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                                                                                       Resources
Up Front
                                                                                       Save Time on Tax Payments
Energy Audit as Cost-Control Tool                                                      Pay federal, state and many
If you’re paying the utilities for your office space or you own your building,         local business taxes, avoid late
an energy audit can help you make the smart investments that save you                  penalties and receive payment
money in both the short and long term through minimal changes in lighting,             confirmation quickly and safely
heating and air conditioning systems. >> Read More                                     with the WellsTAX® service. You
                                                                                       can pay your business taxes
Tax Implications                                                                       online, 24 hours a day, from the
                                                                                       office, at home or on the road.
Avoiding Audit Triggers
During the past few years, the IRS has stepped up its scrutiny of small                The Right Credit Tools to
businesses in a number of areas and has stepped up its audit operations in             Support Your Business
                                                                                       Planning
that respect. Here are the common situations considered “audit red flags”
                                                                                       To ensure that you have adequate
by the IRS. >> Read More                                                               levels of cash through periods
                                                                                       of investment spending or when
Feature Article                                                                        cash flow is tight, make sure
                                                                                       you have the right credit tools in
Tax Update for 2008                                                                    place. Consider a Wells Fargo
Every year, changes in the tax code are as inevitable as taxes themselves.             BusinessLoan® term loan to
As you ready your paperwork for yourself or your accountant, you may want              fund capital expenditures or a
to bear in mind the following tax shifts for 2008. >> Read More                        BusinessLine® line of credit to
                                                                                       support cash flow as you grow.
Best Practices
                                                                                       Leasing Keeps the Cash
Year-end Tax Planning                                                                  Flowing
It may be late in the year, but there is still time to take a closer look at your      Wells Fargo Financial Leasing
business’ financial situation and consider potential tax savings strategies.           can help you meet your business
>> Read More                                                                           financing needs with building
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Revenue Generators                                                                     products, as well as financing
                                                                                       solutions for real estate. Take
How Extensions Push Your Products Further                                              advantage of flexible payment
Adding to what you do, either with some modifications or with a full product           schedule options, tailored to your
or service line extension, can take your product or service further.                   individual cash flow needs.
>> Read More
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If you’re looking for basic answers about taxes or any other regulatory issue
that affects your small business, the recently redesigned Small Business
and Self-Employed One-Stop Resource, an IRS website, may be a good
place to start. >> Read More



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Hints and Reminders                                                             Resources
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Up Front

Energy Audit as Cost-Control Tool
As the economy becomes increasingly uncertain and fuel costs continue to rise, every business owner is seeking
ways to curb costs. Perhaps the lowest-hanging fruit, in terms of potential cost savings and overall management, is
energy. According to ENERGY STAR—an arm of the U.S Environmental Protection Agency and the U.S. Department
of Energy—small businesses in the U.S. collectively spend more than $60 billion a year on energy.

The organization notes that small businesses that invest strategically can cut utility costs by 10% to 30% without
sacrificing service, quality, style or comfort, all while making significant contributions to a cleaner environment. If
you’re paying the utilities for your office space or you own your building, an energy audit can help you make the
smart investments that save you money in both the short and long term through minimal changes in lighting, heating
and air conditioning systems. In addition, the tips and tactics you learn about can help you manage costs more
effectively going forward. And the audit is often provided inexpensively or at no cost from your energy supplier or
utility company.

Jerry Lawson, National Manager of ENERGY STAR Small Business and Congregations at the U.S. Environmental
Protection Agency in Washington, D.C., outlines what’s entailed in an audit and how small changes can save you
money: Before going to a site visit, an auditor will review your utility bills from the past year. During the site visit, the
auditor will look at your building and get information about your operating hours, whether equipment is turned off
when not in use and whether you use programmable thermostats or other energy-management systems. He or she
will also examine the condition of insulation, windows, doors, weather stripping, roofs; do a lighting inventory; and
gather basic information about your heating and cooling systems. Once all the information is gathered, the auditor
analyzes the data and prepares an energy audit report summarizing the energy savings and cost savings potential.
Often, the reports can connect you with vendors, engineers, designers, contractors, rebates, etc.

According to Lawson, “most small businesses can cut their energy costs by 10% with minimal investment, or even
with simple operation and maintenance actions.” In addition to the savings available through an audit, you can start
saving immediately by:

    l	   Replacing incandescent light bulbs with ENERGY STAR-qualified compact fluorescent lamps (CFLs), wherever
         appropriate. CFLs cost about 75% less to operate, and last about 10 times longer than standard lighting.
    l	   Changing HVAC filters (or clean if reusable) every month during peak cooling or heating season—new filters
         are very inexpensive, and dirty filters cost more to use, overwork the equipment and result in poorer indoor air
         quality.
    l	   Using an ENERGY STAR-qualified programmable thermostat (these “smart thermostats” range from $25 to
         $150 and automate your HVAC operation “24/7” based on your schedule).
    l	   Using fans. They can help delay or reduce the need for air conditioning, and a temperature setting of only 3 to
         5 degrees higher can feel as comfortable with fans. Each degree of higher temperature can save about 3% on
         cooling costs.


