Tax Deductions for Domainers

As March approaches, it is time for most of us (especially those of us in the United States) to turn our focus to taxes.  For domainers there are a number of deductions you can claim on your taxes, and Domain Name Wire recently published a helpful list of tax deductions for domainers.

Here are the 12 included (click over to get the full descriptions):

  1. Domain conferences
  2. Annual domain registrations
  3. Internet access
  4. Home office
  5. Mobile phone
  6. Domain software
  7. Domain services
  8. Web hosting
  9. Advertising
  10. Meals and Entertainment
  11. Legal expenses
  12. Office supplies

Please remember to consult an accountant before filing your taxes.

When To Start Your Own Affiliate Business

So you’ve been working really hard and started to make money online.  Now what?   Depending on how much money you are making, the answer could vary, but I recommend you at least consider starting a formalized business and operating under that business name.

What does this mean exactly? In my situation, for many months now I’ve been pulling in $1,000 or more from my online activities.  This income consists of a bunch of different sources with the primary income coming from affiliate marketing, but I also get a portion of it from domain sales and blogging advertisements/AdSense.   When I would get paid each month, I would just send that money over to my checking account and pay bills or drop some into savings, etc.   Sound familiar?

If you are making under $500.00 a month, this probably isn’t for you, but once you start making more than that, it is my belief that you should at least consider moving your activities over to a formalized business.

Should you decide to at least looking into starting a business, you’ll probably be trying to choose between an LLC (limited liability company) and running your business as a sole proprietorship.   Both types have advantages, but to start I recommend most people go with the sole proprietorship because they are easier to setup and you don’t have to completely separate your business assets/debts from personal assets/debts.   The one exception to that rule is domainers who run a signfiicant legal risk due to owning domains with possible trademark violations.  When your domain portfolios value gets into the 5 figure our higher range it is probably a good time to go with an LLC.  Operating under an LLC requires complete seperation from personal and business, so it requires a lot more paperwork, more accounts to manage, etc.   But the significant reduction in risk makes it more than worth it.

Edit: The day after I posted this, Jonathan Volk wrote a very detailed article about finding the best corporate structure which I think our readers will enjoy.

Why Operate Under a Business Name?

To be honest, there are a LOT of advantages to this and very few disadvantages in my opinion.  For the purposes of this post, lets look at the advantages of a sole properietorship:

  • Tax Deductions – This is probably the most important reason.   I know my business expenses (domain renewals, advertising costs, PPC advertising) were going up as my income went up, and now that I am operating under a business name, I am able to deduct these things come tax time.   Before I was paying taxes on my full online income without deducting the expenses I have to run the business.   If you go the route of a sole proprietorship, you are also able to find a lot of additional deductions once you’ve made the switch, such as cell phone costs (if your domains are registered under that phone number), buying new desktop/laptop computers and equipment, etc.  If you aren’t sure what qualifies, you’ll want to consult a qualified accountant.
  • Tax Identification Number (TID) – When you operate under a business name, you can use a TID instead of your social security number when you sign up with all of these companies.  This is more secure for you personally and really convenient.
  • Better Accounting – Having a separate Paypal account, separate checking, savings, and credit card all make it much easier to track income/expenses and figure out exactly how much you truly are making each month after taking out your expenses.   This will also help you figure out how much money to put aside for tax time!
  • More professional appearance – If you are buying advertising from someone, would you rather buy from Joe Blue or Blue Media?   Which one sounds more professional?  Probably a bad example, but you get the idea!
  • Business Cards – This isn’t necessarily needed for people making money online unless you attend a lot of events, but it is nice to have the option available.

Introducing Apricot Media

I guess I haven’t really mentioned it yet here, but it obviously fits with the theme of this post so I will go ahead and make the official announcement.   About a month ago I finally finished making the complete transition over to my business name Apricot Media, and I am already extremely glad that I did.   Things have really gone great so far!   I finished setting up the domain awhile ago (though it is more of a splash page right now) and with the help of my friend Mark, I was able to get a great logo as well, which can also be used for business cards, fax coversheets, or whatever I want to use it on.   More importantly, I have a professional “media” email address that I can use to conduct business under.

