Sunday , June 4 2023

Domain investors should prepare now for tax season

After a wild year, it’s going to be a wild tax season.

Picture of a women with a calculator calculating her taxes

The end of the year is quickly approaching, and this means it is time for domain investors to make last-minute maneuvers before their numbers are locked in for tax purposes.

Income taxes vary from jurisdiction to jurisdiction, so I mostly write about U.S. Federal taxes. There’s debate about how domain trading should be taxed, and it probably depends on what type of domain investor you are.

The U.S. government has been much clearer about how cryptocurrencies are taxed because of how much attention they are getting. If you bought 25 ether for a total of $50,000 and then spent those 25 ether on a bored ape when ether traded for twice as much, you just booked a tax gain of $50,000 when you bought the NFT. Ditto if you spent cryptocurrency on a domain. The IRS has been clear that spending cryptocurrency is a taxable event.

It’s been a good year for many domain investors, both in domains and NFTs/crypto, which means their tax bill might be bigger than last year.

I recommend running a complete P&L this month to figure out where you stand, tidy up any expenses, and set aside money to pay your tax bill in April.

You might consider making end-of-year purchases if you’ve had a good year. Here are a dozen common domain investor expenses you might be able to deduct. Use a computer for domain investing? Maybe you should upgrade before the end of the year. You might also run through your portfolio and complete renewals by then.

If it hasn’t been a great year, it probably makes sense to postpone these expenses until next year.

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About Andrew Allemann

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