Tax Questions

[Varchar]

Only recuring fees such as the renewal and registration fee is consider as expense. The cost of the domain is the purchase price which is the amount I paid to win the auction or pay to get the domain name.

 

[DNQuest.com]

As far as drop catching and backorders, they are a part of my business and are expenses. Now, if you are not in business, that may be a different story. If it is a hobby, you are not able to deducted expenses like you can when you are in business. Is the states, the only thing you need to start a business is a checking account with you business name on it, that is it. That would be a sole proprietorship which you use your personal tax return to claim your taxes.

With that said, it depends directly if you are running a business or not. I claim all my drop catches and backordering, it is a part of the business. As far as your example, the quesiton is, are you running a business or a hobby that makes money? It you run a business, you made zero profit (1000 expenses, 1000 revenue). If it is a hobby for money, you pay 900 in capital gains. (sold a domain for 1000 which you invested 100). I beleive those are your only two options in you senario.

This does beg to ask a question which just hit me, is Paypal concidered a checking account for purposes of running a business? I will look into that for further discussion this week.

 

[fatter]

As far as drop catching and backorders, they are a part of my business and are expenses. Now, if you are not in business, that may be a different story. If it is a hobby, you are not able to deducted expenses like you can when you are in business. Is the states, the only thing you need to start a business is a checking account with you business name on it, that is it. That would be a sole proprietorship which you use your personal tax return to claim your taxes.

With that said, it depends directly if you are running a business or not. I claim all my drop catches and backordering, it is a part of the business. As far as your example, the quesiton is, are you running a business or a hobby that makes money? It you run a business, you made zero profit (1000 expenses, 1000 revenue). If it is a hobby for money, you pay 900 in capital gains. (sold a domain for 1000 which you invested 100). I beleive those are your only two options in you senario.

This does beg to ask a question which just hit me, is Paypal concidered a checking account for purposes of running a business? I will look into that for further discussion this week.

there is no requirement to have a checking account in your business name, all you need to do is file a schedule C, in fact most states dont even require a business license. the checking account may be a state requirement for you

 

[Varchar]

I don't think I need to open a company in order to claim expense. This is what my accountant told me today. What he will do for me is that I will file Schedule D for domain name that I purchase in for resale. For all the other names which I purchase from auctions or newly register names, those will be file using Schedule C to claim as expense for the year.

Is this a right way to file?

 

[DNQuest.com]

In the eyes of the government, if you do something just as a hobby, you are limited what you are able to claim.

As far as a checking account, it shows that you are in business and not just claiming expenses to claim less taxes. You may be able to use your personal checking account, but it would be unfavorable to you if you are ever audited. Keeping business and personal seperate shows that you are in fact running a business, thus entitled to accounting procedures more favorable towards businesses.

 

[DomainEngineer]

Form 4797

I came across some information that suggested using form 4797 for domains.

I also come to know from some other domainer that the easiest way to treat domains is as capital gains by:

treating #1(sales, ppc income, adsense income, etc) as capital gain, while

treating #2(registration fees, renewal fees, drops, secondary market purchases, etc) as expenses/losses.

So your capital gains or loss is = #1 minus #2

One can group all domains in to one big calculation for the whole purpose, while keeping all the individual sales/income/fees/renewals/purchases records for future reference if needed.

Only problem with this approach is that is appears too simple and easy to me.

Any thoughts.

Regards.

 

[DNQuest.com]

That isn't exacly correct. If you do domains as a hobby, you are restricted in what you can claim as an expense. You are combining 2 different accounting procedures of treating domains. You can only claim profit/loss if you are running a business. You claim capital gains and only associate expenses with the that particular domain you sold. If you are doing the hobby route, PPC, adsense, etc would just be treated as additional income.

You need to be careful how you do your accounting for domains, and then you need to be consistant.

As as example, if you are doing a hobby, you but 100 domains and sold 15, you can only claim expenses with the 15 domains you owned (that includes drop service). The remaining would noly be accounted when the domain is sold. If you let the domain drop, then you will not be able to receive credit for your loss of money (but it is not considered a "loss" to be able to write off on taxes).

As far as form 4797, that will not apply to domains, that form is for dosposed property for a business. If you do domains as a hobby, you don't have a business.