domains and bookeeping questions

[VoxKeysGtr]

Those of you who run this as a business, how do you list domain names in your books? As inventory? As Assets?

Do you use the registration price as value, or the "appraised" value?

Any info is appreciated? Thanks! :cool:

Edit: Just to clarify, these are domains registered for resale or as investments. :cool:

[allan]

I treat them as assets, and use their registered value, but I am not a heavy domain speculator.

[VoxKeysGtr]

Hey Allan,

Do you actually list them as individual assets, ie. per domain, or collectively. Thanks for your help. :cool:

[allan]

Originally posted by VoxKeysGtr
Hey Allan,

Do you actually list them as individual assets, ie. per domain, or collectively. Thanks for your help. :cool:

For tax purposes I list them collectively -- my accountant wouldn't understand the concept of multiple domains --so I don't want to blow his mind :).

[VoxKeysGtr]

Originally posted by allan
For tax purposes I list them collectively -- my accountant wouldn't understand the concept of multiple domains --so I don't want to blow his mind :).

Accountant = :yikes: LOL. I see your point. :D

[beley]

I use the invoices as business expenses to write off, but don't list them as assets. Generally assets are worth enough to depreciate, such as a computer or piece of equipment.

If you are a sole-proprieter there are a lot of things you can write off, pretty much any legitimate business expense.

[iBiz]

hmm, I have always listed domains as inventory and listed the actual price paid. Looks like I have something else to ask my accountant too.

[sprintserve]

Personally I would just expense it off simply cos the value isn't significant.

However should it become significant, what you can do is to assigh a goodwill to the brand. The brand of course includes your domain and such.

For example, Coca Cola books have 1billion assigned as goodwill for their brandname.

This is what I would do. Accounting is all about significance. If it is not significant, a lot of flexibility can be done.

[TurtleBay]

Originally posted by VoxKeysGtr
Accountant = :yikes: LOL. I see your point. :D

Hey - I respectfully disagree. I'm a CPA and I run a web-hosting company...there are accountants who understand this stuff!

John

[VoxKeysGtr]

Originally posted by TurtleBay:

Hey - I respectfully disagree. I'm a CPA and I run a web-hosting company...there are accountants who understand this stuff!

John

Just not his...hehehe :D

[Kawartha]

My accountant and I debated whether domains were assets or not. In the end he was the better poker player! I had argued they were assets and he defined domains as expenses.

...The difference, as he defined, was that since domains are renewed yearly they are expenses. I said that the domains constituted my business...or I wouldn't have a biz, therefore they were assets. (I have a 'ton' of domains.)

The clincher was when he said, "If you claim them as assets you can only write off a portion of your costs...not 100% of your costs. If you claim them as expenses...you can claim 100% of the costs as expenses."

Read 'em & weep!:p:

[MrManager]

Originally posted by Kawartha:

The clincher was when he said, "If you claim them as assets you can only write off a portion of your costs...not 100% of your costs. If you claim them as expenses...you can claim 100% of the costs as expenses."

Read 'em & weep!:p:

Your accountant is right on the money. If I'm not mistaken, when assets are first purchased, their costs are considered business expenses ("When was this 'asset' first placed in service?"), then according to tax law, reported assets typically depreciate over time, raising your tax liability slightly. So, if you had a domain that's been lingering for over a year, your write-off is much less than writing it off completely as a miscellaneous or 'other' business expense.

I initially thought they should be treated as inventory (considering you buy them, maintain an inventory only to sell them at retail), but I wouldn't know how to properly report the renewals fees.

You have a good accountant there. =)

[Binx]

Originally posted by Kawartha:

The clincher was when he said, "If you claim them as assets you can only write off a portion of your costs...not 100% of your costs. If you claim them as expenses...you can claim 100% of the costs as expenses."

Read 'em & weep!:p:

My accountant said them same thing Kawartha. I would definitely take that advice since you can claim the 100% expense. ;)

[Incognito]

As an accountant, I offer the following analysis:

If you purchase them for resale, they are assets/inventory. At any time there market value became less than what you paid, then you would take a reserve against them, expensing the loss of value (Principle of lower of cost or market).

If you purchase them for use and are on an accrual tax basis, then they are prepaid assets and a portion of their cost should be expensed each month. However, the total cost is generally so small that expensing the entire amount would not be troublesome-assuming only paid for one year. If you paid for more than one year, you must treat as prepaid.

If you are on a cash basis and purchase them for use, then the entire amount would be expensed at the time of purchase.

[Kawartha]

Consider the tax implications of purchasing a domain name - not as part of a merger or acquisition, but as a separate transaction. There are basically three options for tax purposes:

1. Treat the purchase as an ordinary and necessary business expense and deduct the expenses in the current year.

2. Treat the domain name as an intangible asset and amortize its purchase cost over its useful life.

3. Treat the domain name as a capital asset (with no determinable useful life) and capitalize its purchase costs.

Ordinary and Necessary Business Expense:
In order to treat the purchase price of a domain name as an ordinary and necessary business expense and deduct it in the current year, the item must be paid or incurred during the taxable year, be connected with carrying on a trade or business, and be both an ordinary and necessary expense. These items were articulated by the United States Supreme Court in its landmark decision in INDOPCO, Inc. v. Comm. The primary question as it applies to the purchase of a domain name would be whether the expense was ordinary or capital.

Because the value of a domain name would be generally assumed to extend beyond the current year in which it was purchased, a company would normally need special circumstances to justify treating the expense as ordinary and deductible in the current year.



...my acountant mentioned about renewals too: I said I had to renew them every year. He said 'then they're expenses.'

my take on Incognito: if you buy domains, park them, then sell them, then there would be a different definition. If they don't sell and you renew, then that's an expense.

Whether 'parked' or 'inventory' amounts to the same thing. Forget about market value becoming less, that's a can of worms. Who could prove what on value on a tax filing. How do you vouch value? Write your expense off. If you sold a domain- capital gain or loss, maybe. Depreciation...if you want I guess.

Nothing written in stone yet! ;)

[browsehosts]

thank god for accountants ( never thought i'd hear myself say that )

[teacounter]

Companies have three options: expense the cost of the domain name, treat it as an intangible asset, or capitalize the cost.

The situation where expensing would be most applicable would be when a company wants to acquire a domain name to retire it, because it represents a competitive threat to the company's own name.

The problem is that domain names are usually registered for two years at a time. A company may want to keep it registered so that no one else can get and use it in the future... so it's not without some doubt about being able to expense it because of lingering potential use.

The worst case would be to have to capitalize the cost... since a company cannot write off the amount unless an event takes place that allows the company to demonstrate that the asset has no more useful life. Capitalization forces companies to keep the cost on its books for a long time.

The middle of the road approach, and the one most likely to be adopted at the state and federal tax levels, is to treat the domain name as an intangible asset and amortize the cost over the name's useful life. The problem is trying to assign a "useful life".

To avoid controversy, a company can list the name as an intangible asset under Section 197 of the tax code and write the cost off over 15 years. By listing under Section 197, the company would have to argue that a domain name is the same as other intangible assets listed under the section, such as trademarks and tradenames.

The states and the IRS are struggling with these concepts. Until some clarifications are made at those levels, any of the three tax treatment options would probably be acceptable provided that the company could make a good case for its particular treatment of those costs.