For more information about energy audits and for other energy-saving tips, check out the ENERGY STAR site.




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Tax Implications

Avoiding Audit Triggers
During the past few years, the IRS has stepped up its scrutiny of small businesses in a number of areas: ensuring
that they’re paying payroll taxes and workers’ comp and the way they classify contractors. In addition, the
organization has stepped up its audit operations on those taxpayers who are part of S Corporations and LLCs. In
fact, of the $6.6 billion currently spent on tax enforcement, 41% goes toward dealing with small business.

“The IRS has specific situations that alert it to scrutinize certain taxpayers,” notes tax attorney Darrin T. Mish, P.A.,
author of the IRS Problem Solver Blog. “Its criteria for audit selection are not available to the general public, but from
experience and testimony, reliable information regarding these specific situations has been identified.” Mish outlines
the following common situations considered “audit red flags” by the IRS:

   l	   Excessive income from self-employment.
   l	   Any unreported income—The IRS matches all taxable income reported on a taxpayer’s return with the
        information it receives from employers and from 1099 forms issued by banks and brokerage firms.
   l	   Improperly classifying independent contractors—Check out Independent Contractor or Employee? at the IRS
        website to learn more.
   l	   Owning interest in a small business or partnership—If a business is audited and shows an increase in taxable
        income, each individual owner might be audited.
   l	   Deducting business losses—For example, you can’t deduct net losses from hobbies.
   l	   In-home office deductions—Any area in your home designated as office space must be used exclusively for
        business.
   l	   Bartering—If you do any bartering, you must report the fair market value of the items or services for which
        you’ve traded.
   l	   Taking abnormally large itemized deductions—If your itemized deductions exceed 35% of your adjusted gross
        income, that’s a red flag. Also, if, for example, you were to report $50,000 in income and show $20,000 in
        mortgage interest, the IRS might scrutinize your return more closely.
   l	   Claiming too many deductions—Your return might be flagged if you claim large deductions for business travel
        and entertainment, take a home office deduction or show a large overall loss. Retain all receipts for business
        meal and entertainment expenditures of $75 or more. For expenses less than $75, keeping a detailed diary
        is sufficient. In addition, the IRS employs a program called discriminate index function (DIF), which compares
        taxpayer deductions to others in the same income bracket. If the IRS’s DIF data finds, for example, that the
        average taxpayer in your income tax bracket claims $1,000 in charitable donations, and you claim $10,000, it’s
        a likely red flag.
   l	   Income exceeding $100,000—It’s cost effective for the IRS to audit these returns.
   l	   Past audits with deficiencies—If any taxpayer has a history of inaccurate returns, it’s a red flag.
   l	   Claiming losses from “tax shelters”—Any investment that generates losses can be a red flag.
   l	   A tax return that includes alimony and claims someone who does not live with you—Rules regarding alimony
        claims are complex and most taxpayers fail to qualify. The IRS allows only the parent living with the child to
        claim that child as a dependent. Otherwise, you need a tax waiver signed by the custodial parent to take the
        write-off. The IRS matches tax deductions for alimony payments by one former spouse with the taxable income
        reported by the other.

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Tax Implications
“Some of these circumstances are obviously beyond your control,” Mish adds. “In general, it’s important to keep
meticulous records and to ensure that you meet all the criteria when taking deductions. This doesn’t mean you
should hesitate to take the deductions to which you are entitled. Even if you are not in any of the above categories,
just the fact that you make a mathematical error on your tax return gives the IRS a reason to examine it closer. If you
have any questions about whether any of the categories above affect your business or tax return, consult your tax
attorney or CPA.”




