Trademark Amortization Rules

By Timothy Mucciante

The Internal Revenue Service and the tax authorities in some states have specific rules about trademark amortization deductions. Section 197 of the Internal Revenue Code (IRC) allows the capitalized cost of a trademark to be amortized and then deducted from taxable income rather deducted as an ordinary business expense. Capital cost amortization is required if the trademark is part of a trade or business, or if it is otherwise used to generate revenue.

What Is Amortization?

All costs incurred in the development of a trademark, including filing fees and attorney fees, are included in the capital costs. When a trademark is acquired from another party, the total cost of the acquisition is capitalized. The IRC permits a trademark's capital costs to be amortized over a 15-year period, which means the taxpayer can deduct a portion of these costs in each year of the amortization period. This deduction reduces the trademark owner's income subject to taxation.

Trademarks Are Intangibles

"Intangibles" are defined by Section 197 to include intellectual property, good will, licenses and permits, and the going concern value of a business. A trademark is considered among these intangibles, and it includes any name, word, symbol or other mark utilized in income-producing activities to distinguish the goods of one seller from another. Under Section 197, the costs incurred in renewing a trademark may be amortized as an acquisition over the allowed amortization period.

Protect your brand. Register My Trademark Now

Calculating Amortization

If the capitalized cost of a trademark is $20,000, that amount is divided by 15 and the resulting deduction for each year would be $1,333. The 15-year amortization period begins the month that the trademark was acquired or the month it was actively used to produce income, whichever is earlier. If the adjusted cost basis of the trademark is increased as a result of additional capitalization, this increase should be amortized over the remaining period.

State Trademark Amortization Rules

In addition to federal trademark amortization rules, some states have rules on trademark amortization. For example, the state of Kentucky adopted Internal Revenue Code Section 197 into its own tax code effective January 1, 1994. After that date, the amount used for the federal trademark amortization deduction is used for Kentucky state tax filings as well.

Protect your brand. Register My Trademark Now
FASB Rules for Trademark Costs

References

Resources

Related articles

How to Legally Trademark a Band Name

Like any other word or phrase used to identify a particular product or service, a band can register its name as a trademark in the United States. Registering the trademark allows the band to prevent others from using its name for commercial purposes. It also allows the band to license its trademarked name to others, offering them a limited chance to use the name in exchange for a fee. You should register band names with the U.S. Patent and Trademark Office.

Trademark Owner's Responsibilities

Holding an official trademark registered with the federal government gives you the right to exclusively use your mark, but it does not come without responsibility. If you have a trademark registered by the U.S. Patent and Trademark Office, there are ongoing requirements to meet in order to maintain and enforce its exclusive use.

How to Obtain a Trademark

You obtain a trademark by using a logo, word, slogan or design that is associated with a product or service provided by your business. The key to establishing a trademark is using it actually and continually in commerce. The strength of your trademark rights depends on the uniqueness of your trademark, how long it has been in use and the size of the geographical area where the trademark is used. Although not legally required, registering your trademark with the United States Patent and Trademark Office (USPTO) provides the maximum legal rights and protection for your trademark.

File a Trademark Online. LegalZoom. Learn More.

Related articles

How to Use TESS for Trademark

A trademark is a unique symbol, phrase or word used to distinguish one brand of goods or services from another. ...

What Is the Penalty for Violating a Trademark?

A trademark is a symbol, word or phrase that identifies the source of a product or service. Trademarks are valuable ...

How to Trademark a Shape

A trademark is phrase, symbol or design element that identifies the brand of a product or service. Unlike a copyright ...

Deduction Categories for a Sole Proprietor

A sole proprietorship is just a business owned by a single individual. The earnings, expenses, profits and losses of a ...

Browse by category
Ready to Begin? GET STARTED