etc...hell even stationary.
     
  4. DU

    DU Secret Santa VIP ★★★★★★★★★★

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    What he said ^

    It depends on how you do the taxes Do you capitalize the expenses? When did you recognize the cost? Are you accounting properly? If you take it as income it's less likely, in theory, to be audited than gains and it's probably what a lot of people do* because it's easy and not likely to raise too many questions. Do you even itemize your taxes or take standard deductions? Are you a business (in which case your accounting should be much better than most domainers).

    As for hobby - there is a point where a hobby is not a hobby... making money as a domain reseller is not a hobby. Collecting and occasionally selling one is a hobby but you're not supposed to be banking in cash as a hobby year over year. That's a business.

    Figure out what you are, how serious you are,how much money you make then come up with your strategy then call an accountant for a consult if it's impactful enough. If in doubt, claim as straight income imho.

    *Most people don't even report it I'm guessing (though I do not recommend this approach). It's called a paypal account without a TIN (under $20K)
     
  5. jberryhill

    jberryhill Top Member John Berryhill, Ph.d., Esq. PRO VIP ★★★★★★★★★★

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    If you are stuck on deciding whether it is a hobby or a business, take the easy way out: make it your religion.

    If you do it as a religion, you can lie, cheat and steal all you want, tax free.

    Who is more trustworthy: Someone who has to live with their conscience and social consequences, or someone who has an omnipotent buddy who forgives them for everything they do wrong?
     
    Last edited: Jan 31, 2017
  6. Domaniak

    Domaniak Account Closed (Disallowed)

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    DomainReligion.com, huh? :whistle:
     
  7. Cdomains

    Cdomains Top Contributor VIP

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  8. DomainCairn

    DomainCairn Established Member

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    Thanks for everyones input. It is much appreciated!
     
  9. DU

    DU Secret Santa VIP ★★★★★★★★★★

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    Pay $79 dollars and then when you realize the following:

    The application and impact of tax laws can vary widely, from case to case, based upon the specific or unique facts involved, and the advice and strategies contained herein may not be suitable for your situation. Readers should consult with professional advisors for advice concerning specific matters before making any decision, and the author and publish disclaim any responsibility for positions taken by investors, entrepreneurs and taxpayers in their individual cases or for any misunderstanding on the part of the readers.

    Claim you aren't satisfied and check the following link https://www.dntaxguide.com/request-for-refund/

    You can probably find most of what you need for FREE and if you're uncertain still see a professional.

    My feeling is that you're probably over thinking things. If you've been doing your own taxes for 12 years you'll be fine... if you do choose to manage proper gain/losses make sure you have all your receipts and supporting tax docs lined up (though your example seems to be the anti-thesis of someone trying to cheat the system - your question would be I sold $300 purchases for $1,000 how do I avoid tax not whether it's $700 or $1000).

    I doubt anyone it going to get bent out of shape over $700 or $1000; however, if you claim it as CG you should have $300 of provable expenses. If you claim it as $700 income I doubt an IRS agent will be banging on your door. Things change as the numbers and deductions get bigger ... last I checked people making under $100,000 donated an average of 3.6% of their income... (I call bullshit on that but I bet no-one is audited).

    Edit: I live in a no State / City income tax locale
     
    Last edited: Feb 1, 2017
  10. creataweb

    creataweb Some Guy with Awesome Senior High School Photo VIP ★★★★★★★★★★

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    Depends on many many factors including exactly where you live and other circumstances.
     
  11. JB Lions

    JB Lions Top Contributor VIP ★★★★★★★★★★

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  12. Cdomains

    Cdomains Top Contributor VIP

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    I actually purchased this last year and then returned it because I ended up not needing it.

    It is written by a professional tax expert who is familiar with domains and it does have some useful info.

    Of course everyone should consult their own financial pro and everybody's situation is different.
     
  13. 168

    168 Top Contributor VIP

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    Perfection.
     
  14. Kate

    Kate Domainosaurus Rex VIP ★★★★★★★★★★

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    If your activity is consistently profitable: consult with a CPA, incorporate and enjoy tax benefits + asset protection.
     
  15. Domains - Wanted

    Domains - Wanted Top Contributor VIP

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    Incorporate offshore! You forgot to add that last part :xf.wink:

    Simplified accounting, if any at all (depends on jurisdiction). No taxes to pay. No worries. Can focus on domain acquisitions and then selling them at outrageous profit :xf.grin:
     
  16. jberryhill

    jberryhill Top Member John Berryhill, Ph.d., Esq. PRO VIP ★★★★★★★★★★

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  17. Domains - Wanted

    Domains - Wanted Top Contributor VIP

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    First off, focusing on "offshore", I think you've missed the word "incorporate" :xf.wink:

    Uncle Sam is indeed very aggresive in pursuing His interests and citizens to the ends of Earth. The current Administration is likely to intensify this trend, if at all possible. Last I checked, however, you were still permitted to incorporate (set up businesses) abroad, subject of course to literally hundreds of thousands of pages of Uncle Sam's regulations and correspondingly substantial lawyers' fees :xf.cry:

    Once properly structured and running, your offshore company
    , in Hong Kong for example, is outside Uncle's jurisdiction!

    Besides, domaining is a very international business with most NP members here happily not US subjects of the IRS and the likes of FATCA :xf.grin:
     
    Last edited: Feb 2, 2017
  18. TerriJ

    TerriJ Established Member

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    Domainers pay quarterly taxes, correct?
    Like any other freelancer, contractor or self-employed person?
     
  19. creataweb

    creataweb Some Guy with Awesome Senior High School Photo VIP ★★★★★★★★★★

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    Consult a tax professional, it will vary based on a lot of factors.
     

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