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Feature Articles

Tax Update for 2008                                                                        Resources
Every year, changes in the tax code are as inevitable as taxes themselves.              An Easier Way to Pay
As you ready your paperwork for yourself or your accountant, you may want               Pay federal, state and many local
to bear in mind the following tax shifts for 2008.                                      business taxes, avoid late penalties
                                                                                        and receive payment confirmation
The IRS briefly highlights these initial key changes:                                   with the WellsTAX® service, which
                                                                                        lets you pay business taxes online,
   l	   Self-employment tax—The maximum amount of self-employment                       24 hours a day, from the office, at
                                                                                        home or on the road. And, it’s as
        income subject to Social Security taxes increases to $102,000 in
                                                                                        easy as transferring funds between
        2008, up from $97,500 in 2007. The self-employment tax rate remains
                                                                                        your accounts.
        15.3% on earnings to the Social Security maximum and 2.9% after the
        maximum.
   l	   Social Security tax—The maximum amount of wages subject to
        Social Security tax increases to $102,000 in 2008, up from $97,500 in 2007. The tax rate remains 7.65% on
        employers and employees.
   l	   Business standard mileage rate—The standard business mileage rate increases to 50.5 cents per mile for
        miles driven from January 1, 2008 to June 30, 2008, up from 48.5 cents per mile in 2007. (You can deduct the
        cost of parking and tolls in addition to the mileage allowance.) The standard mileage rate for July 1, 2008 to
        December 31, 2008 is 58.5 cents per mile. (Be sure to keep a good mileage log.)
   l	   Section 179 Expense Deduction—The maximum amount of qualifying property placed in service in 2008
        that businesses can expense increases to $250,000, a $125,000 uptick from 2007. The annual investment
        limit increases to $800,000 for 2008, up from $500,000 the year before. Thus, you won’t lose the benefit of
        expensing until you place more than $800,000 of fixed assets in service in 2008. The large increase is due
        in part to the Small Business and Work Opportunity Tax Act of 2007, which President Bush signed into law
        on May 25, 2007. According to tax service provider’s CCH’s Small Business and Work Opportunity Tax Act of
        2007 Special Report, under the new law, the base $100,000 limit ($112,000 as indexed for inflation for 2007)
        is increased to $125,000 for tax years beginning in 2007 through 2010. In addition, the investment limitation is
        raised to $500,000 for tax years beginning in 2007 through 2010. The $500,000 amount is indexed for inflation
        in tax years beginning after 2007 and before 2011. (See online tax resource service Tax Almanac’s outline for a
        more complete listing of the Act’s provisions.)
           m   The Act extended the Work Opportunity Tax Credit (WOTC) through August 31, 2011. It had been set to
               expire for employees hired after December 31, 2007. The new law also broadens the scope of the credit.
           m   The Act also includes a package of S Corp reforms. The changes affect the treatment of passive
               investment income, partial sale of qualified subchapter S subsidiaries (QSubs), interest deduction by
               electing small business trusts (ESBT), reduction of earnings and profits (E&P) and banks operating as S
               Corps.
   l	   Domestic Production Activities Deduction— For fiscal years beginning in 2007, 2008, and 2009, this deduction
        increases to 6% of qualifying business net income from domestic production activities, up from 3% in 2006.
        This deduction applies to businesses engaged in construction, engineering, or architectural services; film
        production; or the lease, rental, or sale of equipment manufactured in the U.S. The rate will increase to 9% in
        2010.
   l	   Hybrid cars—The IRS site notes that the Energy Policy Act of 2005 replaced the clean-fuel burning deduction
        with a tax credit. A tax credit is subtracted directly from the total amount of federal tax owed. The tax credit for
        hybrid vehicles applies to vehicles purchased or placed in service on or after January 1, 2006. To learn more

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        about which autos qualify and the tax credit associated with each, see the IRS’s “Hybrid Cars and Alternative
        Motor Vehicles.”
   l	   Health Savings Plans (HSAs)
           m   Eligibility—For 2008, a qualifying high deductible health plan (HDHP) must have a deductible of at least
               $1,100 for self-only coverage or $2,200 for family coverage and must limit annual out-of-pocket expenses
               of the beneficiary to $5,600 for self-only coverage and $11,200 for family coverage.
           m   Employer contributions—Up to specified dollar limits, you can generally exclude your contributions (must
               be in cash) to the HSA of a qualified individual (determined monthly) from federal income tax withholding,
               social security tax, Medicare tax and Federal Unemployment tax. For 2008, you can contribute up to the
               following amounts to a qualified individual’s HSA:
                  n   $2,900 for self-only coverage or $5,800 for family coverage;
                  n   $3,800 for self-only coverage or $6,700 for family coverage for qualified individuals who are age 55
                      or older at any time during the year; and
                  n   employers are allowed to make larger HSA contributions for a non-highly compensated employee
                      than for a highly compensated employee.
   l	   For more information, see “Health Savings Accounts” in the IRS publication Employer’s Tax Guide to Fringe
        Benefits, page 12.
The IRS outlines a few forward-looking tax issues to consider as well.

   l	   Expiring in 2008:
           m   Energy-saving improvements to commercial real estate—This special expensing for the cost of energy-
               saving improvements to commercial building is no longer available after 2007.
           m   The tax credit for energy-efficient homes—The special credit for builders selling energy-efficient homes
               expires after 2007.
   l	   Changes for 2009 and beyond:
           m   Solar heating credit: The 30% tax credit for businesses on the cost of solar heating units and fuel cells
               falls to 10% for those placed in service after 2008.
           m   Decreased Section 179 Expense Deduction—The maximum amount decreases to $25,000 in 2011.
           m   Withholding on government contracts—Beginning in 2011, amounts paid out under government contracts
               will be subject to a 3% withholding tax. This will affect contracts with the federal government, state
               governments and any municipality that pays out $100 million or more annually on contracts (interest and
               payments for real estate are exempt).
In addition, the Kiplinger Tax Letter outlines the following changes for the current tax season:

