Well hopefully by now you’ve filed your 2012 United States tax return; time to prepare for next year! Have you talked to your accountant about the different tax benefits that domain owners have?
Since domains are relatively new in the realm of taxation, there isn’t much precedent to gauge each and every situation that may occur. Yet at the moment, there are several ways to incorporate domain purchases and ongoing renewals into your U.S. tax return, depending on how you use them (we here at Media Options aren’t accountants or lawyers, so make sure to speak to the appropriate party to determine what’s right for your business).
The IRS can consider domain names as either capital costs, or as ongoing business expenses. If you purchase an existing domain–as you would through a domain broker like Media Options–and you proceed to invest in branding and development using the domain name, then the domain becomes part of your business benefit and could be amortized over time. If you register new domains for ancillary purposes, such as to forward to your main domain, you have the opportunity to write off the full purchase as a recurring business expense. Make sure to keep your purchase receipts so that your accountant will have solid evidence of your purchase price and development costs.
If you make a business of domaining, then your domains could be taxed in a different manner, since you buy and sell them more frequently than the average business; it may benefit you to treat them as any other goods bought and sold by a business. If you have a large portfolio, then the domains are also considered assets. Confusing? Not if you do your homework! Again, check with your accountant to see if this option applies to you.
And remember another benefit of owning domains: if your venture takes a different direction and you decide to sell your domain assets, that you may actually make a profit when you resell the domain despite amortizing it on previous tax returns. Remember to consider contacting a domain broker for possible existing domains that may suit your needs. We are always here to help!