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Selling and buying (flipping) website busnesses -high costs questions

Discussion in 'Site Flipping' started by mandude, Feb 17, 2010.

  1. mandude

    mandude Jr. VIP Jr. VIP Premium Member

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    I posted something like this in the tax section, but feel it would get more lookers here.

    I am trying to figure out the situation with buy and selling websites (more so full businesses that are websites).

    I dont undetstand how to classify them with taxes. Lets say I buy a business for $7k, sell i for $55k, then use that money to buy two new businesses for $20k and $12k. So now I am left with about $23k.

    Which is taxible, the $55k or the $23k? I always learned "expenses minus income' or whatever, but I have no idea what to classify buying a website under, (using Turbo Tax) such as what kind of expense. It just gives you areas like assets, office supplies, wages, stuff like that.

    I dont understand how the money coming in from selling a business $55k is taxable, but the exact opposite, buying a business for $20k isnt deductable (it taken fully as an expense and therefore should only be taxed on the $23k)
     
  2. bryanon

    bryanon Executive VIP Premium Member

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    Let me start off by saying that I've never been a tax resident in the States (where you appear to be based) so my knowledge about the US taxation isn't very thorough. However, assuming that the US taxation basics are similar to other countries, you only pay income tax for the PROFIT that you claim. So, based on your example: if you buy a business for $7k, sell it for $55k and use $32k of this to buy new businesses (and end your tax year like this) then $55k-$32k=$23k is what you pay tax on. Of course, you will also pay tax on whatever you get for selling those two businesses you've just bought - but once again, only if you claim it as profit, i.e. don't use it for reinvestments or business expenses.
     
  3. bmac

    bmac BANNED BANNED Premium Member

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    You would pay taxes on profit only and that would include the $23k minus marketing cost, fix cost like internet access and other tools you use. The easiest thing to do is get a copy of quickbooks and keep track of all your spending and your income. It is a pain in the butt but will save you some serious money on taxes down the road.
     
  4. mandude

    mandude Jr. VIP Jr. VIP Premium Member

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    I figured it was just the profit, but I am using Turbo Tax and I have no idea what to file these things under. Misc business expenses? Assets? what. I dont feel like getting audited because I have a $20,000 "misc expense'
     
  5. agente808

    agente808 Regular Member

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    If you resell the purchased websites during this year, then you can deduct the purchase price as your "cost of goods sold". (it would go in your taxes as inventory)

    If you keep the sites, then these are investments and you can't simply deduct them the way you would a normal business expense, you will need to depreciate/amortize the expense. (it would go in your taxes as capital expense)

    This link has more info:
    Code:
    http://www.irs.gov/businesses/small/article/0,,id=109807,00.html
    If you aren't sure, don't count on Turbo Tax!
    The cost of a visit to a tax professional will be much cheaper than the problems you will have later if you do it wrong - GO SEE A PROFESSIONAL!

    and congrats on having the kind of problem most of us wish we had ;)