What kind of taxes do you pay from your domain business?

[Theo]

Unless you purchase a domain as part of a corporate entity sale (e.g. buying an LLC along with its assets) the purchased domain will have to be considered dead inventory until a sale occurs - upon which you will deduct the cost of acquisition. If you held it for a year and one day, the tax bracket is currently at 15%. As far as parking revenue is concerned, that's taxable income. In the same sense, renewal fees are expenses. Best advice: consult with a CPA.

 

[Dale Hubbard]

The two main criteria are these if you are 'offshore':

1. How you repatriate income. "Lend/lease" is the model to follow.

2. Your offshore should belong to trustees.

This has been thrashed to death here over the years now.

 

[GAMEFINEST]

I just go thru my accountant, let him deal with it

 

[chewychipsahoy]

Here is how I'm going to treat things for the 2007 tax year (US - Florida). The numbers aren't actual, just examples.

Just curious if any others out there see any error in my thought process.

Revenues:

Parking Revenues ($1,000 paid in 2007)
Domain Sales

Cost of Sales
Domain Purchase Prices (only on sold domains during 2007) I bought a domain for $1,000 in 2007, and that $1,000 will remain in Inventory the domain is sold (lots of controversy here - this is the most conservative approach)


Expenses

Renewal Fees (New Domain Registration in August 07 @7.50 is 4/12 expensed for 2007 (2.50 expense 2007 - 5.00 expense 2008)

Purchased Software ( Same Theory as above only over 3 year time period. August purchase at $150 4/36 or $16.67 or 2007)

Interest Paid on Domain Purchases

Arbitrage Expenses ( $100 paid to Google or Yahoo for clicks 100% expensed)

Jet Expenses - My personal jet expenses as I travel from domain auction to auction and back home again (none for me, but a legit expense.)


Did I forget anything - I probably did - the items above apply to me.


For me I have a $200 loss on 300 domains. No Domain Sales/Cost of Sales and Domain purchases of $1,370 (into Inventory). I'm all right with that after starting this 18 months ago.

Bill

 

[Theo]

Renewal Fees (New Domain Registration in August 07 @7.50 is 4/12 expensed for 2007 (2.50 expense 2007 - 5.00 expense 2008)

This does not accurately present expenses. Your expense is exactly what you paid to renew that domain. Also, if you paid advance renewal fees, e.g. for 3-4 years, the whole amount is expensed. Simply, you won't be able to expense this domain's renewal fees again until 3-4 years from now.

Jet Expenses - My personal jet expenses as I travel from domain auction to auction and back home again (none for me, but a legit expense.)

To expense cost of travel, you need to provide proof of attending such seminars, auctions etc. which should be 80% of the time spent on that trip.

Similarly, there is a gasoline expense that gives you $x per gallon per mile traveled for business purposes, up to a certain max.

 

[chewychipsahoy]

This does not accurately present expenses. Your expense is exactly what you paid to renew that domain. Also, if you paid advance renewal fees, e.g. for 3-4 years, the whole amount is expensed. Simply, you won't be able to expense this domain's renewal fees again until 3-4 years from now.

This would be the difference between the Cash and Accrual methods. Both are correct, but depending on IRS rules, and the Cash method can't always be used. Public companies and large privates are required to use the Accrual method.

That said, I think 98% of us can use the Cash Method. It doesn't change the amount of tax owed, but it does change the year it is owed. I've found the following:

Except for farming businesses and certain qualified personal service corpor-
ations, regular corporations and partnerships that have a regular corpora-
tion as a partner must use the accrual method of accounting if their average
annual gross receipts for the three prior tax years are more than $5 million,
regardless of the type of business in which they are engaged. If their average
annual gross receipts are $5 million or less, regular corporations and partner-
ships that have a regular corporation as a partner can use the cash method of accounting unless they have inventories, in which case they must use the
accrual method of accounting. All other taxpayers, including S corporations and C corporations that are personal service corporations, can use the cash method of accounting regardless of their average annual gross receipts. However, if they have inventories, they must use the accrual method for purchases and sales, with the exception of certain qualifying small business
taxpayers having average annual gross receipts for the prior three taxable years of not more than $10 million. Supplies consumed in the rendering of services are not inventory. In addition, some taxpayers in certain businesses have been successful in persuading courts that certain types of tangible property transferred to customers in connection with the provision of services are not inventory if the property is integral to the services.

Treasury has provided a de minimis exception with regard to the use of the
accrual method of accounting. Under this exception, all taxpayers can use the
cash method of accounting if they have average annual gross receipts of $1 million or less. If such businesses have inventories, they can deduct the cost of the inventory only when sold.



The last paragraph covers it - you can take your renewal expenses 100% in the current year if you choose to. My $1,300 in domain purchases via auction are classified as inventory and expensed when sold (unless anyone can find a ruling stating otherwise).

Bill

 

[Deleted member 5660]

An accountant told me:

first you need to decide what your business primary funtion is. If you buy and sell domains then they are inventory. If your primary business is advertising then the domains may be treated as capital assets. Domains may fall into the same category of buying other similar intangible items (such as copyrights) which are amortized over 15 years.

 

[gawnd]

Getting read to meet with my CPA and just want to be prepared in advance. One thing I can't figure out is how to treat the reg fee for fresh registrations?

On renewal, clearly this is an expense, but if I'm planning on treating the domain as an asset/inventory then is the initial reg fee simply the cost basis and therefore not able to be expensed in year 1?

Any advice is appreciated.

 

[Theo]

Upon the commencing of a sale you subtract the acquisition cost (e.g. registration fee or the amount you paid to buy it).