Question

A company in its first year whose method of accounting is a cash basis (cash basis) had expenses of $ 3,000 for professional services.

According to the IRS, what is the amortization?

Answer 1

Answer:

Amortization of Intangibles as per Section 197 of IRS.

Amortization is similar to the straight-line method of depreciation, with equal amounts of annual deductions over the life of the asset.

The IRS designates certain assets as intangible assets under Section 197 of the Internal Revenue Code. Section 197 amortization rules apply to some business assets, but not to others. These intangible assets must usually be amortized over 15 years. You must amortize these costs if you hold the section 197 intangibles in connection with your trade or business or in an activity engaged in for the production of income.

For purposes of Section 197, intangible assets include:

1. Goodwill
2. Going concern value
3. The workforce in place (that is, current employees, including their experience, education, and training)
4. Business books and records, operating systems, or any other information base, including lists or other information concerning current or prospective customers
5. A patent, copyright, formula, process, design, pattern, know-how, format, or similar item
6. A customer-based intangible, including customer base and relationships with customers
7. A supplier-based intangible (the value of future purchases due to relationships with vendors)
8. Any item similar to items (3) through (7)
9. A license, permit, or other right granted by a governmental unit or agency (including issuances and renewals)
10. An agreement or covenant not to compete or non-compete agreement entered into in connection with the acquisition of an interest in a trade or business; and
11. A franchise, trademark, or trade name
12. A contract for the use of, or a term interest in, any item in this list.

You can't amortize items 1 through 8 that you created rather than acquired unless you created them in acquiring assets that make up a trade or business or a substantial part of a trade or business.

To deduct amortization expenses for the year on your business tax return, use Form 4562, Part VI for the tax year you acquired the property. You just need to complete the form for the first year you are claiming the amortization expense.