RIght now, Apricot Media is more of a name than an internet presence, but remember that it is CRUCIAL to own the dot com version of your business name before you launch your business.  You will want to secure the dot com domain name before you pick your business name, even if you aren’t using it right away.  That is a big reason why when I was able to successfully acquire this incredible multi-thousand dollar domain name, I decided to use it as my business name (after doing a trademark search to verify there wouldn’t be issues there).

One of the great things about the internet is all of the options you have available to you, so I hope everyone is at least considering setting themselves up for success over time.   Have you considered converting to a formalized business?

Introduction to the World of Domaining

If you are a full-time domainer (or a very heavily involved part-time domainer), one of the toughest things to do is explain to people what it is you do and how exactly you make money.   I often find a more confused face once I finish explaining the world of internet real estate.

On some rare occasions, I will get someone that sounds interested and wants to learn more.   Where do you point someone like this?   Going forward, one place I will be sending this people is Domaining 101.   While this post is very basic, it does a great job of providing many of the essentials a domainer needs to get started.

Domaining.com To Require Paid Subscription?

So far it looks like very few details have been released, but it looks like before long it will be subscription based.   So, how will this affect their readers?

In the interest of full disclosure, I am not a big fan of Domaining.com.   While they technically aren’t feed scrapers, they don’t do any work.   They don’t write content, they don’t do research, they don’t post any original thoughts.   They just publish an excerpt of what was already published elsewhere.

As a person that runs a domain blog, I don’t like that it takes away from the need to visit the actual blog.  Now they want you to pay them?   I think this is a bad move on there part.

Why Dot Com Domains Are The Gold Standard

In the past two weeks we’ve devoted a little time to studying domaining and what is all involved with being a domainer.  It can be very time consuming, requires a lot of research, and does require a little risk, but the payout can be and usually is huge. 

One thing people often ask is why dot com is such a big deal?  Why can’t someone succeed with a country code domain (.us, .in, .cn, etc.) or maybe a dot net?  The truth is, of course, that any business can succeed with just about any domain name.  If you are getting inbound links and your content is relevant, search engines will find you.  If your business is country based, it may even be appropriate to have one, but dot com will always be the gold standard. 

Brian Krassenstein has written a post on a message board explaining why he feels dot com domains will always be the gold standard.   If you have pronouncable or keyword-rich domains, investing in dot coms is about the safest investment you can make.  Here is what Brian had to say:

Every month or two it seems as though new domain extensions are released by ICANN. They have one for almost every country now, and are now doing continents, such as .eu and .asia. We have .us, .biz, .org, .net, .mobi, etc, etc, etc. You would think that as new extentions are released it would deflate the values of the already existing domains out there. This is not the case though. .com domain names will always actually gain value as ICANN releases new top level domain extensions. Why?

When most people think about the internet and a website, they think .com. Even if they hear a domain name on the radio, see it on tv, or in a magazine, or are told about it by a friend, they will always think it ends in .com, even if it doesn’t. The large corporations and the most popular sites out there all end in .com. Only approximately 1/6th of the worlds population has access to the internet today. Even then, only about half of them are able to get online at their convenience. Having said this, things are changing, and changing fast. China and India who account for over 1/3rd of the worlds population are growing rapidly. More and more people in these countries will gain internet access very soon. It is predicted that the internet population of China and India will be 5 times what it is today by the year 2011. Now imagine if only a small fraction of these people decide to create their own websites. The demand for good keyword rich domains will explode. Most of them will not be able to hand register the .com versions so they will go for the cheaper versions such as .in, and .cn. When they do this, they are actually making money for whoever owns the .com verion of their domain since a good portion of their type in traffic will type “.com” instead of “.in” or “.cn”.