   l	   Non-itemizers can deduct property taxes—2008 in addition to being able to take the standard deduction. The
        write-off is capped at $1,000 for married and $500 for singles. The break lapses after 2008.
   l	   Buyers of new heavy SUVs get showered with tax breaks this year and a special 50% bonus depreciation is
        the reason—For example, a business buys a $50,000 SUV with a loaded weight of over 6,000 pounds and
        places it in service in 2008. The business can expense $25,000 of the cost. One-half of the remaining 25,000
        cost, or $12,500, is claimed as bonus depreciation. In addition, 20% of the $12,500 balance of the cost can
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        be deducted as regular depreciation, assuming the SUV is used 100% for business. (Note: You cannot take
        this break on used SUVs. You should also watch out for excessive personal use of this vehicle in the first five
        years, as the IRS can recapture your tax break.)
   l	   The IRS is on the warpath against firms that misclassify workers—It has a new weapon for tracking down firms
        that violate the rules used to determine whether workers really are employees of independent contractors. The
        result will be an increase in audits in a few months after the IRS develops more leads. The IRS has also signed
        up a majority of states to share payroll tax exam data and thousands more audit referrals will likely result. An
        electronic matching system enables the IRS to spot businesses issuing 1099 forms with payments of $25,000
        or more to at least five workers who have no other sources of income.


For Quick Reference

The chart below outlines a number of personal and business tax rate changes.
Social Security Medicare                                       2008                          2007
Social Security Taxable Wage Base                              $102,000                      $97,500
Medicare Taxable Wage Base                                     No limit                      No limit


Individual Retirement Accounts                                 2008                          2007
Roth IRA                                                       Lesser of $5,000 or 100%      Lesser of $4,000 or
                                                               of earned income              100% of earned income
Traditional IRA                                                Lesser of $5,000 or 100%      Lesser of $4,000 or
                                                               of earned income              100% of earned income
Roth and traditional IRA additional annual “catch-up” contributions for account owners age 50 and older
                                                               $1,000                        $1,000


Social Security Medicare                                       2008                          2007
Defined contribution plan dollar limit on additions to qualified plans, 403(b) plans and SEP plans
                                                               $46,000                       $45,000
Defined benefit plan limit on benefits
                                                               Lesser of $185,000            Lesser of $180,000
                                                               or 100% of average            or 100% of average
                                                               compensation for highest      compensation for highest
                                                               three consecutive years       three consecutive years
Maximum compensation used to determine contributions
                                                               $230,000                      $225,000
Elective deferral limits for 401(k) plans, 403(b) plans, 457(b) plans, and SAR-SEPs Unchanged for 2008
                                                               Lesser of $15,500 or 100%     Lesser of $15,500 or
                                                               participant’s compensation    100% participant’s
                                                                                             compensation
Additional catch-up contributions (individuals age 50 or older) for 401(k) plans, 403(b) plans, 457(b) plans, and
SAR-SEPs

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                                                          $5,000                        $5,000
Elective deferral limits for SIMPLE 401(k) plans and SIMPLE IRA plans
                                                          Lesser of $10,500 or 100%     Lesser of $10,000 or
                                                          participant's compensation    100% participant’s
                                                                                        compensation
Additional catch-up contributions (individuals age 50 or older) for SIMPLE 401(k) plans and SIMPLE IRA plans
                                                          $2,500                        $2,500
Compensation defining highly compensated employee
                                                          $105,000                      $100,000
Compensation threshold used to determine a key employee in a top-heavy plan
                                                          $1 for more than 5%           $1 for more than 5%
                                                          owners; $145,000 for          owners; $140,000 for
                                                          officers; $150,000 for more   officers; $150,000 for
                                                          than 1% owners                more than 1% owners
Compensation triggering Simplified Employee Pension (SEP) contribution requirement
                                                          $500                          $450


Driving Deductions                                        2008                          2007
Business mileage, cents per mile                          50.5                          48.5
Charitable mileage, cents per mile                        14                            14
Medical and moving mileage, cents per mile                19                            18


However the rates have changed; the standard mileage rate for 2008 will start on January 1, 2008 to June 30,
2008. The rates that will be in effect from July 1, 2008 to December 31, 2008 are as follows:


Business mileage, cents per mile                          58.5
Charitable mileage, cents per mile                        14.0
Medical and moving mileage rate, cents per mile           27.0


Business Equipment                                        2008                          2007
Maximum Section 179 Expense Deduction                     $250,000                      $125,000
Phase-out for Section 179                                 $800,000                      $500,000


Qualified Transportation Fringe Benefit Exclusion         2008                          2007
Commuter highway vehicle and transit pass, per month      $115                          $110
Qualified parking, per month                              $220                          $215


Standard Deductions                                       2008                          2007
Married filing jointly or surviving spouse                $10,900                       $10,700

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Single (and married filing separately)                   $5,450                  $5,350
Heads of Household                                       $8,000                  $7,850


Itemized Deduction Phase-Out                             2008                    2007
Married filing separately                                $159,650                $156,400


Personal Exemption                                       2008                    2007
Amount                                                   $3,500                  $3,400


Kiddie Tax
Net unearned income for an under-age-18 child that is    $1,700                  $1,700
not subject to the “kiddie tax”


Annual exclusion for gifts                               2008                    2007
Amount you can give to each recipient                    $12,000                 $12,000


Thanks to Martin G Meyer, principal at B. Meyer Bookkeeping Services.




