Selling a website...tax implications?

[dougdo]

Someone of you who may have been visitors to my previous website TravelBlogs.com may have noticed there's been little activity in the last 7 months. That's because I sold it this summer to a couple of Norwegians who are taking their time redesigning it for their own platform (and just taking in the ad revenue in the meantime).

But my question is this: How do I declare the $ I got for the website? I'm hoping this counts as a capital gain rather than regular income. If so, what do I count as the basis for the asset? The $8 I paid to register it back in 2001 or do I count it as selling a business (which is true, it was a lot more than a pretty domain, I put a lot of work into it over the years) and if so does that still count as a capital gain and what do I use as the basis?

I have to file both US and Canadian taxes so advice appreciated from either side of the 49th. And I usually do it all myself.

And if I end up selling my new websites (below in my signature) should I be doing anything different now to prepare for that?

Thanks all!

[wabmester]

What a great question.

I've sold a few domain names, and I've always just treated them as sales of business assets. Regular business income.

But I've also sold businesses that included domain names as part of their assets. Capital gains.

So, you could probably go either way. I doubt the IRS would fight you (maybe Martha can find a ruling). My personal test would be something like "was it an income producing asset?" If so, then it was a business sale subject to capital gains.

You could always ask a CPA too.

[CybrMike]

Not sure how much the sale was for, but I'd talk to an accountant. Can get very hairy. Depends on how long you owned the asset, you have to take into account the revenue that you earned for the year up until you sold it, pay ordinary income on that, and then if you owned the asset long enough, you might be able to count it as cap gains.

[ESRBob]

Doug,
Were you filing business income returns on the earnings and expenses of the site over the years? Or was it an unregistered sole proprietorship where the cash just kinda got stuffed in your checking account. (you don't have to tell us if the latter!) But if the latter, then this could be the time to come clean with everything and you'd need a good accountant. If the former, it should be a pretty straightforward capital gain-incurring sale of a business or chunk of a business so assuming you've had it for awhile (I think you have) it should be easy enough -- still worth an hour of a CPA's time, though! I've done Canadian taxes for an income generating property we owned (and recently sold, whew!) up there and I wouldn't want to face that gauntlet alone -- the Receiver General will getcha!

[dougdo]

Thanks for the replies. Yeah, i was indeed declaring the income and expenses from it over the years. I had the domain for 5 years before selling it and actively ran it as a business for 2 years so it does sound like I can declare the cap gain.

I think I will take the advice proffered and talk to an account though!

Thanks much.
Doug.