Franchise, Trademark, and Tradename

Karen a photographer who recently moved to California. To quickly acquire a book of business, in January she entered into a 15 year franchise agreement with Hollywood Design and Photography. Karen paid a one time franchise fee of $12,500 and agreed to pay Hollywood an additional 4% of her net income each year. When Karen prepares her taxes she should amortize the $12,500 franchise fee over 15 years and deduct her contingent fee in its entirety.

Jared is a sole-proprietor developer who recently launched a new mobile gaming application. To protect his brand, he registered a trade name and trademark for his app. Inclusive of design, legal and filing fees he spent $30,000. Since his trademark and trade name are considered intangible assets, Jared should to amortize the $30,000 over 15 years and deduct $2,000 ($30,000 / 15 years) each year when he prepares his taxes (note that if his trade name and trademark were placed into service in the middle of the tax year, his first year and last year deduction may be less than $2,000).

Paolo is a self employed real estate agent who has been out on his own for five years. At the beginning of this year he paid $450 to acquire a trade name to make his business appear more professional. Pablo's accountant advised him that even though the trade name was not expensive, since it is a Section 197 intangible the IRS requires that he recognize the cost of his trade name over a fifteen year period.

Anna is a graphic designer who registered a new trademark for her business in January of this year. She paid $7,500 for her trademark. Since this was a legitimate business expense she told her tax preparer that she would like to deduct the cost on her Schedule C. Her accountant advised her that rather than deduct the full $7,500 this year, she should amortize this expense over 15 years, so he completed Form 4562 (depreciation and amortization schedule) and deducted $500 ($7,500/15 years) on her current year Schedule C.