Domain Tax Tip

I should preface this post by saying I am not anything close to a tax expert, and in fact, I received a D in Financial Accounting in college (granted I was pledging a fraternity). Nevertheless, I want to talk about taxes with regards to your domain business. I know it’s barely September, but if there are things you can do to lessen your tax burden before the end of the fiscal year, now is the time to do it.
The tax problem I generally have with my business is that I frequently spend quite a bit on acquisitions after a big domain sale, and taxes are an after thought.   For example, after selling a domain name for $80,000 and making a $40,000 profit, I am often inclined to go out and buy a $70,000 domain name.   However, assuming a 35% tax rate (state and federal combined), I would owe the government $14,000, leaving me with $66,000.   Since taxes aren’t taken out at the time of the sale, I might feel safe spending $70,000, but if I develop the new name, I have to come up with the extra $4,000.
That said, there are ways to lessen your tax burden by spending money on expenses such as new computer equipment, office upgrades, web development, research, self-employment pension plan contributions… etc. All of those with the exception of the SEP contribution are things that need to be considered before the end of the year.   It doesn’t make sense to go out and spend a boatload of money in the middle of December simply to lessen your tax burden.   You will end up with lower quality things since you are essentially spending to spend.
My best piece of tax advice is to speak with a professional accountant. While an accountant may not know the ins and outs of your domain business, he should be able to understand the jist. Regardless of his experience with a domain-related business, your accountant can give you general business tax advice, including how to lessen your tax burden.
Again, I am not a tax expert, but I believe now is the time of year to have a conversation with your accountant to show him how you’ve done so far and see how you can run your business more efficiently.   As your business grows, you will want to meet with him more often, but at the very least, a once annual check-up is smart (aside from when he is doing your taxes). Also, now is a good time to teach him about your domain business, as he will have more time to learn now than in March or April.

Elliot Silver
Elliot Silver
About The Author: Elliot Silver is an Internet entrepreneur and publisher of Elliot is also the founder and President of Top Notch Domains, LLC, a company that has closed eight figures in deals. Please read the Terms of Use page for additional information about the publisher, website comment policy, disclosures, and conflicts of interest. Reach out to Elliot: Twitter | Facebook | LinkedIn


  1. Many thanks for a reminder of a domaining reality check come April 15th…BTW, the only “D” I ever …ehhmm… earned was in intro to finance as well (Marketing was/is just so much more enjoyable!)

  2. Actually I bet a lot of people are working on corp taxes right now if they filed extensions they are due Sept 15.
    Btw the computer expense probably would be amortized no ?
    It’s not a major expense but you could also add renewal years to your names a few extra years out . . . especially now since the price goes up at the end of the month.

  3. i’m curious to hear how most domainers handle acquisition/renewal fees – do they expense as incurred or capitalize and amortize over a fixed # of years?
    full disclosure: i am a cpa but far from a tax expert – my “d” came in physics – i had to choose a science – what an epic disaster.

  4. this is common in real estate: like kind (1031) exchange
    you can defer taxes when exchanging substantially similar property – i would think domains would qualify – however, refer to previous post (i’m **not** a tax expert)

  5. Elliot – this post really caught my eye considering that my wife is a CPA. Before we got married she said that I had to get my domain and online businesses consolidated before she’d file jointly, because her CPA status depended on correctly filing taxes!
    Our solution was to roll all online activities into a business, this means, all domain buy/sell activities, all development of sites, all income, and low and behold…all “business expenses”.
    This works well, because you can plan out your expenses and keep tabs on assets/liabilities so that you only have to pay taxes on your NET income at the end of the year.

  6. I’m not an accountant, but I have some basic knowledge of this.
    If you are a domain monetizer, you can amortize (kind of like depreciation) the domains over a 5 year period. For the occasional sale, you can pay 15% capital gains tax plus state cap gains tax for long-term holds (more than 1 year). If you are a domain monetizer and have a sub s corp (in US), you don’t have to pay self-employment taxes on the parking revs (but would if you are a sole-proprietor or in some cases an LLC).
    If you are domain flipper, you have to count the domains as inventory and pay the regular tax rates.
    If the domain is an asset that is a built out website and a big part of the intellectual property, these are amortized over 15 years.
    If you sell an expensive domain and plan on reinvesting the money, you can do a 1031 tax exchange. While most people use this for real estate (in the physical sense), I have ran it up the flag pole and the attorneys have indicated that it can also be used for domains.

  7. Lance got it right. Sandy Brooks is the foremost domainer tax expert in this area, as an accomplished and recognized CPA, and owner of several hundred premium domains along with her husband, Darryl. She owns and understands domain investing.
    I recommend every domainer to get a copy of her ebook and give it to their accountant at tax time. I’ve know her personally for 30 years, and I trust her with my taxes. I wish I had my clickbank link right now, but Elliot probably wouldn’t let me drop it in this comment!

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