Domain Profits & Taxes (u.s.)

[TooManyDomains]

What happens if you don't report them???

Is there a low/medium/high chance the IRS is going to come knocking some day for a % of your bank deposits???

 

[Rockefeller]

I think it would all depend on how much you're making. If you're making something like 1k a year, I dont really think there is a high chance of them coming for you.. I will probably pay around 16k in Taxes from domains this year. If I didn't pay that and it went on for 2-3 years, there is a strong chance that they would come after me for everything that I owe and then some...not worth it.

 

[Focus]

I wonder if escrow sales and wires are reported like cash deposits at a bank.. anyone know?

 

[Rockefeller]

My best advice is to get a good accountant and keep detailed records of how much you buy a domain from and how much you sell it for, you'll pay taxes on the deposits.

 

[TooManyDomains]

Thanks for the input Rock. Maybe anything above average American salary is on the radar or something. Good question Focus, maybe you could consider wires as gifts and according to this link not have to report them :X

http://www.fairmark.com/begin/gifts.htm

 

[stock_post]

All my domains are actually owned by a Inc.
And they I only deal with the bank account associated with the company.

so, even if I make a Dollar, I have to show and I think it is the best way long term.

Insted of IRS coming down the road and asking me to show the paperwork.

 

[Gramma]

Don't forget your deductions on your capital gain - hosting - advertising - registration fees - web design - etc

 

[intellect]

Anybody know of a good accountant who knows the domain industry?

 

[DNQuest.com]

Don't forget your deductions on your capital gain - hosting - advertising - registration fees - web design - etc

This has been discussed here before. But with capital gains, you can only deduct teh expenses from that particular domain. Under this type of accounting system, reg fees of domain you do not sell are not deductible. As well as the other expnses listed. Capital gains would be more of a hobby than a domainer. The best way is to eitehr incorporate yourself or form a LLC and use basic cash accounting (IE- Expenses and Revenue). This way, all reg fees are deductible and your accounting would be seperate from your personal money matters.

As always, consult an accountant in your area to get the full rundown. But if you want to be a domainer, forming an entity is the best way to go.

 

[TooManyDomains]

With what kind of profits would you recommend forming an LLC?

 

[Johnn]

I wonder if escrow sales and wires are reported like cash deposits at a bank.. anyone know?

The Bank Secrecy Act of 1970 (or BSA, or otherwise known as the Currency and Foreign Transactions Reporting Act) requires U.S.A. financial institutions to assist U.S. government agencies to detect and prevent money laundering. Specifically, the act requires financial institutions to keep records of cash purchases of negotiable instruments, file reports of cash transactions exceeding $10,000 (daily aggregate amount), and to report suspicious activity that might signify money laundering, tax evasion, or other criminal activities. It was passed by the Congress of the United States in 1970. The BSA is sometimes referred to as an "anti-money laundering" law ("AML") or jointly as “BSA/AML”. Several anti-money laundering acts, including provisions in title III of the USA PATRIOT Act, have been enacted up to the present to amend the BSA. (See 31 USC 5311-5330 and 31 CFR 103.)

 

[DNQuest.com]

With what kind of profits would you recommend forming an LLC?

Actually, it is not the determination of profits, it is how to minimize you taxes and maximize your expenses. If you want to run your domain as a business, forming a LLC is a good idea. Consult your accountant to discuss it. You can even do a Sub-S and form a corporation. Some states it is real easy to do.

For the most part, how much do you plan on spending for the domain business? (reg fees, drops, promotion, subscription fees, hosting, hardware, software, internet.. could all be expenses of your company. You just need to mkae a profit a some time (and profit is more revenue than expenses, there is no level. My profits are only 400-500 each year, but teh expenses I claims and salary I take offset any profit)

 

[cyberlaw]

The best advice possible is to simply report all of your earnings. Personally, I think a clear conscience is very worthwhile, particularly if you handle larger international transactions. Even if you do get away with a few, you'll likely be in a touch spot eventually. Just pay your taxes and appreciate all those public services you get!

 

[TooManyDomains]

yup

 

[RTM.net]

My profits are only 400-500 each year, but teh expenses I claims and salary I take offset any profit)

400-500 each year? in profits....?

Is that 400-500K, or M ? or (gulp).. 400-500% ?!

hehe.

In all seriousness, great advice. Here in Canada, we generally treat it as income and it can be offset by all the traditional deductions (marketing, reg fees, hosting, etc etc)..

Rob

 

[domaingenius]

HOW does the IRS value domain names ?.

DG

 

[Focus]

You have a few options in valuing domain names, some regard them as assets and others as "advertising costs" if they are used and bought for ppc revenue, obviously as property if they are to be "flipped" for resale...it has been suggested that they have to be ammoritized over time like realestate but I do not see why as they are not really a physical or tangible good, and in fact you are only "renting" the domain registration from the registry..even if it cost you 100k to takeover the rights to that domain name - you do not actually "own" it per say nor will you ever fully "own" it as it has to be rented year to year like an office space...so say I buy a typo for 10k and it makes me 20k over the year timespan I would show a profit of 10k for that domain name for that year..imo so please do give your input if the above is not in accordance with general tax law..I'd be interested to hear your side.

 

[Dan-Da-Man]

What if someone (like myself) domains as more of a hobby, rather than a job/career and earns in the XXXX range? Would I still need to report / pay taxes on anything; cuz a friend of mine said he's dropped like 16k in the bank from domains, no questions asked :S

Also, does this affect people (like myself) in Canada? Or just the U.S?