Some other tlds that I recommend buying and holding onto in addition to “.com” are:

.es – These are being used for spanish language domains. Should grow significantly
.cn – China is large, very large, and .cn domains seem to be what most chinese recognize as the authoritive tld extension
.de – This is the German extension. For some reason Germans, unlike many people elsewhere in the world tend to love their country code top level domains

All in all, if you are thinking about investing in good generic or abbreviation domain names, go after the .coms. Over the long haul the risks to .coms are significantly less then that of other extensions.

Now, keep in mind, that you aren’t necessarily going to get rich by investing in just any dot com domain, but they are appreciating at a rate much faster than the cost of renewing the domain every year.   There are currently 14.5 billion dot coms taken and they are continuing to disappear at a rate of roughly 30,000 a day.   If you are looking for a safe investment, buy a few dot com domains that you like and just sit on them for a couple years.  If you decide not to develop them, you can always resell them!

On a quick side note, I got an e-mail from another Kyle Eslick yesterday who found me via my personal domain name.   Have you registered your families personal domain names yet?   Even if you aren’t using them now, you’re going to want them some day and you can use them as an e-mail address in the meantime! 

Finding Keyword-Rich Domains That Have Traffic

Earlier in this series I mentioned how domains that have natural traffic are worth a lot more money and also open up the opportunity for cash parking. Finding a domain that receives natural traffic in 2008 may seem impossible, but it doesn’t have to be. There are still a few out there and with the free online tools we have at our disposal, there are still methods you can take to find these domains.

If you’d like to learn more about finding natural traffic domains, here is a video I found on YouTube from 45n5 that does a good job explaining how to find keyword-rich domains that have natural traffic.

(Feed Readers May Have to Click Through to View)

This video is designed to teach people how to find keyword-rich domains for starting up in a new niche, but I’m mentioning it here because domainers use similar methods to go out and find domains that are going to have a good resale value and more importantly, will probably receive natural traffic. The combination of natural traffic and good keywords is about as solid of a domain investment as you can probably get.

Expiring Domains and Back Ordering Domains

Once you’ve learned how to determine the value of a domain name and begun searching for a good one to register, one of the first things you’ll notice is that there isn’t much left out there that hasn’t already been registered. Every day 30,000 domains are registered, but only 2,000+ domains are dropped/expired. This means you’ll have to start doing what most people already do, and that is either buying from people directly or stalk the expiring domain lists looking for gems that people either forget to or can’t afford to renew. The former is pretty self-explanatory, but if you decide you’d like to get into shopping for expiring domains, here are some tips to use as a guideline before back ordering a domain:

  1. Make sure you check the back links before going after an expiring domain. The easiest way to do this is to go to Google and search for “link:expiringdomain.com” with replacing the expiringdomain.com with the expiring domains URL. Google will then display backlinks. You’ll want to click on a few of them to see what people were saying about the domain and the content on the domain and also determine the value of the back links.
  2. Use Internet Archive to get some additional information about the domain.
  3. If the previous owner was using the domain as a website, make sure that you are going to use the domain for the same purpose as the previous user or else this could cause some PageRank/SEO problems.

What Does Back Ordering Mean?

Back ordering is the process of paying a company to go out and register a domain on your behalf once it expires. The best companies to use for back ordering are NameJet.com, Pool.com, and SnapNames.com, as they have contracts with the individual registrars giving them first dibs on expired domains. If you decide to attempt to backorder a domain, your best bet is to back order the domain with all 3 websites to almost guarantee you get the domain. If more than one party back orders a domain at these 3 different websites, an auction is then created and the domain goes to the highest bidder, which can cause the purchase price of some of these domains to become pretty expensive.

Where do I Buy Expiring Domain Names?

Here is a old post, but good write up of what is involved with buying expired domain names and is still fairly accurately details the whole process.

As you can see, there is a lot to learn when it comes to attempting to acquire an expiring domain name. If you don’t have a lot of patience, your best bet is to instead attempt to buy low and sell high directly from the domain owner. This can easily by done by researching domains of high value and negotiating with the owner directly to purchase the domain from them at what you feel is a low price, then turning around and selling it at a much higher price.

