The Greg Parsons Project

The simplest explanation of this would be one word. Taxes. An C Corporation (C-Corp) is a standard corporation in every sense of the word. Consult Wikipedia or your local library for definition of a corporation. Along with being a “standard” corporation comes all of the benefits of a corporation - including double taxation. An S Corporation (S-Corp) is a special type of corporation with special taxation specifications. I’ll explain both a bit here:

C corporations are taxed at both the corporate and individual level. That is, the corporation itself pays tax on business profits, and shareholders (owners included) pay additional income tax for any money they draw from the corporation, including salary, dividends, or bonuses.

S corporations elect a special tax status with the Internal Revenue Service (IRS). Rather than being treated as a separate taxable entity, the S corporation’s income is viewed like that of a partnership or sole proprietorship and is “passed-through” to the shareholders, who report the income or loss on their individual tax returns. The S corporation itself pays no income tax.

Another tax advantage of S corporations is that they can distribute money as profits rather than salary to employees who are shareholders. Profits are not subject to the Social Security and Medicare taxes that salaries are. And when you sell an S corporation, the taxable gain on the sale of the business may be less than that of a C corporation.

I’d recommend speaking with a qualified CPA (and if you don’t have a CPA, I’d recommend getting one - when it comes to business ownership, you don’t want Uncle Leo doing your taxes if he isn’t familiar with business tax codes) to assist you in figuring out which type of corporation you should be filing as. You just may be surprised at the money you can save by choosing the right one. I’ve been in business as an LLC since 2001 and this year it was to my benefit (and, oddly enough, to the IRS’s benefit as well) for me to change my filing status for my corporation. Keep up to date and always ask a lot of questions. The answers may surprise you.

Now that April 15^th has passed, most small business owners are feeling the collective sigh of relief. They have dug through a year of records, found all the necessary receipts, navigated through all of that paperwork, and even filed on time. But what many small business owners do not know is that filing as a sole proprietorship could put you at risk for being audited. With any business, there are of course necessary deductions but a sole proprietorship may raise a few more needless red flags that could be avoided by running your business as a corporation. So what are those pesky red flags and how does a corporation help avoid them? Here are just a few:

The Home Office Deduction

You may be thinking – yes, yes - we all know about the home office deduction! Unfortunately, most people don’t read through how the deduction actually works. Take into account that most sole proprietors work from home and you can see how trouble can brew. The home office deduction should only be taken if you use the room exclusively for business purposes. The kitchen nook that doubles as your office space is not exactly what the IRS considers an eligible office. The space must be clearly used for business purposes. Remember, only a certain percentage can actually be claimed. The other pesky issue is that all of those business deductions then have to be written on a separate form that itemizes home business expenses which can send up a red flag. On the flip side, with an S or C Corporation, you don’t have to file a separate deduction form.

Schedule C

Ultimately, the problem with a sole proprietorship is that no matter what you deduct, the Schedule C form draws attention. In 2006 alone, 4 percent of all sole proprietors filing a Schedule C were randomly audited as compared to less than 1 percent of all corporations who filed either Form 1065 or Form 1120S. Why? Well, the IRS is on the look out for those business owners who hide portions of their earnings because so many people historically attempt to overstate their expenses or downplay their actual cash earnings.

Cash Based Businesses

One of the IRS’s biggest concerns is the sole proprietor with a cash based business. Caterers, personal trainers, dog walkers, this means you. Many self-employed professionals tend to receive large amounts of cash that go undeclared. And unfortunately, the IRS is all too aware of that.

Understating Earnings

Another common mistake is “understating” your earnings by “overstating” your deductions and expenses on your Schedule C. And, well there is a difference between deducting a few business meals a month and deducting your weekends out with your spouse for the entire year. Again, entertaining business clients or paying for business meals may be part of your job but only a certain portion can be deducted and only under certain conditions.

The other thing you want to avoid is taking too much of a deduction on your automobile expenses. You can deduct the cost of your car if used for business purposes. That means you can either deduct the mileage at the rate of 44.5 cents per mile in 2006 or you can deduct the ordinary expenses you incur such as gas, oil changes, and parking fees. But, when you also start to deduct the cost of gas on your family road trips to the Grand Canyon or Yellowstone National Park, you may raise a few eyebrows.

Other No-No’s

There are a few other areas where a sole proprietor can get themselves into a bit of trouble. One of the biggest no-no’s is mingling business and personal expenses and monies in the same bank account. It makes the business look like a hobby more than a business and it makes bookkeeping infinitely more difficult.

Oh, and estimates might get you into a bit of heat as well. It is rare that you will get your meals or other deductions to equal a perfectly round number so jotting them down on a Schedule C that way can easily send up a red flag.

The Benefits of a Corporation

With a Corporation, your expenses are entirely separate from the expenses of the business. It is likely you will have a separate credit card and banking accounts where you can track business meals, gas for business, and other issues. Also, the IRS forms are consolidated and filed separately from your personal expenses because the business is a separate legal entity.

