💰 Using trademarks for tax planning & tax strategy

Trademarks as part of tax planning and tax strategy

During the last few years, I've helped more than 600 companies and individuals apply for and register trademarks that enhance their brand's value and protect against infringement. And yet I recently learned that trademarks can help protect more than your brand. Intangible assets can be as crucial to a business as those that you can see and touch. Invisible things like patents, trademarks, and proprietary technology can hold immense value despite their lack of physical form. Legal, accounting, and business elements are all considered in a company's financial management, including accounting for intangible assets. Today, I aim to provide an in-depth understanding of this complex but crucial subject. Believe it or not, you can actually use trademarks for tax planning! Please note that while I am an IP lawyer, I’m NOT a CPA, and you should consult with your tax strategist to fully understand the implications of the amortization of your assets.

Savvy business owners (or those with awesome CPAs who help them figure out the best ways to minimize taxes and maximize assets) know that trademarks can be helpful in tax planning. By treating them as depreciating assets and/or amortizing the cost of acquiring a trademark (including both attorney fees and USPTO fees), businesses can use trademarks to effectively lower their tax liability and offset income.

This strategic approach not only safeguards your business' brand, but also optimizes financial health. This way, trademarks serve dual purposes: a tool for business growth and one for tax and cost management. Ask your tax planner about it to learn more (again, I’m not an accountant), but I’m so excited that protecting your brands can also help you save even more on your next tax return! Understanding Intangible Assets Intangible assets (also referred to as intellectual property) are non-physical assets that may hold significant value for a company. These can include brand names, trademark registrations, operations manuals, patents, proprietary technology, and more. Since these assets aren’t physical, their value can't always be determined easily, but they often play a significant role in a company's long-term success.

Amortization of Intangible Assets: What does it mean? Amortization is the process of gradually reducing the value of an intangible asset over its useful life. This is done by regularly deducting a portion of the asset's cost from the company's balance sheet. IN OTHER WORDS…THE COST OF OBTAINING A TRADEMARK OR COPYRIGHT REGISTRATION CAN OFFSET INCOME! The overall goal is to match the cost of the asset with the revenue it generates over its lifespan, thus aligning with the accounting principle of matching expenses with revenues. Legal Considerations Surrounding Amortization From a legal standpoint, understanding the lifespan of an intangible asset is essential. This is especially true for assets like patents or copyrights, which are protected by law for a specific period of time. However, as we know, once registered, a trademark can last forever if it is used and renewed at the required intervals. The amortization period of such assets should not exceed their legally protected lifespan. Under the tax code, the development or purchase cost of an intangible asset can get amortized over 15 years, unless you know the intangible's useful life is shorter. (26 U.S. Code § 197 - Amortization of goodwill and certain other intangibles”) Factors such as market competition, technological advancements, and changing laws or regulations can all impact the “useful life” of an asset. For instance, changing data privacy laws might impact the value and lifespan of a company's customer lists. Therefore, it's crucial to stay updated on current legal landscapes and how they might affect your intangible assets. The Importance of Proper Amortization Proper amortization of intangible assets is not just a matter of legal and financial compliance, but also of business integrity. Overstating the lifespan of an asset can inflate a company's value, misleading investors and potentially leading to legal repercussions. On the other hand, understating an asset's lifespan can lead to over-amortization, reducing the company's reported profits and potentially affecting its stock price. Therefore, determining the right amortization period is crucial for maintaining transparency and accuracy in business operations. Amortizing intangible assets over time requires a thorough understanding of both the nature of the assets and the legal regulations surrounding them. I strongly advise businesses to consult with legal and financial advisors to ensure they are appropriately amortizing their intangible assets in preparation for year-end (or year-round) tax planning. This approach will not only maintain compliance with the law and accounting standards but also provide a true reflection of the company's value to its stakeholders. Remember, the legal and accounting aspects of business are interconnected and should always be considered together for the successful and ethical operation of your business. As always, if you have questions about intellectual property, or want to increase the value of your business by protecting your unique brands, please get in touch!

Disclaimer: This blog post is intended for informational purposes only and should not be construed as legal or financial advice. For personalized legal advice on your specific situation, please schedule a consultation.

References: https://www.law.cornell.edu/uscode/text/26/197 IRS Publication 946 (2022), How To Depreciate Property Photo by PiggyBank on Unsplash Photo by Scott Graham on Unsplash