Domain Names and Taxes: Time to Form Your LLC


It's tax season in the US, and if your domain sales numbers for last year look good, congratulations.

Get ready to pay the appropriate taxes, however, and that's the type of math one should not be doing alone.

Hiring a Certified Public Accountant (CPA) to handle your taxes is a fundamentally smart choice for today's economy. It's also an expense that can be written off⁠—if you make a change in how you handle your domain investments.

"What type of change?" you might be wondering.

Many domain investors simply handle domains as a side part of their main business, potentially throwing thousands of dollars in the wind. I get it, some don't know how to begin this new approach to smart domain investing and are used to just "flipping" domain names.

Saving money as much as making money can lead to a more successful interaction with the domain investing industry. Think of the savings as a free ticket to one⁠—or multiple⁠—destinations around the world.

So how do you achieve all that?

By forming a separate business entity, preferably a Limited Liability Company (LLC,) that handles your domain sales and acquisitions. While you're at it, ensure you pick a good CPA that will be handling your business tax matters like his own.

What are the benefits of using an LLC for your domain investing business?

Like any other businesssmall or largethat uses this type of business formation, you are benefiting from at least six distinct features of the LLC:

  • Limited Personal Liability: Avoid the pitfalls of operating as a sole proprietor or partner.
  • Less Paperwork: No need to hold annual meetings, you can be a company of one.
  • Tax Advantages: Take advantage of pass-through taxation.
  • Ownership Flexibility: Fewer restrictions on company ownership, unlike other company types.
  • Management Flexibility: No need for a formal structure such as a board of directors.
  • Flexible Profit Distributions: No need for equal distribution of profits, if you have a partner; any ratio can be agreed upon.

And now it's time for the proverbial "cherry on the pie:"

If you read my article on Domain Names and Business, you probably recall that when properly done, domain name acquisitions in the US and several other countries are an amortized expense. This approach applies to domains used for the creation and operation of a distinct business⁠—not for domains acquired solely for investment.

Here's your chance to amortize the acquisition cost of that great domain you've been targeting for so long! If you use it for operating your new LLC that manages domain name sales and acquisitions, you'll be able to write off its cost over a 15 year period⁠—and your CPA will be taking care of the logistics.

You can form an LLC in any state, and some offer advantages such as complete privacy, or low registration, or annual renewal fees. It's advisable, however, to form your limited liability company in your home state, where you conduct your primary business.

Don't forget to ensure that the domain of your choice is suitable as a brand, and not just a great domain. Making these changes in your approach to domain investing, will enable you to focus on sales, organize your strategy, and manage your expenses more efficiently.

Conclusion: Forming a limited liability company will help you protect your domain investments, and enable you to conduct business in an organized, professional manner. It might even give you the opportunity to acquire the domain name of your dreams. Please note that this article provides general information and is not to be considered tax or legal advice.

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