Taxes on domaining

[Chappy]

How to calculate the tax liability on buying/selling domains?

I've had varied responses to this question for some time now so hopefully we can clear it up here if possible.

Here's a simple scenario:

Assumptions
------------
Individual starts domaining on Jan 1, 2006
Individual files a US tax return
No LLC or Corporation involved - just an individual buying/selling in spare time outside of normal salaried employment

Cost of all domains bought in an year = 100,000
Cost of domains sold during the year = 60,000
Closing cost of domains in portfolio = 40,000

Revenue from domains sold during year = 110,000
Profit from sales = 50,000

What is the tax liability for 2006?
How is this reported on the tax return?

Thanks!

 

[IAmAllanShore]

Matt,
I'll make this really simple: Don't ask us (Although irs.gov schedule c instructions are fairly detailed)
Get an accountant, and pay them to tell you. If you get lucky and they're "good people", you'll probably have them give you some great hints for reducing next year's liability.
(And as an aside, an LLC will almost always make sense... but I don't know your situation, and neither does anyone else here.)
-Allan :gl:

 

[Spade]

I can Give you sound advise on the subject matter....

Dont ask me about Taxes

<end sound advise>

Im with Allan on this one - I wouldnt take advise from anyone on NamePros about tax in general. Sounds like your making enough where you can afford the couple of pennies the accountant is going to cost. Good luck!

Justin

 

[simpsons]

We pay enough taxes already!

 

[fonzie_007]

If you are not incorporated, I don't believe you can write off any domain expenses. This means you will not be able to deduct any inventory you have. You will, however, need to add the $50k as part of your taxable income (usually under the "other income" line on the 1040). However, if the domains were held longer than a year, you could claim the $50k as a capital gain (which is taxed at a lower rate, either 5 or 15%).

I'm neither a tax attorney nor accountant, so it doesn't hurt for you to double check what I've said with a professional.

 

[Chappy]

OK I get the message. I just thought that most people are doing the same thing (buying and selling domains) so the "advice" from the accountant would be the same and could be shared.

I'm just worried that any accountant I pay may not know the answer - I guess I'll have to just bite the bullet and find out.

Thanks!

 

[IAmAllanShore]

They will know the answer

And note: Don't use the HRBlock or JacksonHewitt or whatever your local equiv is. I know it's cheaper, but the folks that prepare taxes are no more accountants than I am a Supreme Court Justice

And I'd like to think the advice would be the same, but it would heavily depend on your own specific circumstances.

In short: All profits - All costs would be your AGI for schedule C, and there is no "carry-forward" of value that reduces liability for this year, if that's what you were shooting for. But yet again, that's based on my own experiences, not meant to be indicative of what yours might be

Best of luck

-Allan :gl:

 

[Phronesis]

Chappy, the accountant I've talked with on this has told me that if you have an 'inventory' of domain names then you cannot use cap gains but must take the gains as ordinary income. Hope that helps a little.

 

[matt_bodis]

You need an LLC. I just regged one for 2007.

 

[ForexPros]

Im with Allan on this one - I wouldnt take advise from anyone on NamePros about tax in general. Sounds like your making enough where you can afford the couple of pennies the accountant is going to cost. Good luck!

Justin

why??? Do you think that we all here damn or what?

As far as the topic of the thread then you calculate taxes on your gross income, so if you have other income except domains then you will have to combine it with you 50k and then look up you tax liability. Also it depends how are you filing as single, married filing jointly or as a head of household.. so you have to provide more info

If you will file only on this 50k income you made then you will have to look it up in the tax table it would be from 6,700 to 9100 in taxes

here is the link to the irs tax table
http://www.taxforum.us/i1040tt.pdf

Hope that helps

 

[Jeff]

You need an LLC. I just regged one for 2007.

