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Comment by dangrossman | Hacker News Reader

I'd like to hear your opinion on the tax implications of selling an ecommerce website. In my case, it was a website that sold a single digital product. I sold the website code, the product code/copyright, the customer database and mailing list, advertising copy and 60 days of support for a single price. I operated this website for over a year before selling it. I am in PA, USA and the buyer is in Australia, and we did not break down what part of the purchase price corresponded with any individual element of the sale.

I talked to several accountants and 3/4 said I can claim it as a long term capital gain. 1/4 was unsure since part of the value is the software copyright. Am I safe to claim this as a LTCG at 15%?

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Hmm.. thats a complicated set of facts. I hope that the sale was done through a stock buyout instead of a sale of assets.

When you sell a company there are two major methods. A complete sale of assets (which it sounds like you did) and a sale of stock (which is preferrable).

the sale of stock would guaranty you long term capital gains.

I'd say that you should be taking a capital gain on everything generally

But, intangibles like copyright are funny. The creator can sell the copyright and sell it, but when you sell it theres a problem. How do you determine the basis of the copyright. Generally, companies buy copyrights and etc so its easy for them to have an adjusted basis or cost for them to calculate. But, you developed and created the copyright so your basis is probably going to be pretty small and the gain is going to be HUGE. You can say that you're hours spent is an increase in basis. Same rules apply to songwriters and etc.

You can sell the IP, but the gain is going to be significant.

Thanks for the feedback! I don't mind claiming the amount of the sale as a taxable gain, the only bad scenario would be having to claim all or most of it as ordinary income. This was just one website of many I operated under an LLC, so I didn't sell the whole company, just some specific assets. It was done on Flippa, the eBay of website selling, with a sale price of $90k.

I'd highly suggest that you separate your websites into different llcs because of a variety of reasons. Firstly, liability is rarely a serious issue in tech but it's always better to be safe than sorry right?

Secondly, by separating the assets you can make sure that upon a sale, the exit would go much easier and smoother generally. Making a purchase of stock is generally easier than buying individual assets. Also, you won't need to allocate the price of the sale to all of the assets based upon the fmv of the assets. Basically, it'll also save you money on legal and accounting fees.

Thirdly, selling through a llc or legal entity In general is great because it also leaves room for tax planning strategies. Ex, if sell based on assets you'd have to pay tax on the sale of personal property. Most propel don't even know that there's a tax on personal property or what personal property is. But, a sale through stock generally helps you avoid this type of exp. Learned this dandy trick in my stint in m&a.

if the IP is owned by an llc and you sell your shares of the llc, does that simplify things? in acquisitions in general, if the acquirer is buying you out by buying your shares, does that generally result in a capital gains tax, and not ordinary income tax? (if so, my daydreaming of starting and selling a startup for millions just got even better)

When you sell the equity in an LLC, then you're selling an investment and if you hold that investment for longer than a year or 366 days or more, then yes it would be long term capital gains.

Generally, its better for you and the buyer to sell equity in a legal entity that to move the assets around. Its easier, less annoying and you dont need to worry about transferring a bunch of titles.

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