In This Issue . . .
Knowledge Centered Selling
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How many times have customers told you your "price was to high?" I can tell you right now, it's not that your price is to high, its because the value of your solution is too low in the customers mind. Raise the perceived value of your solution and you will sell easily at high prices.

You've heard we're in the information age, most of us thought that meant that everything was going to be run by computers. Well they help, but computers are not what the information age is really about. The real value of the information age is your ability to pass on knowledge on how to use your product at the moment it is needed.

When you provide your prospects and customers information on how to best use your products or services you will teach them how to improve their life. When customers use that knowledge they are showing wisdom. Now be honest, haven't you always thought your customers who buy your best offers to be wiser then most. Now you have a name for it, Knowledge Centered Selling. Customers who live a better life because of you are loyal and high dollar buyers.

To sell at high prices you must teach your customer why and how your solution will work for them. The teaching can be done with mailings, faxing, personal contact, audio or videocassettes, even public speaking about your product features and their real value to the customer. The process of "Knowledge Centered Selling" increases the perceived value of your product or service allowing you to sell more to the confused prospect and definitely allowing you to charge higher prices.

If you wish to sell your best offer and keep your competitors out of the running while selling at the high side of the price sheet, then start sharing the values that you personally treasure with the people who buy from you. You do this by creating an ongoing stream of helpful knowledge for your customers and prospects.

When it comes time to replace or upgrade your equipment whom do you believe the customer will prefer to buy from? The firm doing Knowledge Centered Selling, of course. This is like buying an insurance policy that guarantees you will never loose a customer.

No one else in the market place even comes close to developing a customer contact system like this. You are now positioned in the customers mind at such a superior place that competitors fall to the status of an "also ran."

We are no longer in the age of mass merchandising. Today our customers are looking for relationships with vendors and professionals that solve problems or prevent problems. By positioning yourself as the provider of those solutions you are positioning yourself as a firm of vision and service. When prospects feel your commitment to a better life they are anxious to buy your best offers.


Direct Mail
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Many business owners believe direct mail does not work. Yet, everyday you get 3 to 7 direct mail ads. The ads come from companies like Time-Warner, General Motors, or Proctor and Gamble. These are not small companies prone to making errors. It seems direct mail WORKS for somebody.

For the small business the most effective use of direct mail is generating repeat and referral business. Advertising in the media will cause people to inquire about your offer. When you hear from a new prospect or generate a new customer make a real effort to capture their name and address.

The very first step is a thank you letter. How many times have you gone into a business for the first time and received a thank you letter the next day? What an impact that makes the very few times it's happened.

Even if the prospect did not buy, thank them for inquiring and ask them back again. People go where they are invited.

The next best use of direct mail is to send your customers and prospects a constant flow of information that will help them make positive decisions about you. For example a short letter with tips on how to solve a problem they might have. These letters are well received and build repeat and referral business. Keep them short and valuable.

To make sure your mail is read follow these quick rules. Number one: everything important comes in a window envelope. So be sure to look important. No teaser copy, such as "You may have already won...." on the outside. Number two: to be really effective, put a stamp on your letter.... The first letters opened are the ones with stamps on them. Number three: Mail merge the prospect or customers name in the address block. Today's software makes this so easy that it takes no extra time to make your letters look personalized. Number four: sign your letters in blue ink, this individual touch really sets your letter apart.

Direct mail is a very targeted and personal medium. You can ask anyone you have ever met for anything by mail. So get busy, "Who do you know?"



Commuting Expenses
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Did you know that you could deduct "commuting" expenses between your home and temporary job locations? Daily transportation costs between your home and regular work locations are nondeductible commuting expenses. However, you may be able to deduct costs of going to and from your home and a temporary (not regular) job location if your work fits one of the following descriptions:
  1. You have one or more regular places of business outside your home, but sometimes travel to temporary work locations in the same trade or business.
  2. Your home is your principal place of business. That is, you meet the tests for deducting expenses of a home office. (Give us a call if you aren't familiar with those tests.) And, you travel to other work locations. These may be other regular or temporary work locations.
  3. You sometimes travel to a temporary work location outside the metropolitan area, in which you live and normally work.
Generally speaking, employment at a work location is temporary if it is realistically expected to last (and does in fact last) for no more than a year. So, for example, if you have a regular workplace, but you are assigned to another location for three months, your new work location is considered a temporary one. This means that you will be able to deduct your commuting expenses to the temporary location.

