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Amortization: The Dilemma of Intangible Assets

amortization intangible assets harding group

If you’ve never heard the term “amortization” before, we can’t blame you.

Small business owners already have enough problems to worry about every day. The same could be said for larger and more established corporations. However, start-ups often have fewer resources and assets than their older and more well-known counterparts. If you’ve never heard the term “amortization” before, we can’t blame you. This concept becomes even more of a pressing concern when you wish to build or organically expand your business’s web presence. 

Items that Qualify as Intangible Assets 

First and foremost, you should know what intangible assets are. If you are only familiar with physical assets (such as equipment, printed advertising materials, and company cars), the idea of an intangible asset might seem incomprehensible to you. Intangible assets include customer lists, copyrights, web domains, licensing agreements, patents, trademarks, and proprietary intellectual property such as software or video game design engines. 

The Difference Between Created and Acquired Assets 

Now let’s examine the distinction between created assets and acquired ones. Creating a membership program or maintaining an email mailing list both count as created assets. Meanwhile, you could also pay another company to purchase theirs. Acquired assets are just as valid as the ones you’ve made. All acquired assets can be amortized; the costs of intangible assets help you determine how much the amortization will play a part.

How Amortization Plays a Part 

In any case, you should talk to an accountant. They can answer any thorny questions you have about the process. The straight-line method is the most common way to calculate cost versus lifespan. Consider the legal lifespan and the expected length of time the asset remains valuable. Pick whichever value is smaller. For more indefinite periods (i.e., when you can’t predict how long an investment continues to make money), speak to an accountant. They’ll tell you about the relevant IRS guidelines. 

Your Ultimate Takeaway 

Think of amortization as similar to depreciation. While depreciation has to do with tangible assets, amortization associates with intangible assets instead. You will be able to track how much your assets cost as time passes. Intangible assets are non-physical assets intended to generate revenue for at least the next year or so. If you need to begin amortizing, it’s time to do some math. Divide how much the asset costs by its value-accruing lifespan.

Trust the Professionals at the Harding Group

Unlike other accounting firms, The Harding Group, located in Annapolis, MD, will never charge you for consultations and strive for open communication with our clients. 

Are you interested in business advising, tax preparation, bookkeeping and accounting, payroll services, training + support for QuickBooks, or retirement planning?  We have the necessary expertise and years of proven results to help. 

We gladly serve clients in Annapolis, Anne Arundel County, Baltimore, Severna Park, and Columbia. If you are ready to take the stress out of tax time, contact us online or give us a call at (410) 573-9991 for a free consultation. For more tax tips, follow us on Facebook, Twitter, YouTube, and LinkedIn.

This entry was posted on Friday, March 26th, 2021 at 11:28 am. Both comments and pings are currently closed.

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