J.K. Lasser's Small Business Taxes 2013: Your Complete Guide to a Better Bottom Line

Amortization

Certain capital expenditures can be deducted over a term of years. This is called amortization. This deduction is taken evenly over a prescribed period of time. Amortization generally applies to the following expenditures:

• Intangibles acquired on the purchase of a business
• Business start-up costs and organizational expenses
• Construction period interest and taxes
• Research and experimentation costs
• Bond premiums
• Reforestation costs
• Pollution control facilities
• Costs of acquiring a lease
• Certain leasehold and qualified restaurant improvements

Intangibles Acquired on the Purchase of a Business

If you buy a business, a portion of your cost may be allocated to certain intangible items:

• Goodwill
• Going concern value
• Workforce in place
• Patents, copyrights, formulas, processes, designs, patterns, and know-how
• Customer-based intangibles
• Supplier-based intangibles
• Licenses, permits, and other rights granted by a governmental unit or agency
• Covenants not to compete
• Trademarks, or trade names
• Franchises (including sports franchises) (but ongoing franchise fees are currently deductible)

These items are called Section 197 intangibles, named after a section in the Internal Revenue Code. You may deduct the portion of the cost allocated to these items ratably over a period of 15 years.

Example

You buy out the accounting practice of someone else. As part of the sale, the other accountant signs a covenant not to compete with you for 2 years within your same location. You may amortize ...