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Should software license fee (around $1,000) be capitalized or expensed? Thanks!
In my view it should be expensed because it is not a large amount.
zahid
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Same as mine. Thanks, ZahiD!
Section 197 Intangibles Defined
Ahhmm, duration of license?
I have a question, should a $1,000 license, term 10 years, be 'expensed or...
7 on your side Zahid, Tax rules for 21st century: Computers are customarily 'expensed. Software
license governed by identical rules? Nonrhetorical question. I presume this is a Silicon Valley Accounting
especiality. If software expense is $19.99, shall I treat the transaction as a purchase of NASA MAS-90
access for $20,000.
http://www.irs.gov/publications/p535...link1000158863
Section 197 Intangibles Defined
The following assets are section 197 intangibles and must be amortized over 180 months:
1. Goodwill;
2. Going concern value;
3. Workforce in place;
4. Business books and records, operating systems, or any other information base, including lists or other information concerning current or prospective customers;
5. A patent, copyright, formula, process, design, pattern, know-how, format, or similar item;
6. A customer-based intangible;
7. A supplier-based intangible;
The answer: if less than $1000, expense
Exceed 1,000, inspect rules for particularities.
I file this in the: If I gift my kid $12,000 for college expenses, I am required to file a Gift Tax Return (in 1997), No?
Answer, Maybe. Practice: Never.
Computer software. Section 197 intangibles do not include the following types of computer software.
1. Software that meets all the following requirements.
1. It is, or has been, readily available for purchase by the general public.
2. It is subject to a nonexclusive license.
3. It has not been substantially modified. This requirement is considered met if the cost of all modifications is not more than the greater of 25% of the price of the publicly available unmodified software or $2,000.
2. Software that is not acquired in connection with the acquisition of a trade or business or a substantial part of a trade or business.
Last edited by Helse; 05-15-2009 at 03:09 AM.
Food for thought.
Noticed that the answers given are really for the tax treatment. Granted that many small firms choose to use the same treatment for book as well as tax for simplification as it avoids recording and tracking deferred taxes but others do make the adjustment for their books.
Businesses will have capitalization policies that differ significantly from firm to firm and should be the first place to look for guidance. These policies can depend on the company's book equity, profitability, size and type of entity. Sometimes the choice is to dress up their balance sheet as opposed to minimizing taxable income.
While there can be a textbook answer one should recognize that in accounting there are often multiple correct answers to the same question and it ultimately depends on the client and not the accountant. Non accountants think all amounts are exact and determined by specific GAAP rules, while the reality is a set of complex choices/options that are considered GAAP if they follow the matching, consistency, materiality and disclosure principles. Small businesses don't usually do GAAP even though they do try to properly account for most items.
Sometimes you can't see the trees on account of the forest and vice versa.
P.S.
Small business tip. When you see GAAP as standard language in a loan agreement you should delete or at least modify to something less onerous like "good business practices" unless you can truly meet the definition you're agreeing to.
If it requires activation or you registered the license then you have to do it through the company to properly transfer it. I believe that most license agreements do not allow transfer. However, if there is nothing that ties you to the license and it does not require online activation.
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