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Best Practices

The Strategic Advantage of Growth Planning                                             Resources
As we enter the latter part of the year, its time to take a closer look at your      The Right Credit Tools to Support
business’ financial situation and consider potential tax savings strategies.         Your Business Planning
As you evaluate potential credits and tax minimization opportunities, keep           To ensure that you have adequate
in mind that the application of various strategies may differ depending upon         levels of cash through periods of
your business’ unique situation and accounting methods. The cash method              investment spending or when cash
allows for deductions and income reported for the year they are paid and             flow is tight, make sure you have the
received, while the accrual method applies income and expenses in the                right credit tools in place. Consider
                                                                                     a Wells Fargo BusinessLoan® term
year incurred.
                                                                                     loan to fund capital expenditures
                                                                                     or a BusinessLine® line of credit to
Some tax-saving tactics and strategies worth considering:                            support cash flow as you grow.

   l	   Defer recognition of income—If your cash flow permits, any payments
        your company can receive in January, as opposed to December, will
        reduce the current year tax burden. When using this strategy, the
        company’s entity structure and annual profits and losses should be considered.
   l	   Contribute to a retirement plan—Make payments to an existing plan, or set up a plan prior to year-end.
        Contribution limits vary depending upon the plan type. There are numerous retirement plan options to choose
        from, it is recommended that you choose the plan that best fits your business, number of employees and
        retirement goals.
   l	   Pay discretionary bonuses—If you’ve had a good year and want to reward employees (provided your
        accounting is done on an accrual basis), accrue year end bonuses. Deductions are allowed for accrued
        bonuses to employees as long as they are paid within two and a half months of year end (March 15 for
        businesses with a December 31 year-end).
           m   For bonuses given to owners:
                    n   S Corporations may deduct bonuses for shareholders or owners who have any percent ownership
                        when bonuses are paid.
                    n   C Corporations may only deduct bonuses for shareholders or owners who have 50% or more
                        ownership when bonuses are paid in order to get the deduction.
   l	   Cash basis—For those using cash method accounting, the bonus must be paid in that year to be deducted in
        the same year.
   l	   Make additional charitable contributions—If possible, make contributions prior to the beginning of the next year,
        so they may be deducted in the current tax year. Be sure to retain receipts.
   l	   Incur expenses—For cash-basis taxpayers—cash flow permitting—pay as many expenses as possible prior to
        year end to maximize deductions. Examples include:
           m   utilities,
           m   printing new marketing collateral,
           m   office supply purchases and
           m   equipment purchases—In this case, you have multiple write-off options (Section 179 deduction discussion
               below). The equipment must be in your office and in use by year-end.


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Best Practices
   l	   Write off uncollectible accounts (bad debts)—The IRS allows deductions for actual write-offs, not those allowed
        for in your “allowance for doubtful accounts.” If the item is truly a bad debt—meaning you’re able to show
        you’ve tried to collect the debt and payment is unlikely—go ahead and write it off. Note: Only businesses using
        the accrual method of accounting can write off bad debts.
   l	   Write off obsolete inventory—If you have inventory, update your records, write off any obsolete or damaged
        inventory.
   l	   Deducting equipment and assets through Section 179 expense and Bonus Depreciation— Earlier this year,
        Congress enacted the Economic Stimulus Act of 2008. Under the Act, small businesses will be able to write off
        up to $250,000 of qualifying expenses in 2008. In addition, businesses will be able to deduct an additional 50%
        of the cost of certain asset purchases in 2008. Generally assets have to be depreciated over statutory lives,
        but under Section 179, a business or self-employed individual may be able to deduct the full amount of certain
        equipment or asset purchases in the year of purchase. New guidelines and considerations are as follows:
           m   Certain types of tangible personal property are eligible, such as furniture and fixtures and machinery
               and equipment, and there is a very limited deduction for passenger automobiles. Real property and
               investment property are not eligible.
           m   For tax years beginning in 2008, the maximum deduction is $250,000.
           m   If your total qualifying property purchases exceed the $800,000 threshold, the maximum Section 179
               deduction gets reduced.
           m   Section 179 Expense Deductions can’t be used to make business income go negative. Deductions that
               reduce income below zero can be carried forward for an unlimited number of years to a year when the
               business has positive income and can be applied to that year.
           m   The Economic Stimulus Act of 2008 also provides for Bonus First Year Depreciation by allowing a bonus
               first year depreciation deduction of 50% of the adjusted basis of qualified property placed in service after
               December 31, 2007 and before January 1, 2009.
   l	   Perform a cost-segregation study if you own real estate—If you own real estate or build a building, consider
        taking advantage of a cost-segregation study, which can accelerate depreciation and increase cash flow. (To
        learn more, check out the IRS’s Cost Segregation Audit Techniques Guide.)
   l	   Increase energy efficiency to receive tax incentives—Specific tax credits are outlined in the Energy Policy Act
        of 2005. Generally, businesses are eligible for tax credits for buying hybrid vehicles, for building energy-efficient
        buildings and for improving the energy efficiency of commercial buildings. (For more information, see the U.S.
        Department of Energy’s “What the Energy Bill Means to You.”) •
   l	   Manufacturers should explore the Section 199 Domestic Production Activities Deduction—Small businesses in
        the manufacturing sector should evaluate this tax deduction. An overview of the deduction is as follows:
           m   A business engaged in a “qualifying production activity” is eligible to take a tax deduction of 6% in year
               2007 - 2009, and 9% in year 2010.
           m   The deduction is limited to 50% of annual W-2 wages allocable to the domestic manufacturing activities.
           m   Determining the deduction is based on determining qualified production activity income (QPAI).
Careful planning is the best way to capitalize on available opportunities. There are many other potential tax-opti-
mization strategies that may apply to your company, regardless of type. Consult a qualified tax professional about
your unique circumstances when evaluating the strategies that are best for your business.

