@Opus 17- thanks as always for your detailed response! Yes, I've previously treated this activity as a Schedule C business. I've reported sales income and managed expenses as inventory (i.e. cost of goods sold).
After reviewing the links you sent, I'd say it's still a bit murky whether this qualifies as a business or not. Certainly my intention was to make a profit, but I pretty quickly (within a few months) gave up actively pursuing this activity when I realized it was taking much more time than I anticipated and thus the cost-benefit analysis didn't add up for me. Since that time, 2016 I think, I've just basically sat on the domains and still occasionally sell one when somebody finds it on a brokerage site. Due to essentially random fluctuation, some years I have a net profit and some a net loss.
Here are the IRS criteria and my response to them:
- Whether you carry on the activity in a businesslike manner and maintain complete and accurate books and records. [Yes. My records are impeccable.]
- Whether the time and effort you put into the activity indicate you intend to make it profitable. [Unclear. I invested considerable time and effort for several weeks/months at the outset, and little since.]
- Whether you depend on income from the activity for your livelihood. [No]
- Whether your losses are due to circumstances beyond your control (or are normal in the startup phase of your type of business). [Unclear. My losses are just due to registration costs in years where I didn't happen to sell enough domains to make up for them.]
- Whether you change your methods of operation in an attempt to improve profitability. [Unclear. I didn't really stick with it long, but arguably I did this by exploring different auction sites / brokerages to list the domains on.]
- Whether you or your advisors have the knowledge needed to carry on the activity as a successful business. [Unclear. I guess not since I don't really make any money.]
- Whether you were successful in making a profit in similar activities in the past. [NA]
- Whether the activity makes a profit in some years and how much profit it makes. [Yes. Not much -- a few hundred bucks at the most.]
- Whether you can expect to make a future profit from the appreciation of the assets used in the activity. [Unclear, to me at least, if domain name values are appreciating.]
