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advice Taxes for Domain Purchases

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psychedelic

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I've been purchasing domains for a while and just getting around to try to understand how this works from a tax perspective.

Last year I spent about 1400 on renewal fees, and I did not sell any domains.
Can I write the 1400 off as a loss on my taxes?
Do I need to set up an actual business to do this, or can I do it as an individual?

I also purchased a premium domain from Huge Domains this year for 13,600, approximately 570 per month for 2 years.
Can I write the 570 per month(~6840 per year) off on my taxes next year when I file 2022 taxes?

Thank you in advance for the help!
 
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Hi

are domains your only income source?
do any of your names earn ppc revenue?
do you own a home/condo, and pay mortgage insurance?

renewal fees are expenses, that can be deducted from income, to reduce any tax due, based on your taxable status.
ie: married, single, head of household

if you're working from home, then other deductions may apply

i'm no accountant or tax expert, so seek pro advice.

imo...
 
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psychedelic

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I did not sell any domains or earn any revenue from them in 2021.
Domains are a side project, even if I did make a profit it would be secondary income.
 
Domains are just the product. It is very similar to any other business dealing in a different product.

In general the formula is -

Total Income - Total Expenses = Profit or Loss

Any legitimate business related expenses are an expense.

Renewals are an expense. It is a required fee to maintain an asset.

Most new businesses put up losses to start with. It is not that unique.

The only issue with putting up losses is if you put up losses for too many years (especially in a row) the IRS might classify your business as a hobby which has negative tax implications.

With that said, I would probably seek advice from an accountant.

Brad
 
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Do I need to set up an actual business to do this, or can I do it as an individual?
You don't have to, but if you are serious about it long term it is much better to have a separate entity like an LLC IMO.

A LLC is a pass-through entity where the income is passed over to your personal taxes via a K1 tax form.

It allows you to separate the finances and there are other benefits as well.

It is probably not needed at this level, but if your business starts to scale up it is certainly something I would consider.

Brad
 

inforg

Top Contributor
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Disclaimer: consult a real tax professional

I used to file a schedule C as a sole proprietorship to write off expenses from my miscellaneous sidelines like domains. Including taking home business deductions.

Since they moved the personal deductions up over the last few years, it really wasn’t worthwhile, so I stopped doing it. I don’t think your expenses are enough to justify it at this point, but you can always take a look.

For tax purposes, I don’t consider domains to be assets or inventory, I classify them as “web services” similar to software subscriptions.

I now have a C Corporation that I set up for my main business and have been moving most of my other sidelines to run through my business.
 
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Domains are a side project, even if I did make a profit it would be secondary income.
Hi

so, from that quote,
i'm going to assume that you have other income source, which supplied capital to make those purchases?

if true, then it's possible you may be able to deduct those expenses against income.
note that: you could also be liable for "self-employment" taxes, when/if you sell those names for profit or earn other revenue from them.

if you are employed, i'd advise you to have "extra tax" taken from your pay, to compensate for anticipated tax due the next year.

imo...
 

papeter

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You actually never physically own a domain name. So it can't be classified as STOCK in trade in my opinion. You lease/rent that domain for 1 to 10 years. I am no accountant but I think inforg is on the right lines in this regard. I am not sure about the US accounting law, but in the UK a domain name is not an asset as you have paid for a web service, not a purchase like a Laptop or a copier for example. If you bought a $1000 domain name and it hasn't sold you just write it off as an expense. BUT in the next accounting year you sell if for $2000 you must declare that as profit.
 
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taxations and regulations may vary a lot based on the country where you are living so the best way to know this answer is to contact an accountant of your country with also great knowledge in domains.

However, my opinion is if you are a private citizen and an individual you can't declare renewals as expense in order to reduce your taxes
 
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