Capital gains on sale of website/apps

22 year old website/apps just thin air?

[adamxcl]

I couldn't find much on capital gains here since many many years ago. Wondering if there is more experience with this on how anyone claimed their initial cost. I am in talks for a sale of a profitable website and connected apps after 22 years. I have spent a ton of my time and money on it over the years, which are basically the normal expenses. But is the "cost" really just the price of the domain name back in 1999? Seems like even now, all the official documentation is always about real estate, physical assets and inventory. All online so I don't have any of that physical stuff.

[LifeinAsia]

Not a whole lot has changed- capital gains are capital gains: selling price minus initial costs (plus anything that you added that enhanced the value).

normal expenses

These should have been deducted annually for the year in which they were incurred.

all the official documentation is always about real estate, physical assets and inventory

Use that as a guide. If you added something that added value (like an adding a building to land), that's an addition to the basis. If you're just doing normal wear and tear (like replacing the roof on a house), that's an expense. Apply the same logic to online.

Best bet- talk to a tax preparer with experience in online business, or at least one who's experienced with selling a business.

[Sissi]

A potential buyer doedn t care about the past and the invested efforts and cash.
A buyer looks at today s and future revenues and will adopt the Price-to-Earnings ratio.

Let s say if your website makes a profit of 50 000 p.a , he will calculate the price based on the numbers of years of profits.
The question how many years will the website survive.
If the buyer has his own bus. dev. ideas he might give more.
It all depends on the website product.
I always calculate on the basis of 5 years of profits in general to be conservative.

[phranque]

A potential buyer doedn t care about the past and the invested efforts and cash.

this isn't a question about the price negotiation - it's a question about the tax implications of the sale.

[adamxcl]

Pretty much what I figured. Preparers and lawyers...official advice is always best. But I feel that people on WebmasterWorld over the years have far more experience then they do when it comes to online stuff. Amazing after all these years that there hasn't been some flesh out in the documentation or rules. So it's pretty clear cut. Even if selling a website for millions, the initial cost is just the domain name. Buy land for a million, that's your cost even if it's worth 2 million now. Pay capital gains on the difference. But a domain for $20 and that's the cost even if it's worth millions now. There isn't a value on expanding your online real estate. I guess it's just kind of funny but that's the way it is.

[NickMNS]

Even if selling a website for millions, the initial cost is just the domain name.

Yes and No.

First let me say that this issue can only really be answered by a tax accountant/lawyer in your jurisdiction, as tax law varies widely.

The first thing you need to determine is what exactly are you selling? Is it just the domain name, is it the code, is it hardware, is it an entire business? Each of these are treated differently to some extent, but the overall concept remains the same. If you sell a business consisting of a factory, the price is determined by some multiple of future earnings, and the cost is determined by the residual value of the equipment or assets. The same holds true for a website, the difference is simply that most websites have very few assets, if any at all. In my case, I operate almost entirely expenses, servers are rented, even domain name is "rented", phone, internet, everything expensed.

Your code could be considered an asset but you would have had to of capitalized it over the years, and I doubt that this is done normally, but ask your accountant.

So yes the proceeds will likely be close to 100% cap gains, but a good tax accountant will be help you minimize the taxes paid.