Tax Write Off on a $550k Domain?

[tomceo]

Hi all,

We've recently purchased a domain name (undeveloped or making money) for $550,000 USD. My business is located in the USA.

The question I have is how to write off/expense this domain. I have consulted with various Tax consultants but they are not familiar with the "domaining" business and to be honest, neither am I when it comes to taxes.

Let's say my company makes a couple million a year and we wrote the domain off as an expense. Just for example: 2mm for net revenues and $550k domain cost = taxable income of 1$,450,000. This makes sense to me.

Where I'm getting confused is some information and suggestions I've gotten are to amoritize the cost of $550,000 over a period of 30 years!!! To me this makes absolutely no sense. I understand what part of the tax code this is coming from but really?

Under this, let's say you had a not so good year but were in acquisition mode. You made $600,000 in net income but had a $700,000 in domain purchases. That would mean you not only netted -$100,000 but had to pay taxes on your $600,000 income?

I am completely lost, any help or links to articles would be awesome!

TY,

TOM

 

[ukbackorder]

Not sure how it works there but over here you are only taxed on your profit. Provided you can provide evidence of a domain purchase, and your business is internet related, the price is deducted from your turnover before determining taxation. I would have thought it the same in US too. Will be interesting to hear from someone in that industry in your region.

 

[Dotmainer.com]

(I'm not lawyer or tax accountant/and not from usa)

1. Your question is "Are domain names assets or expenses".

Answer: I can't find final answer. This area is so new that there are to few decesions.

What i have found quick:
http://www.taxalmanac.org/index.php/Discussion:Domain_names_-_how_to_treat_them.

--> some of comments:
"Flipping Domains: Inventory Cost of a Domain: Other Business Expense (I tell my clients to either classify it as a IT EXPENSE or MARKETING if they write their web maintenance there as well).
Domain as a Acquisition: Usually as part of an asset that costs 1000x more than the cost of the registration fee, Amortize. "


Maybe you can find tax accountant there or knowing what to ask help ;-)





--

 

[Johnn]

Try to find a Domain CPA. The situation is complex depending on what would you do with the name.
Here are some good articles:
When discussing the tax implications of domaining, the first question that is often asked is, “Are domain names property?” Yes, domains are property. Not only have they continually been proven to be property, they should be considered assets. An asset is anything with economic value. The domain name business would not be the successful, growing industry that it is today if domains had no economic value.

Since there is no question that domain names are assets, the next question is what type of assets are they? There has been much speculation about this, and very little guidance from the tax authorities. I believe the type of asset depends on the nature of your domaining business. Domainers can be broken down into three categories:

The first type of domainer is a Domain Developer. You are a domain developer if you build out your domains into e-commerce businesses. Your domains should be considered intellectual property, similar to trademarks, and subject to amortization over fifteen years.

The second type of domainer is a Domain Dealer. If you buy domains with the intention of quickly flipping them for a profit, then you are a domain dealer. Your domains could be considered inventory and expensed as cost of goods sold.

The third type of domainer is a Domain Monetizer, which probably applies to most who consider themselves in the domain business. This occurs when you build a domain portfolio in order to monetize the traffic. In this case, I would consider your domains business assets. Like equipment, your domain names are tools used in the production of revenue and should be depreciated.

These different classifications of domain names each have their own advantages and disadvantages upon the purchase and sale of the domains. How quickly you can write off an expensive domain purchase can have a huge impact on your taxes. Likewise, whether a large domain sale is considered capital gains or ordinary income results in a great difference on your tax bill. There is relatively no IRS guidance on how to classify, report and expense domain names. Research, advanced planning and documentation will help you minimize taxes and maximize your business’ value.

Source: http://domainnamewire.com/2008/02/26/the-irs-cares-what-type-of-domainer-you-are/

 

[Onward]

I bought this for my accountant...

domaintaxguide.com

 

[dn-101]

Domain acquisition is no different from any investment class securities or real estate. You can treat it as a capital investment. As long as you're consistent year after year.
I also think you're full of sh!t and lying through your teeth. Any business generating 2mil in revenue has a knowledgeable accountant.

