Page 90 - Small Business Taxes

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if you timely filed your return for the year without • The month your corporation or partnership You can't deduct amortization for the month you
making the election, you can still make the elec- began active business (or acquired the dispose of the intangible.
tion by filing an amended return within 6 months business).
of the due date of the return (excluding exten- • The number of months in your amortization If you pay or incur an amount that increases
sions). For more information, see the instruc- period (which is generally 180 months). the basis of an amortizable section 197 intangi-
tions for Part VI of Form 4562. ble after the 15-year period begins, amortize it
Partnerships. The statement prepared for over the remainder of the 15-year period begin-
a cash basis partnership must also indicate the ning with the month the basis increase occurs.
You can choose to forgo the election to am- amount paid before the end of the year for each
ortize by affirmatively electing to capitalize your cost. You aren't allowed any other depreciation or
startup or organizational costs on your income You don't need to separately list any part- amortization deduction for an amortizable sec-
tax return filed by the due date (including exten- nership organizational cost that is less than tion 197 intangible.
sions) for the tax year in which the active trade $10. Instead, you can list the total amount of
or business begins. these costs with the dates the first and last Tax-exempt use property subject to a lease.
The amortization period for any section 197 in-
Note. The election to either amortize or costs were incurred. tangible leased under a lease agreement en-
After a partnership makes the election to
capitalize startup or organizational costs is ir- amortize organizational costs, it can later file an tered into after March 12, 2004, to a tax-exempt
revocable and applies to all startup and organi- amended return to include additional organiza- organization, governmental unit, or foreign per-
zational costs that are related to the trade or tional costs not included in the partnership's son or entity (other than a partnership), shall not
business. original return and statement. be less than 125% of the lease term.

If your business is organized as a corpora- Cost attributable to other property. The
tion or partnership, only the corporation or part- Getting a Lease rules for section 197 intangibles don't apply to
nership can elect to amortize its startup or or- any amount that is included in determining the
ganizational costs. A shareholder or partner If you get a lease for business property, you cost of property that isn't a section 197 intangi-
can't make this election. You, as a shareholder may recover the cost of acquiring the lease by ble. For example, if the cost of computer soft-
or partner, can't amortize any costs you incur in amortizing it over the term of the lease. The ware isn't separately stated from the cost of
setting up your corporation or partnership. Only term of the lease for amortization purposes gen- hardware or other tangible property and you
the corporation or partnership can amortize erally includes all renewal options (and any consistently treat it as part of the cost of the
these costs. other period for which you and the lessor rea- hardware or other tangible property, these rules
don't apply. Similarly, none of the cost of acquir-
sonably expect the lease to be renewed). How- ing real property held for the production of
However, you, as an individual, can elect to ever, renewal periods aren't included if 75% or rental income is considered the cost of good-
amortize costs you incur to investigate an inter- more of the cost of acquiring the lease is for the will, going concern value, or any other section
est in an existing partnership. These costs qual- term of the lease remaining on the acquisition 197 intangible.
ify as business startup costs if you acquire the date (not including any period for which you
partnership interest. may choose to renew, extend, or continue the
lease). Section 197 Intangibles
Startup costs election statement. If you Defined
elect to amortize your startup costs, attach a For more information on the costs of getting
separate statement (if required) that contains a lease, see Cost of Getting a Lease in The following assets are section 197 intangibles
the following information. chapter 3. and must be amortized over 180 months.
• A description of the business to which the
startup costs relate. How to amortize. Enter your deduction in 1. Goodwill.
• A description of each startup cost incurred. Part VI of Form 4562 if you are deducting amor- 2. Going concern value.
• The month your active business began (or tization that begins during the current year, or
was acquired). on the appropriate line of your tax return if you 3. Workforce in place.
• The number of months in your amortization aren't otherwise required to file Form 4562. 4. Business books and records, operating
period (which is generally 180 months). systems, or any other information base, in-
Filing the statement early. You can elect Section 197 Intangibles cluding lists or other information concern-
to amortize your startup costs by filing the state- ing current or prospective customers.
ment with a return for any tax year before the Generally, you may amortize the capitalized 5. A patent, copyright, formula, process, de-
year your active business begins. If you file the costs of “section 197 intangibles” (see Section sign, pattern, know-how, format, or similar
statement early, the election becomes effective 197 Intangibles Defined, later) ratably over a item.
in the month of the tax year your active busi- 15-year period. You must amortize these costs
ness begins. if you hold the section 197 intangibles in con- 6. A customer-based intangible.
Revised statement. You can file a revised nection with your trade or business or in an ac- 7. A supplier-based intangible.
statement to include any startup costs not inclu- tivity engaged in for the production of income. 8. Any item similar to items 3 through 7.
ded in your original statement. However, you You may not be able to amortize sec- 9. A license, permit, or other right granted by
can't include on the revised statement any cost tion 197 intangibles acquired in a trans- a governmental unit or agency (including
you previously treated on your return as a cost ! action that didn't result in a significant issuances and renewals).
CAUTION
other than a startup cost. You can file the re- change in ownership or use. See Anti-Churning
vised statement with a return filed after the re- Rules, later. 10. A covenant not to compete entered into in
turn on which you elected to amortize your connection with the acquisition of an inter-
startup costs. Your amortization deduction each year is est in a trade or business.
Organizational costs election statement. If the applicable part of the intangible's adjusted 11. Any franchise, trademark, or trade name.
you elect to amortize your corporation's or part- basis (for purposes of determining gain), fig- 12. A contract for the use of, or a term interest
ured by amortizing it ratably over 15 years (180
nership's organizational costs, attach a sepa- in, any item in this list.
rate statement (if required) that contains the fol- months). The 15-year period begins with the
later of:
lowing information. • The month the intangible is acquired, or
• A description of each cost.
• The amount of each cost. • The month the trade or business or activity
engaged in for the production of income
• The date each cost was incurred. begins.
Chapter 8 Amortization Page 31