This will be old hat (hopefully white hat, not black hat) for most of you that read this, but if I can get my point across and help just one person that’s worth it for me. I can’t tell you how many people I talk to that ask me what is wrong with their website, and why Google/Yahoo/MSN/etc. isn’t indexing their site. I proceed to then go and load their site and the problems hit me in the face like a ton of bricks. So here’s my list of 10 tips for on page optimization (and just general good practice site design):

1. Search engine friendly URLs - Can’t stress this one enough. Some people claim it doesn’t matter anymore, but looking at it from a purely aesthetic perspective, “friendly” URLs are more pleasing to the eye than obtrusive URLs and will generate more clicks from the SERPs if nothing else. However, I still believe there’s a value in SEO for using friendly URLs as well. An example of an obtrusive URL would be: http://www.site.com/page.php?c=23&p=238&hash=df837238592×72, while an example of a friendly url would be: http://www.site.com/products/bikes/schwinn-10-speed.html — This serves both purposes noted above, it is both visually more appealing for the surfer to click and much more descriptive so that they know what to expect when they click through to your page.
2. .htaccess Rewrites - You can’t accomplish #1 usually without implementing #2. If you’re using the Apache web server on UNIX, you’ll want to learn about .htaccess ASAP. Learn as much as possible about 301 redirects and friendly 404 pages. Learn about domain canonicalization and use your .htaccess to tell the engines which page should be your main page. This tip could go on forever so I’ll leave it at this and please let me know if you have any more specific questions and I’ll help you out.
3. Duplicate Content - This is a big one which really should be my #1 tip. In today’s search world you’ll constantly hear that “content is king”. This should really be renamed to “unique content is king”. With the advent of auto-bloggers, article distribution sites, and just plain old plagiarism in general, duplicate content is a real problem. Fortunately for us white hat SEO guys (and unfortunate for the black hatters and lazy people), the engines have caught on and are now applying a filter when they spot duplicate content. If you have something to write about, write it yourself, or at the very least pay a copywriter a couple of bucks to write it for you. The days of doing a search for the #1 site for your keyword and copying their text word for word to knock them out of #1 are over. Now, they’ll stay at #1 and you’ll be banished into the Supplemental Results index for eternity. Quoting someone else’s work is fine, but you need a unique spin on it, otherwise no matter how you sugar coat it, it’s just plain old lazy and most of the time illegal.
4. Backlinks - Invest a lot of time into building QUALITY backlinks to your site. This means if your site sells widgets, try to find other sites that have information about widgets and see if they’ll link to your domain. Ideally you’ll want to have a lot of inbound links to your site and few outbounds. Avoid joining the link exchange programs that stick links about gambling, cell phone ring tones, online pharmacies, etc. in the footer of your site. Think link relevancy. Use common sense here.
5. Unique META tags - You’re going to want unique title and meta tags on each page of your site. Avoid spamming these tags with keywords. Just write what comes natural and accurately describes the page you’re designing. For instance (unless I change things later), the title tag for this blog post is “Back to SEO Basics”, and the meta keywords are “seo basics”.
6. Go for PR, not for PR - Confused? I mean, Go for Public Relations, not for PageRank. Always write and optimize your site for the public and provide them with good, useful content and the PageRank will follow. Practicing good link building techniques as mentioned above will get you the PageRank as well. I’ve found that if you practice normal site building, the PageRank actually comes a lot quicker than if you chase it. Besides, Google only updates their PageRank every few months anyway, so you chase your tail for a few months just to see if you gained a point or not. Time is much better spent writing unique content for your site and developing good business relationships, in my opinion.
7. Be in it for the Long Haul - Make sure you’re in it for the long term, not the short term. I see many people that start MFA (Made for AdSense) sites, etc. hoping for a quick buck (and that’s usually about how much they make in a month, $1 buck) rather than designing a site around a good business model and working towards a bigger goal. I know of small, non-corporate websites that make $5,000, $10,000, and even $20,000 per MONTH by practicing these basic skills. Spend a few years of your life developing a good website that is something people will enjoy visiting and learning from and the almighty dollar will follow. Your website is, in essence, a business. You’re giving someone information in exchange for dollars. The dollars might not be coming directly from your visitors, but if you’re hoping that they click ads so you make money, you need to keep them happy.
8. SiteMaps - Create both a Google and a Yahoo SiteMap and submit it to them. Aside from the fact that you’ll be telling the engines where to find every page on your site, you’ll also get a little added bonus - by signing up at Google you’ll have access to Webmaster Tools. They show a lot of information about your site, which pages have been crawled, which pages have problems that you need to address, and the sites that link to you.
9. Analytics - Google also has a great tool called Analytics. It’s a very in depth statistics software that you get for FREE. Yes, FREE. It shows the traffic your site is getting, what your most popular pages are, demographics of your visitors, you name it. I’m simply amazed at the number of people who have no idea how much traffic their site gets or where it comes from. You want to direct your marketing efforts into something that works, and the first step of this is finding out where your traffic is coming from. That way you know where to multiply your efforts.
10. Use Common Sense - This is more of a “wrap-up” tip than an actual tip, but it holds a lot of weight nonetheless. When doing ANYTHING on your site, it’s a great rule of thumb to just use common sense. Think of yourself as the surfer. Would you click on annoying popup ads that are in your face constantly? Probably not, right? Would you buy something from a site that looked like it was designed by an 8 year old in between lunch and recess? Nope. Are you going to regard someones comments very highly if they use derogatory language or misspell words on their site? I doubt it. Use good clean common sense when designing your pages as well as applying these basic SEO tactics and the traffic will come. Cheating the system will only hurt you in the long run. And just when you think you’ve thought of a way to cheat the engines, let me remind you that Larry and Sergei are much smarter than you and I and I’d bet that they’ve already thought of that AND developed a way to punish people for doing it.