How Do You Find a Good Domain Name

In the world of real estate, all sorts of things factor into the value of a property. As you probably know if you’ve purchased a home before, one of the biggest factors in determining the value of a property (and resale value) is location. If you are a business that deals with walk-in customers such as restaurants, grocery stores, and gas stations, you are wanting a good location with a lot of people that pass by. In the world of domains, in order to find success, you need to train yourself to look for many of the same things that people look for in real estate. Here are the five things that I take into account when I’m considering buying a domain:

  1. Domain Length – Domains with more than 13 letters can be difficult to sell in most cases, unless you have a domain that is the name of an established business.
  2. Memorable – This kind of goes along with #1. A domain needs to be easy to remember for a business, and it needs to be easy to remember for a domainer. If you are cash parking, you are counting on a large amount of traffic from people entering your domain into their web browser.
  3. Easily Spelled – If the word(s) in your domain are hard to spell or can be spelled in multiple ways, it probably is best to avoid it. This also applies for words that are spelled differently depending on the language they are spelled in.
  4. Includes Keywords – A potential buyer for the domain will probably come to you because all good domains with their keyword are taken, so they want to purchase an established domain. Generic domains can be good as well, but will require more marketing to sell, where you will often get direct offers for keyword-rich domains without any work.
  5. Avoid Plural – The name of this site used to have Kyle’s in it, but that was a mistake I made long ago and rarely did a day go by that I didn’t regret it. People would think my name is either Kyles Eslick or Kyle Scove. That is why I’m so adamant about avoiding plural when it comes to domain names.

The above five examples are intended to be used as a guideline. For example, I do purchase domains longer than 13 letters occasionally, but it isn’t ideal if I’m looking to resell it. I try to only do so if they are the EXACT keywords someone would use to do a search.

How do I buy Domain Names?

When I go to buy domain names, I always use a service called PCNames (full review here). You simply input a desired domain name or a keyword you want to use, then search. PCNames will then display a bunch of available names using that keyword, and I’ve found they often make some great suggestions. Once you’ve found one you want to purchase, click Select and pick your registrar of choice. Going through them you get help finding your domain and you get a discount (for example dot com domains are $7.15 at GoDaddy when referred by PCNames).

What registrar should I use to buy domain names?

I get this question a lot. Does it really matter? Yes and no. I usually recommend people use GoDaddy altogether, or at least to register domains that they intend to flip, because it is the most popular registrar. This makes it a lot easier to transfer a domain from one person to another because their are better odds that a potential buyer either uses GoDaddy, or at least has a GoDaddy account to house the domain. Transferring from one GoDaddy account to another is really easy, but transferring between registrars adds some extra hassle.

What is this domain worth?

If you follow the above steps 1-5 and find one that meets that criteria, you should have a fairly valuable domain name. As long as the name is short, brandable, and avoids hyphens and other things, it has a lot of potential. A domain is technically worth what someone will pay for it, so its hard to nail down an actual value of a dot com domain name. But once you’ve come up with your price on that, though, you can follow the 1/10/30 rule to determine the other TLD values. This means that a dot net version of the domain is worth about 10% of the dot com counterpart, and the dot info version is worth about one third of the dot net value (or 1/30th of the dot com domain value).

You’ll find that domainers will often closely monitor what similar domains are selling for to determine the value of their domains. Another thing that increases a domains value is natural traffic (traffic coming from users entering the URL into their web browser). These will sell a lot better than one that doesn’t have natural traffic because you can easily monetize them using cash parking techniques.

How do I Get Started Domaining?

If you are going to find success domaining, the best way to get started is spend 10-20 hours just studying domaining. The best thing you can do is study what prices domains are being bought and sold for and try to figure out why they are selling for that price. This is crucial to get figured out early so that you aren’t wasting money on a bunch of domains that are barely worth the registration fee. If you invest to much money into worthless domains you will quickly become discouraged and give up before you really gave it a chance.The next thing you need to do is monitor trends. When new products are released such as a new vehicle or popular toy, there is a very limited time frame before the good domains disappear that are associated with that product. If you can get a few good ones, you can make some good money. You’ll also want to avoid getting to much into speculative extensions until you’ve built up a portfolio and have some regular income being generated.

