Business Deductions
- Amortization
- Business Losses and Net Operating Losses
- Car and Truck Expenses
- Day-Care Services
- Depreciating Business Property
- Depreciating Your Car
- Domestic Production Activities Deduction
- Health Insurance Deduction
- Home Office Deduction
- Meal and Entertainment Expenses
- Organizational Costs and Start-up Costs
- Qualified Plan Awards
- Schedule C Expenses
- Section 197 Intangibles
- Should You Sell or Trade in Your Car?
- Start-up Costs
- Travel Expenses
More Tax Topics
- Business Structures
- Hiring Workers
- Retirement
- Top Tax Myths
- Per Diem Rates - IRS Publication 1542 Oct 2011 for Travel Within the Continental U.S (for employers who pay a per diem allowance to employees)
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Updated for 2011
Small Business Deductions: Amortization
What is Amortization?
Reducing Debt:
When referring to a loan, such as a mortgage or car loan, amortization of the loan is the gradual reduction of the principal balance over a period of time by making periodic installment payments, such as monthly payments.
Recovering Cost:
In tax law, amortization refers to the recovery of the cost of intangible property by deducting equal the cost of such intangibles in equal amounts over a designated period of time.
For example, the cost of Section 197 intangibles must be amortized over 15 years. The amount allocated to goodwill when buying a business is an example of a Section 197 intangible
Items that Must be Amortized
Tax law designates specific types of capital expenditure that must be amortized over a prescribed umber of years.
The annual amortization amount is simply the cost of the item divided by the number of years in the amortization period.
The following expenditures must be amortized:
- Section 197 Intangibles (amortize over 15 years).
- These are intangible assets acquired in connection with the acquisition of a business.
- Business start-up costs and organizational costs (amortize over 5 years)
- Construction period interest and taxes
- Research and experimentation costs
- Bond premiums
- Reforestation costs
- Pollution control facilities
- Costs of acquiring a lease
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