Tax question: what categorie are domains?

[burnsinternet]

Originally Posted by touchring

For simplicity, just charge it as an expense, and if you sell, charge it as pure profit. Money out -> expense. Money in -> profit.

Agreed. Easy to track. No headaches.

[burnsinternet]

Originally Posted by mdw

Great perspective Drew, but there is really no right or wrong. There are very specific guidelines for real estate, but those do not apply to domain names. Any rational and consistent strategy is "OK" until and unless the time comes when domain names are dealt with explicitly in the tax code.

As for your one-time acquisition cost philosophy it makes perfect sense. But in my case, and in the case of many others this is just not the best way to look at it. I have substantial ongoing costs to "develop" and "improve" these domains by building and maintaining functioning websites. It therefore not only makes sense to depreciate, but to revise the depreciation schedules if the value of the domain is substantially increased by building a website.

As long as it is legal, go for it. Too complicated for me. I am lazy.

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[Rubber Duck]

Bottom line is profits are going to be so massive, you are not going to have much to offset. It might seem like a lot now but it won't then.

What is important is the rate at which taxed and your ability to defer taxation. That will almost always be better dealt with within a limited company.

[burnsinternet]

Originally Posted by Rubber Duck

Bottom line is profits are going to be so massive, you are not going to have much to offset. It might seem like a lot now but it won't then.

What is important is the rate at which taxed and your ability to defer taxation. That will almost always be better dealt with within a limited company.

When that time comes, we will definitely need a Legal or Tax Advice section of the forum. Members only?

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[Rubber Duck]

Originally Posted by burnsinternet

When that time comes, we will definitely need a Legal or Tax Advice section of the forum. Members only?

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May be but not on here.

[Drewbert]

When the time comes, you get that info from a professional tax accountant/advisor, not from a bunch of tossers on a forum.

[bwhhisc]

Originally Posted by Drewbert

When the time comes, you get that info from a professional, not from a bunch of tossers on a forum.

Does that apply to world economic predictions as well?

[scotty]

“The annual fee payable for a domain is a lease charge for your right to operate that domain for a year. Any amount paid over and above that to acquire a name would be a lease acquisition expense paid to the current owner of the lease. Like paying someone to vacate their store in a mall and allowing you to take over the lease.

Items are usually depreciated because they wear out, or become obsolete.”

This is more conjecture than fact but here goes anyway:

I think Drew's right in his analysis of a domain reg fee or purchase price being equivalent to a lease payment or acquisition cost.

However, I disagree that a lease acquisition cost is an expense to be offset against income in year 1. Only if you held the lease for less than a year would it be a year 1 expense. If you held the lease over 5 years, I would argue that the useful life the lease is 5 years so you should depreciate the cost over 5 years.

Items are usually depreciated not because they wear out or become obsolete but because their useful life is more than a year and so their cost should be spread out over their life.

Typically, tax law says if something you pay for has a useful life of a year or less, it’s a first year expense, and if more than a year, it’s a capital asset. You offset the full price of the former in the first year as an expense and depreciate the latter over the useful life of the asset. In effect, you're always correlating expenses for tax purposes with the amount the business theoretically paid out for item in the current tax year.

Then we move on to the sale of those items. If you're in the business of buying and selling the item in question, then you bought it as inventory and when you sell it the sales price is income. If you're not in the business of buying and selling the item in question then the proceeds of the sale over and above its (depreciated) cost is a capital gain (or loss if the sale amount is lower than the cost).

So for most domainers, I think annual reg fees are expenses but purchases from another registrant should be depreciated over the period you will hold the domain (or 5 or 10 years since you probably don't know how long you'll hold it).

Sales income and parking income is business income since and regular costs such as hosting are year 1 expenses. Expenses on websites that you develop are probably year 1 expenses too since you'll probably do a signigicantly new site in a not very long period of time anyway.

[Drewbert]

Originally Posted by bwhhisc

Does that apply to world economic predictions as well?

Well, I could show you a long list of "professional" financial advisors who have appeared on TV and in print over the last year who have got it completely wrong, and still continue to peddle lies.

Same with those Iraq War fans who predicted rose petals, freedom and victory in 6 days, 6 weeks, 6 months - they still get column inches and air time too.

The ones who get anything as wrong as those guys have should be made to STFU and sit it out, especially since they won't apologise for their costly errors. The ones who DID get it right are still treated like lepers. It's a crazy mixed up world.

Good post Scotty.

[bwhhisc]

Originally Posted by Drewbert

It's a crazy mixed up world.

Thats a true statement, and no fix on the horizon.
Regarding Scotty's post, the only difference is that the domain names have a real value, hopefully quite a bit
more than the reg fee. So while your are "renting" them, they have some liquidity and cash value at the same time.