Selling A Website or Business Equipment

June,

I contacted you 3-4 years ago regarding my website business that is a sole proprietorship and 1099s. I have another question. I sold my main revenue generating website. It used to make me money through advertising. I'm going to give a simple rundown to clarify things. Let's say it made $1,000 every year. This was posted with a yearly 1099 by my web sponsor. [I think he means that the guy who paid him the $1000 per year sent him a 1099 stating the income.] However, this year I got a buyer that wanted to pay me $10,000 for it. So I sold it.

My question is: the website includes the domain, website assets, and full ownership of the website. Does that $10,000 become a capital gains tax? Also, I've worked on this website and filed taxes on it since 2006, so does this mean it becomes a long term capital gains tax?

Thanks!
Justin

And another …


June –

I do music composition/instrument sales. Question: I re-sell some instruments and sometimes there is a profit other times a loss. End of the year I have a net loss. Do I owe social security tax [I think he means self-employment tax] on those items sold for profit.

If there is a profit from the total sale of instruments BUT after including business expenses there is a net loss - do I owe social security tax on the profit sales?

Thanks for your time.
Jeff
St. Louis, MO


Hi Guys,

Earned income is money you receive for services you perform or products you sell. It is on your net earned income that you pay self-employment (SE) tax.

Justin, you sold a website. Unless you are in the business of selling websites or domain names the income from that sale is not earned income. It is gain from the sale of an intangible -- can't pick it up in your hand -- business asset. It is long term. It is not part of your self-employed income.

Jeff, you say that you are in music composition and instrument sales. If you write music and then simply sell instruments that you don't use anymore then the sale of that "equipment" is not part of your earned income. You would have a capital gain or loss on your tax return. That gain or loss is not part of your self-employed income.

If,however, you are in the business of buying and selling musical instruments, then they are the products you offer for sale and any income or loss is part of your self-employed income. It is subject to SE tax.

-- June