Tax Question: Capital Gains or Profit?

[Domain.BUZZ]

Hey everyone.

I'm just now getting my feet wet with domaining, and I have a question.

Consider this scenario: you hand reg a domain for $8, then sell it later for $1,000.

In the USA, how does the IRS treat the $992? Is it a capital gain, or is it a profit?

Also, just curious... how does the Canadian government treat it? The UK? Australia?

Thanks.

-Tim

 

[Gerry]

US, its capital gains.

Unless you don't claim it.

 

[Theo]

Hold for a year or more, and it's taxed as capital gains.
Hold for less than a year, and it's regular income.

 

[BiggieBiggie is verified member.]

Hey everyone.

I'm just now getting my feet wet with domaining, and I have a question.

Consider this scenario: you hand reg a domain for $8, then sell it later for $1,000.

In the USA, how does the IRS treat the $992? Is it a capital gain, or is it a profit?

Also, just curious... how does the Canadian government treat it? The UK? Australia?

Thanks.

-Tim

Hi


actually, depends on your total income

this is for usa:

if you have no other income and make $992, then there is no tax, because it's below the reportable amount


if you have other income and you make $992 and whomever you sell it to, does not file a w9... then there is no income to report.


if domains are your only source of income or even if you have additional source of income, then acquisitions can be inventory and their sale, can be "sale of inventory"
those acquistions are treated as expenses, as well as the renewal fee's

the difference between your expenses and profit, is taxable amount
you may also be liable for paying "self-employment" taxes.
but you can also take deductions for "internet/computer/home office, supplies, etc.' as expenses too



disclaimer: i ain't no expert, so consult a professional accountant, just telling of options i know.

 

[Domain.BUZZ]

Wow. I'm gonna need a good accountant!

Thanks so much for the replies. I'm loving DNforum...

 

[chipmeade]

To qualify as a capital gain it needs to be classified as an investment rather than a working asset/inventory. Need to be careful how you classify because you will then have to be consistent throughout. It is most likely income. Just because you have held onto it for x period of time doesn't make it a capital gain.

 

[BiggieBiggie is verified member.]

be careful how you classify because you will then have to be consistent throughout.

i think that is the most important factor, no matter how you file your taxes.

 

[Raider]

Hold for a year or more, and it's taxed as capital gains.
Hold for less than a year, and it's regular income.

Correct

The one thing I like best about Forums is that another poster can correct another who's not so correct.

actually, depends on your total income

Yes, For the self-employed, earnings of $400.00 or more need to be claimed.

 

[Theo]

I forgot to add the disclaimer about not providing legal advice.

The bottom line: consult with a CPA.

 

[Raider]

Consider this scenario: you hand reg a domain for $8, then sell it later for $1,000.

In the USA, how does the IRS treat the $992? Is it a capital gain, or is it a profit?

This might be helpful;

http://www.irs.gov/Individuals/Do-You-Need-to-File-a-Federal-Income-Tax-Return?-

And I'm sure you can find other information in reference to your capital gains question.

BTW, The Capital Gains tax will be increasing in 2013 to help pay for our "Free" Health Care.
http://www.washingtonpost.com/blogs...arply-in-2013/2012/01/25/gIQAtQUuQQ_blog.html

 

[Domain.BUZZ]

Awesome. Thanks, everyone.

Looks like I need to keep really good records hire a good CPA...

 

[clipper]

To qualify as a capital gain it needs to be classified as an investment rather than a working asset/inventory. Need to be careful how you classify because you will then have to be consistent throughout. It is most likely income. Just because you have held onto it for x period of time doesn't make it a capital gain.

This is partially correct according to my accountant.

The domain must be classified not as inventory but as an asset, in order to reap the capital gains rate.

The drawback of this is that a domain is an asset which is intangible, so it cannot be "written off," but must be amortized over a number of years (as opposed to tangible assets, like machinery, which can be written off or depreciated; or inventory, which is written off).