Question
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!
Answer
You won't be able to capitalize the time you incurred and add that to your basis. The concept of "sweat equity" doesn't really exist in a sole proprietorship context.
For business entities taxed as partnership for U.S. federal tax purposes, the company will frequently grant profits or capital interests to individuals that actively participate in the company, without requiring the individual to contribute cash or other property to the company.