Sometimes a temporary location can turn into a regular one. This happens when your realistic expectation changes, so that work at a location that had been expected to last for a year or less is now expected to last for more than a year. For example, you may learn that what had been a three-month assignment to a work location has been made permanent. In that case, your commuting expenses to that location won't be deductible after the date when your realistic expectation changed.



Home Office Deduction
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If you're self-employed and work out of an office in your home, you should know about the strict rules that govern whether you can deduct your home office expenses. You may deduct your home office expenses if you meet any of the three tests described below: the separate structure test, the place for meeting patients, clients or customers test, or the principal place of business test. You may also deduct the expenses of certain storage space if you qualify under the rules. If you do qualify, you compute your home office deductions on Form 8829, and report them above-the-line on Schedule C.

The easiest test to meet allows a deduction for the costs of a separate unattached structure on the same property as your home-for example, an unattached garage, artist's studio, workshop, or office building-that is used as a home office. To qualify for the deduction, the separate structure must be used exclusively and on a regular basis in connection with your business.

Alternatively, you may deduct your home office expenses if you use the home office exclusively and on a regular basis, to meet or deal with patients, clients, or customers in the normal course of your business. The patients, clients or customers must be physically present in the home office. Telephone calls to them from your home office won't do the trick. In addition, you may deduct your home office expenses if you use your home office, exclusively and on a regular basis, as your principal place of business.

There are two tests for determining whether a home office is a principal place of business-the "management or administrative activities" test, and the "relative importance/time" test.

In applying the Relative importance/time test, there are two primary considerations in determining a taxpayer's principal place of business: (1) the relative importance of the activities performed at each location where the taxpayer's business was conducted, and (2) the amount of time spent at each place. IRS says that it will first apply the "relative importance" test by comparing the activities performed at home with those carried on elsewhere. If this comparison clearly shows where the principal place of business is, there's no need to look further. Where the "relative importance" test doesn't give a clear answer, says IRS, the "time" test comes into play. However, these tests may not clearly reveal that any location is the taxpayer's principal place of business. In that case, the taxpayer will be treated as not having a principal place of business.

Space for storing inventory or product samples. If you're in the business of selling products at retail or wholesale, and if your home is your sole fixed business location, you can deduct home expenses allocable to space that you use regularly to store inventory or product samples. The space doesn't have to be used exclusively for business purposes. And you can do business at the fixed locations of your customers (e.g., retail stores, if you're a wholesaler), and non-fixed locations, such as flea markets or craft shows.

As noted above, when you claim to be using your home office under any of the tests outlined above (except the "storage space" test for retailers and wholesalers), the home office must be used exclusively and on a regular basis in connection with your business. (For storage space used by retailers or wholesalers, the space must be used regularly for business purposes, but doesn't have to be used exclusively for those purposes.)

The exclusive use requirement means that you must use your home office solely for the purpose of carrying on your business. Any other use of the home office will result in loss of all deductions for your home office expenses.

The regular basis requirement means that you must use the home office in carrying on your business on a continuous, ongoing or recurring basis. Generally, this means a few hours a week, every week. A few days a month, every month, may do the trick. But occasional, "once-in-a-while" business use won't do.


Selling A Home? Be Tax-Smart and Save $$!
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Up to $250,000 of profit completely tax-free! Sound too good to be true? So where's the catch? There has to be a catch somewhere. OK. There are rules to qualify for this deal. Three of them. There are three questions about the 5-year period just prior to the sale. If you can answer "yes" to all three - you win! Any profit up to $250,000 is completely tax-free!

The questions:
  1. Ownership. Have you owned the property for at least two full years within the 5-year period? Any two years will do.
  2. Usage. Have you used the home as your main home for two years within the period? You may combine periods of time to accumulate the two years.
  3. Two-Year Wait. Has it been at least two years since you sold a property and used this tax-saving benefit?
Do it Right! This is a marvelous incentive. Don't risk losing the benefit by a hasty move. IRS knows you're attracted. And you can bet they're watching for any mistakes. There are traps. With planning you can avoid them all and cash in on the biggest tax saver ever.

There are loopholes - exceptions you can use when you can't say "yes" to all three questions. Not many, but they're important. Study the three questions. They apply to any residence. Even boats and trailers, but gains are less likely. Do you rent out a former home? Move into it for 2 years. First $250,000 of profit is free! Couples can get up to $500,000 of tax-free profit. A home owned by three brothers could get a $750,000 exclusion.