Special thanks to Bryan B. Funk, CPA, a Tax & Business Services Senior Manager at the certified public accounting
firm Weaver and Tidwell, LLP.                                                                                   12
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Revenue Generators

How Extensions Push Your Products Further                                              Resources
Your product or service has been doing well for the past year or two, but           Leasing Keeps the Cash Flowing
you’re seeing sales start to lag or a competitor has developed something a          If you’re looking for the right
little too close to what you offer. It may be time to add to what you do, either    support to help you grow, Wells
with some modifications or with a full product or service line extension.           Fargo Financial Leasing can help
                                                                                    you meet your business financing
“Usually, you develop product and service line extensions based on either           needs with building and equipment
customer orientation or market orientation,” opines Don Debelak, the author         lease and loan products, as well as
                                                                                    financing solutions for real estate.
of Bringing Your Product to Market, Fast Track Approaches for Cashing in
                                                                                    Take advantage of flexible payment
on Your Great Idea and a consultant specializing in helping entrepreneurs
                                                                                    schedule options, tailored to your
bring new inventions and ideas to market. “With a customer-oriented                 individual cash flow needs.
extension, you’re supplying current customers with new solutions or uses
related to your existing products or services. The market orientation is about
making changes to your product or service that can help you penetrate new
segments. For example, we work with someone who makes diesel particulate filters. With a little tweaking, those
products work well for other types of liquid filtration, which opens up a variety of new markets.”

The benefit of creating product or service line extensions, regardless of which way you go, says Debelak, is that it’s
an inexpensive way to boost your revenues, as you’re not reinventing the wheel. If you look at the amount of money
it takes to land a new client, any customer-oriented extension can help you make the most of your existing base at
a low cost, especially if you can solve more of their problems with what you offer. With a market-based extension,
you’re simply capitalizing on technology or services you’ve already developed with minor adjustments in process. In
each case, it’s about making more with little additional investment.

If you’re considering product or service line extensions, you first have to determine what’s appropriate for you. In
“Building Your Brand with Brand Line Extensions,” Nancy Giddens, Agricultural Extension Value Added Marketing
Specialist at the Missouri Value-added Development Center, University of Missouri, suggests asking the following
questions before you start the process:

   l	   Can my company develop a product extension with characteristics that clearly differentiate it from the
        established product?
   l	   Are these characteristics believable and needed?
   l	   Does my company have the resources necessary to develop a differentiated product? • Will net combined
        sales of the established product and the line extension product be greater than sales of the established product
        alone?
   l	   Will the cost of product development and promotion be covered by the sales of the new brand?
   l	   Is there already a high level of diversity in the product category?
   l	   Will my company have to borrow a large level of funding from the established brand in order to fund the line
        extension?
Perhaps the most important part of the process, continues Debelak, is making sure there’s a need for what you’re
offering. If you can talk to customers and spend time with them to determine exactly how they use your products
or services, it gives you a clear view of what might work in terms of extensions. “Customers are always buying a
solution to a problem, so you need to work with them to identify the gaps in the products and services related to
the solutions they need,” he notes. “Most companies tend to be very focused on the needs directly related to their


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Revenue Generators
products, but it helps to take a broader perspective in developing extensions. For example, let’s say you sell papers
to scrapbookers. You may have the highest quality papers with a great array of colors. Understanding and listening
to customers might tell you that they’re looking for decorative borders—a slight tweak that can boost sales.”

If money is an issue up front, Debelak advises getting outside help before committing to full-scale development.
“You can find a vendor and buy what you need on a private-label basis before deciding to manufacture anything
in-house,” he says. “You can then do short runs until you determine whether the extension is viable and profitable.
In going into a new market, you have to do research, of course, but you can also partner with a vendor selling a
complimentary product or service, and piggyback on marketing efforts to test what you’re doing before making a
definite decision to enter a new segment.”