Once you’ve sold a few domains that you acquired via domain registration, and you feel confident that you understand this part of domaining, you are then ready to move to the next level, which is purchasing established domain names. I wouldn’t invest more than that on any single domain until you are comfortable at this level and your income is washing with your debt. Early on, you will probably want to only spend $1,000.00 or less per dot com domain and branch a little bit into dot net and dot org domains. You may also buy a few domains that have hyphens in them. Once you’ve built up a portfolio, made some profit, and stored up some equity, you can then move to the high roller level.

High rollers are people that domain for a living. If you make it to this level, you’ll want to focus on speculative dot com domains and also move beyond dot com and dot net domains a little bit, shifting your focus on dot info domains and other domains at that level.

It is important to keep in mind that dot com domains are the most valuable to other people, but are not any better than a dot biz or dot info domain as far as search engines are concerned.

How Does Domaining Work?

Over the coming week, I’ve written a series of posts that are designed to introduce you to the world of domaining. Because I’ve devoted a little time to discussing it on this website over the past month, I’ve been getting a lot of questions from my contact form asking for various tips, ideas, and even suggestions regarding domaining and existing domaining portfolios. These questions are welcome, but I figured it would be beneficial to write up a major overview and hopefully answer a lot of these questions in posts. If you have domaining questions, please hold off until after the series is over before sending them, as many will hopefully be answered throughout the posts scheduled throughout the rest of the week. After this week is done, feel free to then send your questions if I didn’t provide an answer. Good? Lets get started!

What is domaining?

If you are interested in domaining for a living, or more likely, as a serious hobby, the first thing you need to do is change how you view domains. There is only one of every domain out there, meaning that once it is gone, you are at the mercy of the person that now owns it. They may not want to sell it, or they may only sell it for $10,000.00+. Either way, you no longer have the power to own your own brand in many cases (unless you are entitled to it via trademark). This is the mentality that many domainers have when buying/selling domains and helps generate income. You will also need to learn to look at a domain as more than just a home for a website. Domainers also generate income with cash parking or flipping them for profit.

In future posts we’ll talk more about how to find a domain, but once you have them, what do you do with them?

The first thing you can do is attempt to monetize them by purchasing domains that receive a lot of natural traffic from web browsers. Natural traffic means that people type the URL into their web browser to visit the website directly, rather than relying on search engines to find them. If you have a lot of domains that receive traffic this way, you can make money by placing ads on these domains that are relevant to what the person may be looking for. This is commonly referred to as cash parking. Most domain registrars, including GoDaddy, offer this service to anyone for an annual fee. Parked.com has another alternative. You will then keep a large portion of the ad revenue. How much you keep depends upon which registrar you have your domains with. Some domainers that do a lot of cash parking will specialize in buying misspelled domains. Some examples of misspelled domain names include gogle.com, google.cm, google.co, yaho.com, etc.

The second method is called domain flipping. If you are familiar with property flippers, then you probably have the general idea of what a domain flipper is/does. Someone who flips properties will buy a number of houses at a discount rate (usually at a foreclosure or estate sale) and then fix them up and resell them for a huge profit. A domain flipper used to be a person that registered domain names that would later have value and then sold them at a hiked up price. In today’s world, pretty much all domains are already registered, so a domain flipper is now someone who purchases domains from people that don’t know their true value and then either lets them mature over months/years and sells them, or turns around and sells them at a much higher price. Domain flippers also scour the dropped/expiring domain lists and back order valuable domains, or some will even go as far as to purchase them from companies going through bankruptcy.

Now that you have the basic idea of what domaining is and how it works, tomorrow we’ll move on to putting it in to practice. In the meantime, I recommend you check out this post about the State of the Domaining Industry. You may also enjoy this recent news video talking about how significant the world of domaining has gotten:

(Feed Readers May Need to Click Through)