discuss US Taxes Due Soon - How To Classify Your Domains In 2016?

[Cdomains]

Taxes will be due soon in the US. Recently there have been some changes mentioned on the net pertaining to the classification of domains for tax purposes. I am still confused, as there still is no definitive answer. Are you?

If you live in the US how will you classify your domains for tax purposes in 2016 - expenses, assets, other?

Also, has anyone bought one of the eBooks offered on the net through DomainSherpa and others about handling taxes for domainers, and if so what do you think about that eBook, and do you recommend one?

 

[garptrader]

I believe there are a few possible approaches:

1) treat all domain acquisitions as capital assets i.e. investments like stocks. Create a spreadsheet tracking the acquisition cost of each domain (including renewals) and report on schedule D only those that were sold (sales price less cost) and classify as either short-term or long-term depending on the holding period. This will tend to accelerate taxable income because you are only reporting domains which sell without getting any offset for domains which do not sell or any benefit from other domaining-related costs. Note that for domains you let expire you would have to include a line for each domain with the sale price being zero and the loss would be the total spent on each domain which you let drop.

2) report your domain business on a schedule C with all registration and acquisition costs being expenses offsetting revenue from sales (consider parking and Adsense income as well). As well you can report any marketing costs you incur related to domaining.

3) report your domain business on schedule C but inventory all domain acquisition costs including renewals. The methodology of valuing your inventory could vary - could track it in a detailed spreadsheet so that your cost of sales is based on the cost of those specific domains or you could pool all costs and average them based on the total number of domains you have at year-end. For my inventory valuation I consider all domains acquired since inception and divide the total domain cost (acquisition plus renewals) since inception by the total number of domains I hold as of 12/31.

This is not intended to be tax advice. While most accountants are not familiar with the domain business, you can explain it to them and they should be able to classify revenue and expenses accordingly.

 

[DU]

Of course, you can claim. ... laptop/software purchase etc as your expenses.

If only it were that easy.... next we'll get a post that says I sold domains but I had to drive to potential customers, needed a pool for schmoozing and, boy, you should be so lucky to be invited to one of my domain parties!....

But seriously...

You can claim software and laptops depending on your circumstances. Besides, many should probably take the standard deduction on their personal taxes.

 

[Cdomains]

The big problem as I understand it is that the -irs has not ruled on this and inquiries have gotten vague responses.

You can choose to expense or treat as an asset or inventory, whatever. My concern is what will happen down the road when they finally decide and some of us will surely be on the wrong side of their ruling.

Either way some of us are going to face some tax problems later for sure because of the way we have chosen to handle this.

The crazy thing is we are flying blind here and if in the future some of us have to pay up for using a different system than they require, that would not be fair considering we have no clue what we are supposed to do now.

 

[JB Lions]

How can you be on the wrong side of some ruling if it hasn't been ruled on yet. I treat mine as expenses, as both accountants have told me. Maybe some accountants have told others to do it the other way. I listen to my accountant. Get one and listen to yours. You're worrying about stuff you don't need to worry about.

As far as laptop/software expenses etc. I believe if you use it over 50% for business, you can deduct:

"If you use the computer in your business more than 50% of the time, you can deduct the entire cost under a provision of the tax law called Section 179."

"If you purchase a computer for use in your own business, there is no problem deducting the whole cost. Usually, you can deduct the entire cost in a single year instead of depreciating it over five years."

http://www.nolo.com/legal-encyclopedia/deducting-computers-bought-work.html

That's what I did. Bought a new desktop years ago, it was a business expense that year. Told the accountant, yes, I do some personal stuff on it, but 90% of the time it's business.

 

[Mahogany]

@ OP, I don't. :P

 

[GoKaizen]

Anyone have an LLC, S Corp, or C Corp for domains? Did you incorporate in your home state or out-of-state?

 

[korganian]

Anyone have an LLC, S Corp, or C Corp for domains? Did you incorporate in your home state or out-of-state?

S-Corp. I paid an attorney $350 to incorporate. It turned out all she did was mail the info pages I filled out to a company called Blackstone. They only charged $250 and she pocket the other $100 for doing nothing.

 

[GoKaizen]

S-Corp. I paid an attorney $350 to incorporate. It turned out all she did was mail the info pages I filled out to a company called Blackstone. They only charged $250 and she pocket the other $100 for doing nothing.

Lol, may as well have just used an online service.

 

[korganian]

Lol, may as well have just used an online service.

That was 18 years ago.

 

[GoKaizen]

The company is just domains? Or other stuff too?

 

[korganian]

The company is just domains? Or other stuff too?

Also insurance, advertising, and patents on inventions. You don't have to have a separate corporation for each thing you do.

 

[mad409]

If you buy domains with the intent to sell them later, they could be treated as inventory and expensed as cost of goods sold.

 

[hollywood]

I treat it as a capital gain or loss; I am not in the "business" of selling domains you see, its more like buy and hold virtual real estate to me.

 

[GoKaizen]

Info about putting domains into a retirement account.

http://domainnamewire.com/2016/01/18/tax-advantaged-domain-investing-dnw-podcast-67/