To generate real success with product or service line extensions, Debelak circles back to understanding your
customers. “The most valuable thing you can do is meet with your customers and learn how they use what you
sell,” he observes. “They can’t always express it, but if you can watch them work with what you sell, it also shows
you where you can profitably expand your product line. If you’re looking to enter new markets, do your homework.
Work with a partner who can help you learn what’s missing in terms of functionality. Doing product or service line
extensions well is all about finding the gaps and serving those needs.”




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Line Items

Making Mail Work Harder                                                                  Resources
If not having the follow-up data you’d like has stopped you from                    Do More Online with Business
implementing a direct mail program, the U.S. Postal Service’s Intelligent           Bill Pay
Mail program might potentially answer many of those challenges. In 2003,            Business Bill Pay lets you pay any
the USPS began developing the Intelligent Mail initiative, a program based          company or individual in the U.S.
on a 31-digit bar code applied to mail in the U.S. and designed to provide a        from business or personal accounts.
greater depth of information and benefits to both mailers and postal officials.     Save time and money by paying
It’s slated to be fully operational by May 2009.                                    your bills online—it’s secure, fast
                                                                                    and easy. Business Bill Pay allows
                                                                                    you to:
“Said simply, Intelligent Mail is the USPS implementation of digital
technology applied to mail. When fully implemented, the Intelligent Mail            l	   make payments of up to $50,000
system will enable collection, analysis and management of information                    from your business or personal
about mail,” says Nancy DeDiemar, President of Printing Resources of                     accounts, including payments
Southern California. “The information can then be used to improve USPS                   to a Wells Fargo credit card or
service and performance, and to provide additional value for mailers.”                   BusinessLine® account;

                                                                                    l	   schedule payments in advance,
According to the USPS, Intelligent Mail offers a wide range of postal
                                                                                         even for recurring expenses like
savings and “data payload” benefits, including:                                          rent or equipment leases;

   l	   Visibility into the mailstream—By allowing users to track each              l	   run customized reports to track
        mail piece individually, the Intelligent Mail barcode (IMB) provides             spending;
        companies with the precise status of mail and an opportunity to add a       l	   and much more!
        level of certainty in several important ways.
   l	   Low-cost proof of mailing—Via the USPS Confirm service, the IMB
        allows users to access Destination Confirm service, which gives
        advance notice when mail pieces will reach their destinations.
   l	   Payment tracking—Origin Confirm service lets users see when an individual customer’s check (or response)
        is on the way back to them, enabling users to manage collections efforts smarter and avoid unnecessary
        cancellations.
   l	   More effective marketing—Being able to forecast delivery of individual mail pieces makes it easier to forecast
        the number and timing of incoming phone calls. Marketers can also target precise in-home delivery dates.
   l	   Free change-of-address service—The IMB makes it easy for mailers to make address corrections, as needed.
        In fact, on First-Class Mail, electronic Address Change Service is free when companies use the Full-Service
        Intelligent Mail barcode.
   l	   Preparation efficiency—Whether preparing their own mail or using presort houses, mailers will benefit from
        reduced paperwork and greater visibility and transparency with the USPS.
   l	   Comprehensive mail piece tracking—Implementing the IMB provides the basis for developing and
        implementing a comprehensive mail piece tracking system. Such a system allows users to track their mail
        pieces through their entire life cycle, both internally and externally.
   l	   Enterprise benefits—Using the IMB also provides the basis for organizations to take advantage of the
        information inherent in using the IMB on every mail piece they drop. A very information-rich database is created
        by using IMB to create a comprehensive mail piece tracking system.



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Line Items
While there is no specific pricing yet in place, the USPS says that Intelligent Mail will cost just “pennies per piece.” At
this point, given the complexity involved in ensuring you have the right data in place and in using the system overall,
DeDiemar recommends using a lettershop or commercial mailing service to prepare your mailing, which will ensure
that you get all the discounts to which you’re entitled and that you get the greatest benefit from the return data.

“Ask for a quote that includes tracking and all the associated benefits of Intelligent Mail,” she suggests. “It will
take some time to fully implement and there will be some trial-and-error as with any complicated systems, but the
potential benefits to mailers outweigh the costs.”

To learn more about Intelligent Mail, check out the USPS site.




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The Manager

Tax Help from the IRS                                                                 Resources
It’s been said that the words no one wants to hear are “I’m from the               Choose Your Web-based Payment
government, and I’m here to help.” For small business, at least, the IRS           Solution
is working to change all that. In fact, if you’re looking for basic answers        Our online payment solutions are
about taxes or any other regulatory issue that affects your small business,        completely integrated with Wells
the recently redesigned Small Business and Self-Employed One-Stop                  Fargo Business Online® Banking.
Resource, an IRS website, may be a good place to start.                            Choose one, all four or any
                                                                                   combination of payments—Business
                                                                                   Bill Pay, Direct Pay, the WellsTAX®
“The purpose in redesigning the site was to create a community for small
                                                                                   service and Foreign Exchange
business owners,” explains Jo Lynn Arnold, Webmaster for Small Business
                                                                                   Online—based on your specific
Self Employed Community at IRS.gov. “Looking at this from the perspective          business needs.
of an IRS employee, we can guess how tools can be arranged, but this
design was based on community feedback.” To that end, about two years
ago, Arnold and her team undertook a major usability study—one they’ve
reprised this year—to learn what small business owners and other users
wanted in a site. The results had a major impact on the look and navigability of the site. “For example, our ‘A-Z Index
for Business Owners‘ was a direct offshoot of the requests we got from our user community,” she says, “Now, it’s the
most-often used part of the site.”

