Time for Domain Name Owners — It’s Tax

Domain names are uncharted territory for the U.S. Internal Revenue Service (IRS).

Tax time creates headaches for domain name owners, especially those with sizable portfolios. Sure, we know we need to note parking income on our tax returns, but how do we account for purchases, registrations, and sales? If you ask your CPA you’ll probably get a blank stare.

CPA Sandra K. Brooks has released a fresh guide called “The Domain Tax Guide, 2007 Edition”. I just finished reviewing the guide and recommend it without hesitation. Here’s what the guide covers:

1. Domain names are uncharted territory for the IRS. Brooks was only able to find one reference to domain names by the IRS. This leaves a lot to interpretation.
2. What are the various ways to organize your domain name business, such as corporation or limited liability firm? What are the benefits of each?
3. Domains can be classified as capital assets or business assets, and there are various tax consequences for this.
4. How you do your taxes depends on if you’re a domain dealer or domain marketer/developer.
5. How to account for domain registration fees, and how this is different from domain purchase fees.
6. What the “useful” life of a domain name is and why this is notable.
7. Which deductions, such as home office deductions, you can take if you are in the domain name business.

I found the guide easy to read despite being written by an accountant. Many accountants have difficulty writing regarding taxes in a way we can all understand. (Full disclosure: I have a degree in finance, but I still think you don’t need to understand numbers to think this guide is easy to understand).

The Domain Tax Guide can be purchased online for $79.00. This seems like a fair price to me. Heck, that’s less than my accountant charges for an hour of his time.