Why an LLC?
Can you please point out some of the pros (and cons) of the LLC, and where - potentially online - one may apply/register for one (and any other links, info, resources, etc)? :gl: :talk:

Thanks very kindly, and Happy New Year!
-Jeff :santa:

PS. I ain't no CPA or Esq! :blink:

 

[IAmAllanShore]

Tax implications of LLC are wonderful, in my experience. Despite being "pass through" income, you have a little more freedom in defining what "expenses" are incurred in the course of "business". Yeah, I couldn't use more " " 's if I tried
Anyhow, http://www.legalzoom.com is an easy online way to inc (LLC or C/S Corp), although you really can do it yourself quite easily from your own states website usually (Although you have to print things out, whereas legalzoom they do it all for you).
-Allan

Why an LLC?
Can you please point out some of the pros (and cons) of the LLC, and where - potentially online - one may apply/register for one (and any other links, info, resources, etc)? :gl: :talk:

Thanks very kindly, and Happy New Year!
-Jeff :santa:

PS. I ain't no CPA or Esq! :blink:

 

[deu12000]

You have to look at your tax bracket after gains and losses. For example, I have a lot of deductions, losses, expenses all the way around because I invest a lot of my money back into my business. Even more than I make, but it's not a problem to me because I'm setting myself up for future gains which I'll be taxed on heavily.

If incorporating is your best option whether an LLC, C, S, non-profit or whatever type of corporation you're trying to register, make sure you look at your state's site before you spend money on a "nationwide" site. In my state for example you can register a corporation in like 5 minutes for a very minimal price (as long as you have all the info in hand).

 

[Jeff]

Legal Zoom ... that's the ticket, thanks much Allan! :lala:

Your "assistance", as always, is very much "appreciated".
See you soon.
-Jeff

 

[fonzie_007]

LLCs are the most popular way to set up a business entity (it is the most flexible entity).

As Phronesis said, yes, you cannot declare capital gains if you are incorporated. Capital gains are meant for longterm investments and once you incorporate, you are essentially saying to the government "this is my business now." The government then treats all of the income and expenses as related to your business and therefore capital gains don't apply. I've taken a federal income tax class and have prepared quite a few tax returns, but as I said before, I'm not a lawyer or accountant.

 

[kiplarson]

What if you've started making enough money from Adsense that it'd be wise to start reporting it? If you already have a business license for a completely unrelated business can you simply just use that Tax ID Number?

Or do you have to open a new one that is related to what you are doing with the business?

 

[deu12000]

Google actually sends you a 1099 every year. You're suppose to pay taxes or at least claim it as something on your tax return.

 

[Chappy]

Tax implications of LLC are wonderful, in my experience. Despite being "pass through" income, you have a little more freedom in defining what "expenses" are incurred in the course of "business". Yeah, I couldn't use more " " 's if I tried
Anyhow, http://www.legalzoom.com is an easy online way to inc (LLC or C/S Corp), although you really can do it yourself quite easily from your own states website usually (Although you have to print things out, whereas legalzoom they do it all for you).
-Allan

Thanks, this looks useful.

I presume that I can only take advantage of LLC status from the moment I set one up - i.e. everything I have done prior to that will have to be reported as 'other income' or something on my individual return.

Don't you just LOVE taxes!!

 

[fonzie_007]

Thanks, this looks useful.

I presume that I can only take advantage of LLC status from the moment I set one up - i.e. everything I have done prior to that will have to be reported as 'other income' or something on my individual return.

Don't you just LOVE taxes!!

You'd have to ask a tax professional if this is legit, but what I would try is having your LLC "acquire" your personal domain porfolio from you at the same cost the domains were to you personally. You're not trying to screw anyone, but it seems legit to me. If you take your personal portfolio and give it to the business isn't that just a personal loan you are giving? Therefore, while you can't expense items prior to being incorporated, I would think his would be an okay way to get around that problem (assuming you were in the same tax year).

I would make sure you have paperwork to document your costs in case you get audited. (Even though I have spent more than I have receipts for, I am only claiming expenses on the items I have receipts. I need to do be better job in 2007 keeping track of all of my transactions...) Don't overstate the cost of domains/inventory otherwise you could get hammered by Uncle Sam.