You Should Keep In Mind The Huge Tax Hikes Coming Next Year When Deciding Whether To Sell Domains

If you make $200K or more there is a huge tax hike coming for next year if you are in the United States.

In the domain business it can only tax one domain name sale to put you over the top into the “rich people” tax bracket.

Its pretty hard to keep politics out of any discussion about taxes but we are going to try to stick to the facts

If your pondering a big sale there are some tax implications you should be aware of:

Starting in 2013, families whose overall income is above $250,000 (individuals with income over $200,000) will pay an additional tax of 3.8% on taxable investment income (e.g., interest, dividends, capital gains, rents, royalties) to pay for the health care reform and the Bush tax breaks also expire.

So with the combination for 2013, the The top tax rate on ordinary income will rise from 35% to 43.4%.

The top tax rate on capital gains will rise from 15% to 23.8%

The top tax rate on dividends will rise from 15% to 43.4%

All and all its a very substantial tax increase percentage wise from 33% to 300%.

Take note that these tax rates will go into effect unless Congress passes a bill to lower the tax rates and the President signs the bill, which is extremely unlikely to happen, so to be clear if there is inaction these new tax rates go into effect on January 1, 2013.

Also you should note that President Obama has is on record wanting to increase the capital gains rates to 30% on those making $1M or more so the tax increases that go into effect in 2013 may go even higher for some.

You should understand that for many domainer the same dollar sale this year is going to be taxed at a much lower rate than if the domain sells next year.

Comments

  1. says

    With 100K names Mike, every moment of your life should be able to be taken as a deduction in pursuit of prospects and JVs. The government should be paying you money with loss carry forwards into the next century.

  2. Michael H. Berkens says

    Owen

    That’s a great theory and I wouldn’t argue with you but since I don’t want to go to jail I think I will pass and just sell a lot this year while rates are low

  3. Josh says

    Between opening prison camps in the US to detain citizens, robbing 80% of your country/pop. of its wealth and tax hikes now too.

    Why do a vast majority of you guys still vote for this guy, oh ya I remember now. HOPE LOL

  4. Michael H. Berkens says

    Brad

    “‘what compelling alternative are the Republicans offering?””

    None

    Like I said its not about politics, its about the numbers and the numbers as far as taxes are going higher

  5. asdf says

    This country is becoming a nightmare in more ways than I can count.

    When Hitler first came to power, a small group of Jews saw the writing on the wall and got the hell out. They endured slings and arrows from their Pollyanna friends who called them paranoid, how there was little to worry about, how certain protections were enshrined and couldn’t be violated, regardless of what this new dictator had written in some stupid book…

    I don’t think America is anywhere near going down that same road, but it is an example of how drastically things can change in a relatively short period of time and how people can find themselves living in a truly awful place, wishing they had acted on their initial impulse, while they still had a chance.

    Of course, “we the people” bear a lot of the blame.
    Perhaps it’s our unique version of capitalism that causes our general apathy towards our fellow man (after all, capitalism requires a certain degree of callousness that we do quite well) but we just treat people like shit in this country. We have more people in prison than any other nation on earth. The Kardashians get better ratings than Presidential Debates.

    Blog post rant over, but I am seriously examining my expatriation options.
    Part of the reason I’m here today to make that decision is because my ancestors did something similar in the 1930’s.

  6. asdf says

    Oh, and none of that rant is related to taxes. Just encroaching fascism in general.

    Heavy taxation is just a symptom of our recent systematic failures. I guess someone’s gotta pay for all those cops, regulatory agents, judges, attorneys and prisons that keep America an ‘exciting’ place to live.