One Strike - You're Out! Those three little questions look simple. They are. For you, and for IRS. The two-year period - what if you're a few days short? No benefit. None. Not a dime. We asked for simplicity. These rules are simple. Don't strike out.

100% Home? Or Part Business? If you have been claiming a home office deduction, beware. Study question #2. Is the property your main home? If 15% of the home is called "office", IRS say only 85% of the property is your home. Profit on the 85% can have the exclusion. The 15% that is your "office building" cannot!

There are some Special Exceptions. Couples have special rules. Only one spouse needs to pass Test #1 - the ownership test. This allows for new marriages and cases where one spouse keeps a prior property in his/her sole name. More special rules kick in when one spouse dies. Others protect a spouse who leaves the property because of a divorce or separation. But nothing will protect you if you simply don't follow the rules. One strike - You're out!

Job Change? If you are forced to sell because employer moved you to another city, you can have part of the exclusion. If you only meet 75% of the time tests, you get 75% of the exclusion. Each of the 3 tests involves a 2-year period. Simply find the one in which you have the least time. That determines your percentage.

Timing is Everything. A HUGE tax savings! Tax on $250,000 is a big number. The rules are simple. Any sale must be planned carefully before you do a thing. Once the title is transferred, the deal is done. Your exclusion is either won - or lost!



How Long Should You Retain Tax Records?
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You may have to produce records if the Internal Revenue Service (or a state or local taxing authority) were to audit your return. Also, lenders and other private parties may require you to produce copies of your tax returns as a condition to lending money or approving a purchase.

TAX RETURNS & SUPPORTING RECORDS

It is a good rule of thumb to always keep all returns indefinitely. The supporting records should be kept for a minimum of six years. These are general statements and individual circumstances may adjust these time lines.
PROPERTY RECORDS

These types of records need to be kept longer. The tax consequences of a transaction occurring in, say 1997, may depend on things that took place in earlier years. The period for which you should retain these records should be measured from the year in which the tax consequences actually occur. For example, suppose you bought your home in 1987 for $200,000 and made an additional $20,000 of capital improvements in 1988. To determine the tax consequences of the sale, it's necessary to know your tax basis (i.e., original cost plus later capital improvements). Therefore, those records should be kept for at least six years after you sold your property, not six years from the date of each transaction. Even if you had sold your property, if any part of the gain is deferred, you may still need to keep these records.
SECURITIES

Similar considerations apply to other property that is likely to be purchased and sold like stock in a business corporation or in a mutual fund, bonds (or other debt securities), etc. It can get really complicated when you choose to reinvest dividends to purchase additional shares of stock or mutual fund. This is because each reinvestment is a separate purchase of stock. The records of each reinvestment should be kept for at least six years after the return is filed for the year in which the stock or fund is sold.
DIVORCE OR SEPARATION

Separation or divorce can cause a lot of problems since having access to any tax records affecting you can be difficult. Your former spouse may not cooperate and make it difficult to obtain the necessary information at a later date. You should keep a copy of the divorce decree or agreement of separate maintenance, which may be needed to substantiate alimony payments or dependency exemptions. Copies of all joint returns filed and supporting records are also important, since the liability for tax on a joint return is joint and several. In general, a deficiency may be asserted against either spouse. Property received from a divorce normally carries the same basis as it was in the hands of the two of you when you were married.
MISCELLANEOUS

You should also safeguard your records against loss from theft, fire or other disaster by keeping your most important records in a safe deposit box or other safe place outside your home.

Even if you lose some of your records, some of them may be able to be reconstructed.


Documentation for Charitable Contributions
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Q. I have a car that I would like to donate to my church. Can I just claim the amount shown as the value of the car per the Kelly Blue Book (about $6,500) on Schedule A of Form 1040?

A. When you contribute an auto to a charitable organization, you must determine its fair market value at the time of the contribution to determine the amount of the charitable deduction on your tax return. For a contribution valued at over $5,000, a written appraisal is required and must be attached to the return.

While guides like the Kelly Blue Books are helpful and can provide a good estimate of the value of your auto, the values shown are not "official" and do not qualify as an appraisal of any specific donated property. Once a qualified appraisal of the property has been secured, you must complete Section B of Form 8283 for each item or group of items for which you claim a deduction of over $5,000. The organization that received the property must complete and sign Part IV of Section B. Failure to properly report the contribution on Form 8283 or attach the appraisal report can result in the IRS disallowing your deduction for your noncash charitable contribution. Please note that appraisal fees do not increase your charitable deduction but are miscellaneous itemized deductions on Schedule A of Form 1040.