Amortization - Description of Costs

Amortization - Description of Costs

When claiming amortization deductions on your tax return, you must provide a detailed description of the costs being amortized. This requirement ensures clarity and compliance with IRS guidelines, particularly for expenses related to research, development, or other qualifying expenditures.

What Must Be Included in the Description?

According to IRS Form 4562 instructions, the description of costs must include:

• Description of costs – Clearly identify the nature of the expenses being amortized (e.g., foreign research expenditures, section 197 intangibles).
• Date amortization began – Specify when the amortization period started.
• Amortizable amount – The total cost eligible for amortization.
• Applicable Code section – Reference the specific Internal Revenue Code section (e.g., section 174, section 174A, or section 59(e)).
• Amortization method – Indicate how the deduction is being calculated (e.g., 15-year straight-line amortization).

Where to Report Amortization Details

Amortization deductions are typically reported on Form 4562, Depreciation and Amortization. For costs amortized under section 174 or section 174A, you must attach a statement detailing the above information and report the amount on line 43. The amortization deduction is then carried to line 44.

If you are reporting amortization of section 59(e) expenditures (such as those from partnerships or S corporations), you must make an election on Form 4562. If elected, the current-year amortization is reported on Schedule E (Form 1040), line 28. If not elected, the expenditures are reported directly on Schedule E, line 28, and may affect Alternative Minimum Tax (AMT) calculations.

Examples of Amortizable Costs

• Foreign research or experimental expenditures (section 174).
• Section 197 intangibles (e.g., goodwill, patents, trademarks, franchises).
• Costs associated with business acquisitions (if qualifying under section 197).

Note: Section 197 intangibles must be amortized over 15 years and cannot be depreciated under any other method. See Publication 225 for more details on qualifying assets.

How to Add Form 4562 in OLT Software

To add Form 4562 in Online Taxes (OLT) software:

1. Navigate to your tax return in the software.
2. Under the Federal section, go to Income.
3. Click "Show more" near Business Income or Loss or Rental, Royalty, Partnership, S Corp, Trust or Farm Income or Losses.
4. Select "Add or Edit" next to Depreciation and Amortization - Form 4562.
5. Follow on-screen instructions to enter your amortization details.

Source:

Form 4562 - Depreciation and Amortization

Schedule E (Form 1040)

Publication 225 - Farmer's Tax Guide

Disclaimer: Always verify details with official IRS forms and instructions from the Federal or State Department of Revenue.