 

[Dotmainer.com]

^ I wouldn't say it that hard, but it's a bit confusing ... paying 500 000$ and not having someone who can handle this. At least your lawyer / tax accountant should know who to ask.

On other side this topic/question is interesting for others too.

 

[tomceo]

Hi John, ty this part below is what my CPA came up with, I just wanted to get confirmation that it was indeed true thus why I was asking other consultants. I still find it odd that on a domain forum, nobody knows how THEY treat the purchase of domains.

The first type of domainer is a Domain Developer. You are a domain developer if you build out your domains into e-commerce businesses. Your domains should be considered intellectual property, similar to trademarks, and subject to amortization over fifteen years.

Dn-101 - I do have a knowledgable accountant, but the purchase of domains is not something he deals with everyday and he wanted me to seek more advice. You can "think" what you want, but normally I don't spend Sunday nights asking questions about taxes on a domain forum just for fun....

 

[WeBuyThe.Com]

Tom,

When we hired our CPA we insisted he read and abide by the domain tax guide. It's a $79 PDF which reads quickly and easily.
http://domaintaxguide.com We are not affiliated with or endorsed by the author, just passing over some good information.
If you aren't in the business and plan on just building one site out it would make sense to use the 15 yr depreciation model
but I'm no accountant.

If you are in the market for buying or selling we can certainly help there~

Good Luck

 

[Onward]

I bought this for my accountant...

domaintaxguide.com

I still find it odd that on a domain forum, nobody knows how THEY treat the purchase of domains.

I know exactly how I treat them.

Spend the $79 on domaintaxguide.com and you & your accountant will too - Did you go to the site?

 

[tomceo]

Hi onward and webuythe.com thanks for the suggestion. I will ship it over to my cpa to read. Didn't look at it at first, but after looking at it now seems to be exactly what we need.

---------- Post added at 11:34 PM ---------- Previous post was at 11:30 PM ----------

One quick question on the ebook, is it IP blocked. IE: Can I buy it and send the pdf to him via email or is it IP based. Haven't read an ebook in awhile so forget the rules but seems like it says you can "arm" you cpa with the info so you can send it to him/her.

 

[Deleted member 111831]

...Any business generating 2mil in revenue has a knowledgeable accountant.

This is not accurate, particularly when it comes to internet businesses.

I know people who do more revenue than that who haven't even registered their business, much less hired an accountant.

Is that wise? Of course not. But is your statement accurate? Absolutely not.

 

[mjnels]

I also think you're full of sh!t and lying through your teeth. Any business generating 2mil in revenue has a knowledgeable accountant.

ah good ol' dn-101 our resident domain millionaire..

 

[dn-101]

Oh yes,
everybody needs an input from the mobi guy who trades $1 domains. Not.

 

[mjnels]

let us know when you sell doodle.. whats it been like 5 years trying to sell that gem..

 

[DomainMagnate]

I had a similar problem and my accountant is also clueless about domains, but you guys really just overcomlicate this. Treat domains like you would any other similar business purchase. Say you bought a company, a patent, a house, or some land. Based on your plans towards the domain one of these will make more sense and you can spread the acquisition cost accordingly over a certain time period.

P.S.: very curious to know what that domain is, or at least in what niche? Is it a one word .com?

 

[Gerry]

It a business expense and would be applicable to any rules regarding capital expenditures.

Sounds to me that someone needs to get a new accountant.

 

[adonivideo]

create a cayman island corp

then you owe nothing to the IRS

 

[David G]

create a cayman island corp

then you owe nothing to the IRS

Curious what you mean? Any details about that?

 

[Rockefeller]

Curious what you mean? Any details about that?

I believe he's referring to tax evasion.

The author of the domain tax guide used to be my accountant, she's since joined a large firm and no longer does my taxes, I did purchase the PDF and sent it to a local accountant, but it's really not that hard. I treat all of my revenue as capital gains.