Domain names are used by businesses, big or small, as the starting and ending points of their brands. In the old days, a corporate identity consisted of a range of marks, typically promoted in print, TV, and radio, and was flanked by phone and fax numbers. If you're really old, you will also remember telex numbers!
These days, domain names are the primary point of contact, as they provide brand recognition, a corporate destination, and expand on the auxiliary communication channels: email addresses, chat boxes, and social media accounts.
In a nutshell, domains are the brains of a corporate identity, and its heart too. They are truly very important, and a good domain name can be costly to acquire in the secondary market.
Very often, as domain aftermarket data show, savvy companies make the exciting decision to move forward with the acquisition of a domain name. They have to come up with a budget and spend the money wisely, on a domain name—or, domain names—that will then be recorded as an expense.
Domain names are "intangible assets." You can't touch them, they exist as electronic recordings at a registry, and are maintained by being renewed on a regular basis.
Spending a few thousand dollars, to millions even for a domain name, is a decision that arrives with a lot of planning, and following that acquisition, the fun begins. One thing to consider is that spending a considerable amount of money to acquire domain names is not something that gets written off in the present time.
In other words, for accounting purposes, if you spend $15,000 dollars on your new .com that dresses up your brand and company, that amount of money cannot be written off as an expense at the end of the year. At least, not in the US, where .com is king, and domain names are important to own as part of the branding strategy.
For accounting and tax purposes, domain acquisition costs are amortized expenses, that are spread over time. So what is asset amortization?
Amortization is similar to asset depreciation, but focuses on the costs of intangible assets, allowing businesses to expend the cost of intangible assets such as domain names over time. By definition, intangible assets are non-physical assets that are anticipated to sustain their value for a business for longer than a year.
How does amortization occur?
The most common method to amortize is by dividing the cost of an intangible asset by the number of years you'd expect it to provide value to your business. For domain names, that's indefinite. Although you have to renew domain names annually, and that cost is an annual expense, the acquisition cost is not. In 2015, the IRS determined that a domain name's acquisition cost is supposed to be amortized over a 15 year period.
This brings our example of $15,000 dollar domain acquisition used as a corporate brand, to an amortized expense of $1,000 dollars over the next 15 years. However, if the domain name itself is accompanied by the acquisition of other assets, tangible or intangible, more crafty accounting is needed. Always consult with a CPA to determine the exact requirements for your locale and business functions.
Conclusion: Domain name acquisition costs are expenses made towards intangible objects. They are valid business expenses, but their cost must be amortized in the US and other countries, unlike the cost of domains acquired in order to resell (domain investments.) As a business owner and taxpayer acquiring domain names for use in trade or business, you must consult your tax advisor, in order to determine the appropriate treatment of such costs for tax purposes. This article provides general information and is not to be considered tax or legal advice.