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Be Prepared for Tax Time

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It’s only February 12, but I am already thinking about tax time in just a couple of months.   I am not a finance or numbers guy, so I use an accountant to file my taxes, although I keep very good records of sales, expenses and other transactions.

One thing that made my life easier a couple of years ago was Sandy Brooks’ Domain Tax Guide. When I first explained to my accountant what I did as a hobby, he understood it, but I don’t think he knew anything about it.   At the time, I had made about $1,000 in profit, so it really didn’t matter at all.

As my income continued to rise, the tax impact did as well.   A couple of years ago, when domain revenue became a significant income stream for me, I sent him a copy of the Domain Tax Guide and asked him to read it and use it as a reference when doing my taxes.   If you are making a few thousand dollars or more, you should know the advantages and disadvantages of doing things certain ways.

A few things I think are important that are discussed in the Domain Tax Guide include:

  • Benefits of forming a LLC or other legal entity
  • When to consider domain sales inventory revenue
  • Whether domain names are assets
  • Depreciating domain name assets
  • How capital gains taxes work with domain names

There is a lot of value in the Domain Tax Guide, and although these are affiliate links, I strongly recommend using the tax guide as a reference – whether you file your own taxes or you have an accountant filing them for you. I’ve definitely saved a lot more money than this e-book cost.

Good Strategy, but Poor Execution

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Buying domain names that are confusingly similar to your brand or product is a smart move that many companies don’t consider. However, owning domain names that are confusingly similar to your brands, but not forwarding that traffic to your main website is just plain stupid!

Extra TV, an NBC television show and a Warner Brothers Entertainment production has a feature called Luxaholics, and WB owns the corresponding domain name Luxaholics.com. Thumbs up to them for inventing a term, buying the matching domain name, and then branding the term. They also showed intelligence by purchasing the domain name Luxaholic.com as well.   Unfortunately, this domain name goes to a dead page.

Come on WB!!   Smarten up and forward the alternative domain name to the main page!   It might not mean much additional traffic, but it certainly doesn’t cost anything extra to do it.

Passive Aggressive Approach to Selling Domains

When you attempt to sell a domain name, you are generally in a weaker position than when someone sends you an unsolicited email to buy a domain name. In the first situation, you are trying sell a domain name on your terms, and you need to find a buyer who can meet them. In the second situation, you hold the domain name that someone else wants, and you can choose the terms. This can make a big difference when negotiating.

When you want to sell a domain name, but you would rather not start out in a weak position, I recommend attempting a passive aggressive sales approach. One idea to do this is to reach out to a domain owner who has a similar but different domain name, and ask him if he would sell his domain name. In your email, you should mention that you own XYZ.com and you would like to buy ZYX.com from him.

If you receive a reply to your request, there are generally 4 possible versions:

1) Yes, the price is $
2) Yes, make me an offer
3) I won’t sell XYZ.com, but will you sell ZYX.com?
4) No. I am not interested in selling

You can then make a sales pitch responding to each of these replies.

For the first option, if the price he names is higher than the price at which you would sell your name, you can reply, “That’s a good price, but it’s out of my price range for this name. Would you be interested in buying ZYX.com, a very comparable domain name, for the same price?”

With option two, if you reply with an offer, you should be prepared to buy his domain name if he matches your price. Assuming he says no, like 99.9% of domain owners who would say no to the first offer no matter what, then you can turn around and let him know you would sell yours, a similar name, for that price if he is interested.

For the third option, you have moved into the drivers’ seat, as you are now in a stronger position with him asking you to buy your domain name.

Although the final response isn’t always appreciated, it does show you that the domain owner is alive and answering emails. You could tell him that you had hoped to acquire XYZ.com to enhance the value of your name, ZYX.com, but since he won’t sell, maybe he would be interested in acquiring yours.

I have not sold a domain name in this manner before, but I have had the third option happen to me in the past. I was not inclined to sell the domain name, so I turned down a significant offer for it. Unsolicited domain sales via a variety of methods can be more difficult than fielding inquiries, but that’s how I sell a majority of my domain names. This is one more tool to add to your cache.

Obviously the one caveat is that your name is of equal value or better than the person who you email.

Check the News Before You Reply

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Have you ever received more than one email offer or inquiry on a domain name in a short period of time and not know why?   I am sure most people search for the domain’s key term(s) in Google to see what people might be looking to find, but that might not get you the most relevant information.

Before you reply to the inquiry, check Google News and Google Blog Search for the term(s) both quoted and unquoted. While News and Blog results are generally listed in the standard Google results first, they may not appear at the top of the results, rendering the fresh information useless.   If someone is trying to buy a domain name from you because a television network just announced a show with the same name as your domain name, you should know this before you respond.

If you receive more than one inquiry on a single domain name, especially if it’s irregular that you receive inquiries on this particular domain name, you should assume it’s not coincidental.   Having the most updated information is critical when determining how to reply to an inquiry, and Google’s information, like their News and Blog Search, can help you filter through the crap.

Make Sure Your Domains Make Sense

Today, I saw a domain name on a drop list that had two strong keywords, and I almost bought it.   I did a bit of research, and I immediately realized why it hadn’t been renewed by the owner – it didn’t make sense as a domain name.   Calcutta is one of the largest cities in India, and there are millions of people in the world who practice law.   However, in India, I don’t believe these people are called lawyers.   Therefore, CalcuttaLawyer.com, which has under 60 results in Google for “calcutta lawyer” would not make sense as a domain name.

On occasion, I will see a well priced domain name that has a couple of strong keywords, and I have to do a bit of research to see why it’s priced so cheaply. Usually it’s because it doesn’t make much sense as a domain name. Would you want to own HawaiiSkiing.com?   I think not!

When you come across a domain name that looks interesting, check out the number of results there are in Google for the quoted term.   You should also check the number of searches that are performed for that keyword.   While there are plenty of gem domain names that can still be found every day, there are plenty of worthless ones as well.   Knowing what’s worth something and what’s not will end up saving you a lot of money!

Potential Liability for a Newly Purchased Domain

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Before you buy a domain name, especially an acronym, check to see what is currently being displayed on the website to make sure it’s not infringing on another company’s mark. If you buy a domain name that had infringed on a company’s mark in the past, you could be held liable for the domain name’s past use.

Take this as an example. You decide you want to buy a great 3 letter .com domain name. You search Google for acronyms just to see how it could be used, and you find out that a major technology company is sometimes known by the acronym. When you check the domain name, the current landing page has this company’s ads (or a competitor’s). This could put a new owner in harm’s way.

Not only do I look at the current landing page and ask the owner about the landing page history, I also do some research to see what was on the page previously. I like to use Archive.org to see what was previously displayed on a website. It’s always better to ask questions to gauge potential risk down the road.

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