  7. Captain America says

    But an alternative to the current regime’s ways & means is still better… pound for pound… socialism-like policies and laws in America will make it worse — not better….. The Robin Hood (income re-distribution) “style” of taxation is not truely fair or equitable… especially to make up for the fiscal mistakes and wrongful gov spending..ie: Solyndra type stuff and billions in stimulus money misappropriated/mis-spent then evaporated..then putting more onus on the tax paying citizens

    http://washingtonexaminer.com/opinion/2011/09/solyndra-scandal-unraveling-obamas-credibility/118313

    Raising taxes on capital gains so soon (in this delicate financial environment) would be a huge mistake… it can hurt stock market returns and venture capital investment in promising new companies (that can creat jobs) big time…. which in effect would hurt national wealth, pensions and retirement accounts across the board for multiple income brackets as well as decreasing consumer disposable income & spending and economic growth…..could lessen creation of new jobs also… an thus have a double-whammy negative impact on the economy and national stability…. Bottom line it would increase the probability of making America and it’s citizens financially worse rather than better (as proposed by the current regime)…..

    We really need a Presisent with a better foundation in, more experience in & understanding of ——> economics, business and finance…. and certainly “Keeping more jobs in America” as oppsoed to outsourcing out-of-the country so much…….. Not getting political here just addressing Dollars & Sense

  8. asdf says

    I disagree.
    There has never been a more appropriate time in our history for us to be deeply paranoid.
    There is a credible basis for paranoia, right now, in the United States.

  9. OuMun says

    Seriously, if you are one of those who are making $200k and more from the “internet” and you are young, you might consider moving to a lower taxation country for a while. I did. Unluckily, Uncle Sam chases his own citizen wherever they are to pay taxes. So all this applies to non-Americans.

  10. says

    For those that don’t know it. The per capita debt of the great US of A.. is less than the per capita debt of that country at the center of the current global crisis, Greece.

    I think that sums it up. As far as taxes go? No one even knows where the money is let alone what the taxes on made up stuff should be.

  11. says

    Trust me, my accountant is the same one Romney uses. Charitable trusts, donate domains to charity- why do you think he pays 15%- because he was given shares in Dominos pizza as options at zero- they matured to $100 and he donated them at present day value (thanks to Obama, btw as are these big domain sales coming from all sides- recession, harming the economy- bs) you avoid paying the cap gains tax and take a tax deduction of the $120 million gift from your earned income…

    and btw, if Republicans control the Congress even if Obama gets reelected- there will never be a tax hike
    http://www.thedailyshow.com/watch/tue-march-11-2008/grover-norquist

    AS Leona Helmsley said “only little people pay taxes”
    Exxon and GE made $50 billion and paid no tax
    They are not in jail in fact they are consultants to the White House

  12. FX says

    Mike i think you got your #s wrong.
    Pre Bush Era TaxCuts would be the following rates

    the The top tax rate on ordinary income will rise from 35% to 38%.

    The top tax rate on capital gains will rise from 15% to 28%

    The top tax rate on dividends will rise from 15% to 28%

  13. says

    @josh Because the other guy’s like Santorum all in one week came out and said he doesn’t believe in separation of church and state and really doesn’t think its a good goal to try to get all our kids to go to college and would have let the economy crash into a depression rather than have the government intervene 4 years ago.

    BTW- I believe most of the facts support that the stock market has done wildly better under Dems.

    Worrying about taxes is overrated. Worry about making money. I always seem to have enough money when I worry about making money.

  14. Lucas says

    A very interesting post Mike. The tax/legal entity stuff topic is often extremely ignored. Yet it affect us all and is a big question that arises to me when I hear stories of super sales.

    Ok, so you bought something for $8 and sold it for $100,000… and how did u explained it to the treasury so they didnt bite you a big chunk of that?!

    I would really love to hear more often this kind of advice, so that when a domain sale finally comes I already know what to do to avoid problems with the gov. and be able to reinvest the most of it.

    Given your background Mike, when this kind of advice comes from you, it tastes even better :-)

  15. says

    @lucas done correctly and held for a year it becomes taxed as long term capital gain (lower rate) vs ordinary income.