Above all, the redesign has been about ease of use and improved navigation. It now features clear, directed areas,
based on specific needs. Areas include “Small Business and Self-Employed Filing Season Central,” “Self-Employed
Individuals,” “Business Expenses,” “Businesses with Employees,” “Small Business Forms and Publications,”
“Employer ID Numbers (EINs),” “Filing and Paying Your Business Taxes” and more. As tax season looms, Arnold
suggests checking out the site’s “Self-Employed Individuals Tax Center,” to find answers to your questions about
self-employment taxes, business and employment taxes, electronic filing and more.

Going forward, Arnold and her team plan to continue adding incremental improvements. Has the strategy worked
thus far? “In 2006, we had 18 million visitors,’ she says. “Last year, the number was 21 million. As long as we stay in
touch with users and ensure that the site meets their needs, we think the numbers will continue to increase.”




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 Solutions
 Hints and Reminders

Get Organized for Tax Season
With FREE access to Wells Fargo Business Online, you have access to a wide range of services designed to help
you stay organized and make year-end preparation easier.

With Business Online Banking you can:
   l	   Get a consolidated picture of your business and personal accounts—anytime, anywhere you have Internet
        access.
   l	   View, print and download statements, images of checks and deposits1, as well as important tax information,
        including your 1099-INT and 1099R forms.
   l	   Download transaction information for use with most popular business accounting software.
   l	   Access year-to-date and annual summary reports with our enhanced Business Spending Report with Budget
        Watch.
   l	   Sign up for free email Alerts to stay informed about your accounts and get notified when balances are low,
        checks post, when taxes are due and much more.
For more information about how Wells Fargo Business Online can help you prepare for tax season, visit our Tax
Resource Center.

Simplify Business Tax Payments with WellsTAX®

As a Business Online Banking customer, you can enroll in the WellsTAX service to make business tax payments
online, anytime. This service provides an easy and secure way to pay federal, state and many local business taxes.

The service costs just $3 per payment and there are no enrollment fees or monthly service charges.

Not a Business Online Banking customer?
Just follow these three simple steps to enroll for online access today.

   1.	 Go to wellsfargo.com/biz and click Enroll Now under View Your Accounts

   2.	 Enter your Social Security Number (required for initial enrollment only), Business Account Number, ATM PIN
       and Email Address

   3.	 Click Continue and create a Password and Username.

   4.	 To enroll in the WellsTAX service, click on the Transfers & Payments tab after you’ve signed on and select
       Enroll in WellsTAX.




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Solutions
Hints and Reminders


  Reminders
  (Adobe® Reader® version 4.05 or later needed to view forms.)

  During November
    l	   Income tax withholding—Ask employees whose withholding allowances will be different in 2009 to fill out a
         new Form W-4 or Formulario W-4(SP).(The 2009 revision of Form W-4 will be available on the IRS website
         by mid-December.)
    l	   Earned income credit—Ask each eligible employee who wants to receive advance payments of the earned
         income credit during the year 2009 to fill out a Form W-5 or Formulario W-5(SP). A new Form W-5 or
         Formulario W-5(SP) must be filled out each year before any payments are made. (The 2009 revision of Form
         W-5 will be available on the IRS website by mid-December.)
  November 10
    l	   File Employer’s Quarterly Federal Tax Return, Form 941, for the third quarter of 2007
  December 15
    l	   Corporations deposit the fourth installment of estimated income tax for 2008, Form 1120-W, (a worksheet,
         Form 1120-W, is available to help you estimate your tax for the year).
  Note: The IRS now provides PDFs of certain forms (e.g., W-2 and W-3)—filed with the Social Security
  Administration (SSA)—for informational purposes only. Copy A appears in red, similar to the official printed IRS
  form, but do not file Copy A downloaded from the site with the SSA. A penalty of $50 per information return may
  be imposed for filing forms that can’t be scanned.
  To order official IRS forms, call 1-800-TAX-FORMS (1-800-829-3676) or order online at Forms and Publications
  by U.S. Mail. You may file these forms electronically on the SSA’s website at Employer Reporting Instructions &
  Information. You can create fill-in versions of these forms for filing with the SSA. You may also print out copies for
  filing with state or local governments, distribution to your employees, and for your records.




1. Starting on April 4, 2008, Returned Item & Deposit Details will cost $3.00 per billing cycle, for each account and will include unlimited use.
   The billing cycle will begin on the 24th of each month. The fee is charged only if the service is used within the billing cycle.               19

								
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