Tax

[jestew]

I just got back from meeting with my accountant and he is saying that my domains will have to be depreciated over 15 years... that can't be right. Does anyone know where I can learn the tax code on this subject, so that I can deduct my domains?

I mean, 15 years ago the domain industry barely existed. and who knows what is going to happen over the next 15...

 

[Theo]

Important question: what is your primary line of business? Are you incorporated?

If you've incorporated into an entity with the primary function being buying and selling domains, then it works like this: you incur the purchase costs and each year deduct the renewal fees until you sell the domain. Once you sell it, you subtract the purchase cost and the revenue is taxed as capital gains if you held it for more than a year, or as ordinary income if you held it for less. Your CPA apparently goes by your current business status.

 

[actnow]

I'm not an accountant or lawyer.
However, 15 yrs. is too long.

There is a thread on www.Thedomains.com where Michael stated how long he is depreciating his domains.
And, when NameMedia filed for an IPO a couple yrs. ago they stated a "?" yr number.
I think 7 or 8. You would need to read their "old" IPO application.

Everyone agrees they need to be amortized/depreciated if you are in the domain business.
The question becomes - how long?

 

[jestew]

I have an LLC. I buy and sell and park domains. For you tax experts out there.

 

[Focus]

If you are just monetizing parked domains and your primary business is "online advertising" you can expense domain purchases outright the same year. I spoke to one of the foremost tax experts in the world on this matter and he said there is no real case history or firm guidelines YET for expensing domains, however the above is an agressive deduction and could get looked at closer potentially so be prepared to possibly prove everything later on. If your primary business is buying & selling domains then I believe Acro is 100% correct although others may do it differently. Right now the domain business and "online realestate" are very grey areas tax wise because it is a non-tangible item and it has to be renewed to keep. Also, you never acutally "own" a domain name technically as you are just leasing/renting it from the central registry and paying renewal fee's to keep such rights. If you make more money parking domains than anything else than same year deduction should be fine.

* I am not a tax accountant so please seek professional advice in this matter, do not rely solely on my opinion.

 

[Theo]

Correctly so. Both Focus and I speak from our personal experience; in every situation you should consult with an expert professional. If you are concerned that your CPA is not delivering per your expectations, you need to find another CPA.

 

[actnow]

Very few CPA's have knowledge about domains.
Nor, does the IRS on how to handle it.

The most important approach is to follow your accounting procedure consistantly year after year.
And, also be conservative.

An aggressive approach would be to fully deduct domain purchase price in the first year.
It is a given that renewals are expense and can be deducted in the year incurred.

It becomes a grey area when you talk about hand reg's.
But, it comes back to consistant, trackable accounting practices.

Lets say you purchase JAX.com for $ 20K.
Some have suggested that you could expense the cost of a standard domain.
$ 8. And, depreciate the rest over 7? , 8? , 10? years.

Sometimes they put it in this category.
http://en.wikipedia.org/wiki/Intangible_assets


Now, if you buy Toys.com, don't expect to deduct it the first year.

 

[Theo]

Nice example

Again, it depends on the purpose you incur that cost. Was it a one-time purchase to form a business dedicated solely to a certain function? Then the cost becomes an expense that can be - more or less - written off as such during that tax year.

The beauty of the system is this: as long as you maintain a healthy business generating revenue, your domain renewal fees are expenses. I had some smart alecs contact me about certain domains I've held for years, their argument being "you've lost money, here's what we offer". It's quite funny dealing with what I call the "sour grapes" syndrome.

 

[actnow]

Again, it depends on the purpose you incur that cost. Was it a one-time purchase to form a business dedicated solely to a certain function? Then the cost becomes an expense that can be - more or less - written off as such during that tax year.

It depends on the amount.

If you purchased FloridaSigns.com for $ 1,000. so you could expand your business
from being an Orlando sign company to a regional sign company, it would not
be acceptable (under GAAP) to deduct the full cost the first year.
But, it is very minor error if you are doing $ 2 to 10 mil. or more a year.

There is no 100% correct answer. It is mostly grey.
Every year we have this discussion.
And, as far as I know, the IRS has not made a ruling on how to treat domains.

http://en.wikipedia.org/wiki/GAAP