    What you must watch out for and avoid is the irs looking at your business and deciding you are a “dealer” ie your “business” is flipping domains. They do this sometimes to people who flip houses for a living also. It is all treated as business income. They can at this point possibly say all the income is ordinary income tax. I think its rare though.

    Also you can get a big deduction when you buy domains by amortizing the purchase over X years. Usually 5-15. This way a portion of the purchase gets deducted each year off your income tax. (you can’t deduct the entire purchase of a domain in one year which i have heard of people trying to do).

    There was an excellent book someone wrote about 4 years ago about tax treatment of domains. they were selling it in the forums. the guys wife was a cpa and he was a domainer. it was right on the money.

  16. says

    I’ve never much minded paying an increased amount of taxes corresponding to my increases in income, and less in taxes when I earned less.

    The ONE THING I did have a concern with was how those dollars that I contributed, as taxes, were being spent.

    Eduction? Fine. National parks? Fine. Clean air and clean water? Sure. Healthy food, sanitary public facilities, safe streets? Right.

    Spending more on warfare than the next 15+ countries combined? Sorry, no. If warfare is the solution to anything of concern to nations then let the nations help pick up the burden.

    Amazing how a famous U.S. general and U.S. president could see our future.

    The U.S. military-industrial complex. “Grave implications”. “We must guard against . . the military-industrial complex.”

  17. BrianWick says

    “Move with Mike in Cayman Islands”

    You CAN NOT run for hills unless you denounce your US Citizenship – anything suggesting otherwise is Hollywood Lib Glee Club Bull Shit.

    If you own stock in a non-US corporation that retains $10K or more in earnings – you are required, by US LAW, to report that to the IRS – they cannot do anything about it – but your likelihood of audit could increase dramatically – possibly every year.

    Furthermore, if you take salary or dividends from that non-US Corporation you must pay taxes on those proceeds as if you resided in the USA, However, if you live outside of the USA for 11 months or more a year, the first $92K of those non-USA revenues is not taxed by the IRS.

    So the bottom line is vote with your wallet. And as far as any political statement – any safe-haven cap that is being proposed or part of tax code now – $200K, $250K, $1M will only get lower and lower and lower – that is what big government is all about – i.e. bait and switch – and the more people that get on the government payroll – well who is going to vote their dad, mom or other close relative out of a government job ?

    So the bottom line is – just make more money – and pay your taxes – i.e. astronomical inflation is coming soon.

  18. Captain America says

    @ eric rice

    The Tax Book that you allude to is DomainTaxGuide, which was written by Sandar Brooks CPA, I bought it a few years ago and it is very good and thorough…… better that going to many accountants, because many of them are still not learned and savvy with respect to domain tax issues…and sometimes you have to pay extra for their time while they are educating themselves

    As for the stock market doing better under the Dems….. the stock market got stronger After the GOPsters gained control of the House…also what helps is the “still in place” the lower capital gains rate & taxes dividends championed & implemented largely by the GOP… this helps propel the stock market and national wealth

    The Dow Jones stock average hit all time highs under the Bush gang…. the stock market got worse then imploded AFTER the Dems took control of both the House & Senate…. the trajectory of the mortgage & debt crises went a similar path “After” and during the Dems dual control

    One of the other factors separate from the afformentioned favorable tax rates..that the stock market is up is that earnings of “some” companies are up cuz their expenses went down when they laying off and/or cutting employees…..not really a good thing overall…. Unemployment skyrocketed during the current admin more that any Prez in modern day history… even many many steadfast Dems had to finally & significantly show their frustration and dissatisfaction (and rightfully so) about this…..
    ——————————
    http://thenewamerican.com/usnews/politics/9153-81-of-americans-dissatisfied-with-federal-govt

    “an astounding 65 percent of Democrats are now reported dissatisfied”

    http://www.capitolhillblue.com/node/42275

    “Democratic dissatisfaction with President Barack Obama is growing on Capitol Hill.”
    ——————————————————————
    …… the economy & employment scene are still in a notable negative divergence from the stock market gains….but many Dems & biased media will still try and blame much on the ole’ Bush Administration rather than be accountable…. and then again, there’s the disgraceful misspending and waste of huge amounts of economic stimulous money…. think Solyndra……. Hay Caramba !

