Monday, July 25, 2011

Section 197 Intangibles- Amortization

What are IRS Section 197 Intangibles- Amortization?

Normally the goodwill of a business is a non-depreciable asset. However, congress made an exception.

§ 197 : Taxpayers are allowed to recover the cost of a wide range of purchased intangibles, including goodwill and other “customer based intangibles,” on a straight line basis over 15 years, without regard to the actual useful life of the asset.

  1. § 197 usually does not apply to intangibles created by the taxpayer itself.
  2. Little practical significance because taxpayers can deduct the majority of costs used to create goodwill under § 162
  3. § 197 only comes into effect when goodwill is purchased

Saturday, July 23, 2011

What is a Shareholder or Owner's advance?

Accountants often face an issue in their business with "Shareholder/owner's advance" in small private companies. In general, shareholder advance are small loans (however, they can be quite large) made to the owner for personal use and legally need to repaid to the company by the end of the year or some other time period.

Basically, the owner has to pay the loan back to the company at the end of the year so the company's net income income can be properly submitted to the authorities for tax purpose (most of the time the shareholder's advance account needs to have a balance of zero at the end of the year).  The most interesting situations arise for accountants when the other cannot pay the amount back by the end of the year.

Popular Accounting Problems

The information on this site is for informational purposes only and should not be used as a substitute for the professional advice of an accountant, tax advisor, attorney, or other professional.