I run a web publishing business. I buy a large number of domains — and occasionally sell one, although not frequently. Some domains are developed into websites, which bring in advertising revenue, while others are "parked," and yet others are on hold with no specific goal in mind, but eventually I would like to have all of them developed.
Advertising is currently my only income, so I am considered self-employed. I have accumulated a sizable portfolio of domains in 3 years, and the tax issues are starting to make me nervous.
There is virtually no guidance from the IRS on how to treat domains, so I have been on my own for the past 3 years, scavenging webmaster forums for information. Most CPAs I know are not equipped to assist with these issues. From what I have gathered, the main issue with owning domains is to decide whether to treat them as assets or expenses.
I have chosen from the beginning to treat them as assets for two reasons. First, if I end up selling one of them for a significant profit, I will presumably only owe capital gains tax on the profit, as opposed to ordinary income tax on the entire sale price.
Further to that point, I am carrying a large capital loss (several times my annual income) from my stock trading past. With the maximum allowed deduction against regular income being only $3,000 a year, I will never have any tangible tax relief from that loss, and the only way "out" is to produce sizable capital gains.
What I feel uneasy about is the requirement to amortize domains, since they are considered intangible property. The articles I have read are not consistent about how to amortize domains: some say 9 years, others say 15, yet others say you pick the number of years yourself. For me, it would be best to write off these purchases as quickly as possible, because I technically owe quarterly taxes while at the same time paying off loans taken out to buy these assets in the first place. Amortizing over 9 years allows very little to deduct from the gross income, and I have almost nothing left if I pay both Uncle Sam every quarter and my lenders.
What is the best way to lower my short-term tax liability, while still being able to pay only capital gains taxes in case of a future sale?