    Much of the current ra-ra stuff by certain Dems and ” liberal biased media” is not necessarily cuz they feel the current admin is good or adequate… “some” just want to go “Party Line” (team player mode) with thumbs down on the GOP in general in a huge election year

  19. says

    @ Eric Rice

    The book is written not by “Sandar” (sic) Brooks, but “Sandra Brooks, CPA”, who is an expert in the field, but no longer takes private accounts, as far as I know. The ebook is downloadable at the website of the same name. Her husband is a domain investor who has done well but prefers to stay in the background.

    Almost every domain investor in the last 5 years has bought this book to give to their accountant. I recommend anyone who makes over $50k a year on domains to do the same.

    Where we are today financially, all across the board at every level of “financial pain” can be blamed on a stupendously idiotic President named GW BUSH, who allowed “crony capitalism” to flourish for eight years, push us into a war we didn’t need to fight, sucking billions of $$$ out of our economy every month, so we could “get” the guy who GWBush was mad at for trying to kill his daddy. GW forgot about Osama Bin Laden, because the Bin Laden family are personal friends of the Bush family. hey, I didn’t make this up… it’s fact.

    So when you wonder about having to raise taxes, and are whining about paying more, just think of the people a few miles away from you who lost their jobs, their homes, and are truly suffering. Rich people worrying about taxes just proves that point — once you’re rich, you don’t give a shit about “country, freedom, fairness” etc… unless of course, you’re a Hollywood liberal. lol

  20. BrianWick says

    @Mergatroid –
    If I understand correctly even though W inherited all the anti-american planning leading up to 9/1/1 and Obama had nothing to do with the Wall Street Meltdown and economic downturn we should take the Ron Paul stand and just bury our head in the ground like ostridges and hope that any nuclear warheads coming from the middle east can only go as far as another middle eastern country and not europe, usa or any other free land ?

    Whatever ::))

    – but the overwhelming and indisputable issue is this election is everybody will be voting with the wallet – even the Hollywood Libs who are also subject to all the increases 30% capital gains, etc – which is why movie ticket prices will be going up considerably – I mean someone has to pay their extra taxes as well – yes

  21. domain guy says

    sounds like overreacting and nothing really thought out and lame commets following up…
    1. so you sell a domain for big money…and what do you do? contact a comptent tax attorney and structure your payments over time less than 250k per yr..and avoid any additional tax.
    anyone that earns serious money has comptent advisors on board.

  22. Josh says

    @Eric Rice, never said I supported anyone particularly. If anything it would be Ron Paul for two reasons.

    1) He follows the law and believes in true liberty.
    2)He is the only one with the balls to say it as it is. The Fed Reserve is slowly destroying the nation(s) and will as Mr. Paul pointed out yesterday make the paper money worthless.

    There is not one paper currency in HISTORY that hasn’t failed, the USD is approaching such a time imo.

    If anything vote Ron Paul and win or lose the election at least you did what was best for liberty and the economy.

    Sometimes thing should fail!

  23. Anon says

    You CAN NOT run for hills unless you denounce your US Citizenship – anything suggesting otherwise is Hollywood Lib Glee Club Bull Shit.
    ——

    Even that isn’t a guarantee.
    You can renounce your US Citizenship, but since 2008, if you meet certain criteria, it will be determined that you will have done so for ‘tax purposes’ and you will be subject to a renunciation tax!!

    Not to mention that renunciation itself is now subject to a $500 (appx) fee.

    The United States is the only country on earth that operates in this regard. Hell, the US taxes income earned abroad!

    America has been ‘the freest prison on earth’ for a few decades now…

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