I recently sold a website (which I ran for 3+ years) for a large sum and am looking to minimize my capital gains tax on the sale price. My normal costs (outsourcers/software...etc) were all written off as expenses throughout the time that I ran the site. From what I understand I can't include these as part of my basis since they were already written off as regular expenses throughout the years. I'm trying to understand if I can use my time spent building & promoting the site into my cost basis? I spent a significant amount of my time. I did pay myself from the business checking to my personal checking on a regular basis for normal living costs but this was a sole proprietorship, so not sure if that would be recognized as a proper 'salary expense'. I understand this falls under 'sweat equity' but wondering in what circumstances the owner's time could become part of the basis. I would also be looking for a possible consulting call to touch on additional questions. Thank you!
If you spend money with a service provider then your expense is their income.
If you claim that your time over the years was an expense that added to the capital cost of your business, then who claimed that amount as income?
If you try to do this, then a tax auditor may try to look to make sure you claimed these 'expense' amounts as income in those years. My guess is that you didn't.
Capital gains are taxed at lower rates than income.
I'm not a CPA or tax attorney. You may want to verify this advice with one:
It's likely better to face the capital gains tax then implicate yourself potentially in a problem of undeclared income in prior years.