Amortization
Definition
The process of spreading the cost of an intangible asset over its useful life for tax purposes. Common amortizable assets include patents, copyrights, trademarks, goodwill, franchise agreements, and business startup costs. Most intangible assets acquired in a business purchase are amortized over 15 years under Section 197. Amortization reduces taxable income similarly to depreciation but applies to intangible rather than tangible assets.
Example
You purchase a franchise license for $150,000. Under Section 197, you amortize it over 15 years, deducting $10,000 per year from your business income.