Capterra Glossary
Amortization
Amortization is an accounting technique in which a debt is paid by submitting predetermined payment installments over a specified period of time. Businesses often use amortization to pay off loans or debt, but amortization can also be used to periodically lower the value of intangible assets such as intellectual property rights. Amortization helps companies quantify the gradual losses associated with their intangible assets, often referred to as amortization expenses. Corporations can then deduct their amortization expenses from their taxable business income, reducing the amount of taxes they have to pay each fiscal year.
What Small and Midsize Businesses Need to Know About Amortization
Small businesses that are new to the market often take advantage of financial benefits of the amortization process. The U.S government allows businesses to deduct up to $5,000 in business startup costs over a single fiscal year. However this $5,000 deduction limit is reduced by the amount of startup expenses that surpass $50,000. Any startup expenses that a new business canʻt deduct on their taxes are then amortized over a 15 year period, beginning with the first month a business becomes operational. Small businesses often write off these amortization expenses using a IRS Form 4562, which decreases their tax liability over time, saving them revenue in the long run.
Related Terms
- Compound Annual Growth Rate (CAGR)
- Financial Planning and Analysis (FP&A)
- Selling General and Administrative (SG&A) Expenses
- Hedge Fund
- Gateway
- Record to Report (R2R)
- ROIT (Return on Information Technology)
- Chief Revenue Officer (CRO)
- SAC (Subscriber Acquisition Cost)
- ROE (Return on Equity)
- Tokenization
- Net Present Value
- Fintech
- Financial Management System (FMS)
- Business Capability Modeling