Three tax changes U.S. domain investors ought to be aware of
A change to 1099s, charitable deductions, and how PPP loans are taxed.
2020 has been a strange year, and there are some tax law changes to be aware of.
First up is a change to 1099-MISC forms. In previous years, firms would issue Form 1099-MISC to note nonemployee compensation. I issued this form to my web developer, freelance writers, etc. Domain investors receive these from parking firms, affiliate networks, etc.
Starting with tax year 2020 this nonemployee compensation will now be noted on form 1099-NEC. There’s nothing particularly complex regarding this form, but it is different from last year.
I recommend using Track1099 to issue these forms easily. They must be issued in January.
1099-NEC forms don’t have to be issued to corporations, so you can save yourself the headache of receiving a bunch of 1099s each year if you elect S-Corp status for your business. Of course, then you have to file a corporate tax return. So it’s not the main reason to elect S-Corp status but is a nice side benefit.
Next up is a little bit of a bonus around deductions.
The tax overhaul a few years ago changed the standard deduction. It limited how much you can deduct for State and Local Tax (SALT) to $10,000. It also limited mortgage interest deduction to a $750,000 mortgage. Most importantly, the standard deduction was hiked significantly. This year it’s $24,800 for a married couple filing jointly.
The higher standard deduction and limits on SALT and mortgage interest deductions means that more people are just taking the standard deduction.
This has been very bad for charities. Donations don’t go as far when the donor can’t deduct them. Charities have noted a drop in donations. Add this to the general pain and added need of services right now due to the pandemic, and it’s not pretty.
But the U.S. government threw a modest gift in this year since of Covid. Taxpayers can deduct up to $300 of cash charitable contributions even if they take the standard deduction. It’s not a lot of money, but it’s something. There are some great domainer-supported organizations like Water School. Also, consider giving to non-profits that run some of the websites that domain investors use such as the Wayback Machine and Wikipedia. These two sites accept tiny donations and will be grateful for even a $10 or $20 donation.
One tax strategy to consider if you usually take the standard deduction is to bunch your donations into a single year. You can set up a donor-advised fund to make one sizable donation and then disburse these funds to charities over time. This year I donated appreciated stock to my donor-advised fund; this allows you to deduct the stock’s value and not pay capital gains on the appreciation.
Finally, for those domain investors and firms who got a PPP loan this year (there are many of you), keep a close eye on Congress over the next few months. As of right now, any PPP loan that will likely be forgiven results in a commiserate reduction in expenses for your firm. So if you got a $25,000 PPP loan, you’re going to end up paying taxes on $25,000 since the expenses the loan was to cover will no longer be deductible. There’s talk that Congress will pass a law to change this ahead of taxes are due in April. But you never know.
