Are Domains Assets?

[ParkQuick.com]

Like many people I've been treating money from domain sales as income for tax purposes. I know that some people treat domains like assets, paying a lower rate (in the U.S.) by considering the money as capitol gains. I've searched past posts about this, and there was some discussion last year around tax time.

Have there been any developments in the past year? Has anyone been audited and had to pay more taxes? The last I heard the IRS had not actually ruled on this issue. Sales are picking up, and this could make a huge difference if some of my best domains ever sell.

[clemzonguy]

I will need the same questions answered myself. Right now I think it's a matter of what business you are doing and how you are using the domains. Some people buy them for purposes other than resale.

[izoot]

This seems to be a fairly nebulous subject...I've heard a number of opinions and would like to hear as many viewpoints as possible if anyone wants to share.

[DNGeeks]

As a side note to Canadians who may find this thread and would like the same question answered for our side of the border, websites and domain names are intellectual property and qualify for capital gains.

Speak with your tax person first of course, as I am not an expert and rulings change constantly. This is information I received from Revenue Canada for the 2003 income tax year.

[fatter]

I went to IRS office and was told domain names sales and earnings are taxed as income using scedule C, Of course IRS has given wrong info in past to me but thats How I will do it in future, also lets say you have 2.5k earnings from ppc and 3.0k in domain reg fees and expenses you would still have to fill out loss for the year

[namestrands]

The short answer is YES.. domains are assets and add to your net worth.. if you have a large portfolio I would suggest professional appraisal.

[KwelX]

I went to IRS office and was told domain names sales and earnings are taxed as income using scedule C, Of course IRS has given wrong info in past to me but thats How I will do it in future, also lets say you have 2.5k earnings from ppc and 3.0k in domain reg fees and expenses you would still have to fill out loss for the year

how do you track your reg fees? just by keeping a log?
also, are you operating under a business name or an individual still?

if domains are an assest then one would wonder how to gauge a value for appreciation or depreciation purposes.

thanks and sorry for sounding like a newbie. my revenue is starting to approach a decent level where i need to think about tax ramifications too.

[Dave Zan]

I went to IRS office and was told domain names sales and earnings are taxed as income using scedule C, Of course IRS has given wrong info in past to me but thats How I will do it in future, also lets say you have 2.5k earnings from ppc and 3.0k in domain reg fees and expenses you would still have to fill out loss for the year

Trust...but verify...

[namestrands]

This is a minefield subject.. The facts are that domain names are assets. If you buy a domain for $6 and sell for $600 you have to calculate your return on investment taking in to consideration, registration fees, time spent marketing or even time spent discussing.


Recently I got my portfolio appraised at around $700,000; I transferred them as an asset to my Limited company from my Directors account. (Then were hit with a massive capital gains tax bill) note that you could be liable for capital gains even if not a limited company... (Speaking from UK regulations)


Domains are viewed like real estate and stocks/shares, therefore you should have them appraised regularly, as the prices can rise and fall with current market trends. There is also the issue of your brand's extension licensing potential, you should check out Goldmarks as domain names can also come under intellectual property law. Your domain could use a unique word or phrase that could potentially have a market value and should therefore be licensed accordingly.


Anything you buy to make a profit on is deemed taxable; failure to declare is a criminal offence.


Anyone who is actively involved in domain speculation should seek financial and legal advice, they should also keep a record of all domain purchases and sales and revenue generated from parked sites and/or advertiser revenue.


Due to the nature of the internet, most people think making a little money on the side is ok, but the reality is that you are running a business that is required to pay tax and in some cases even be covered by employee liability insurance.


The fact is that being aware of the law and financial obligations can protect you, and if you were to be sued by a company claiming infringement or even attempt to reverse cyber squat one of your domains, you can right off the costs through tax if you were to lose. You are also able to take out insurance to cover the cost of any legal action against you.


Ok this all sounds a little daunting, but its worth thinking about. Its not that difficult really and has many interesting benefits for instance if you are the sole shareholder of your company your net worth will be reflected against your companies assets.


On paper I could be potentially worth $1 Million.. now tax bills aside that does bring a smile to my face J

[namewaiter]

i really don't understand why you would value your domains on an appraisal value??? if you get it appraised from 10 different people/sites/companies, you'll have 10 different appraised values.

but if you have 100 domains that you registered for $8 each and a few that you paid more for from resellers... then your assets would have an actual value of @$900 not an inflated rate of let's say $20,000 from an appraiser. why in the world would you value them higher ... just to pay more in taxes?

fact is we lease these domains and you might drop some next year ... is this a loss of income since they were appriased higher?

too many issues when it comes to domaining and taxes!

[namestrands]

You should only pay the taxes on sold domains. I would suggest you get some professional Financial advice.

As you say if you purchase a domain for $8 and then later let it drop you can offset that loss against the tax of a domain you sell for $8000..

You could of course value your portfolio on purchase value of the domains, but the fact is that their are many variables that can affect the value of a domain. For instance you insure your company assets at purchase value. Now what would happen if the domain was stolen from you and it turns out that you were negotiating an offer of $20,000..

Would you take the risk, of your insurance company saying "sorry its only valued at $8" so no legal fees covered for the long court case trying to get back the domain, not to mention the stress and loss of time.

You should also consider the time you spend marketing the domain for sale.

Another point would be, if your domain cost you $8 and earns you $800 while parked or similar.. how much would you value that domain at?

However if you want to buy domains, and then just put them under your mattress and hope that someone comes across and decides they want it. Then I would say yes value your domain at cost price. Otherwise ask yourself how much is it worth?

if the domain is making you nothing then you can value at on depreciation and then right off the cost..

[fatter]

value of the domain doesnt come into play until it is sold in the USA, while income is taxable IE:parking you can offset that with reg fees, and if your reg fees are more than income you must claim a loss on taxes, and depending on how much income is at risk will determine if you can lower your total tax bill, for most of us this is a sideline so loss only comes off income on domains.

[draqon]

ok, most people who claim to have a million dollar portfolio are full of crap. what names of yours are contributing to this so-called seven figure net worth?