Taxation For personal income tax purposes, some costs with respect to intangible assets must be capitalized rather

than treated as deductible expenses. Treasury regulations generally require capitalization of costs associated with acquiring, creating, or enhancing intangible assets. For example, an amount paid to obtain a trademark must be capitalized. Certain amounts paid to facilitate these transactions are also capitalized. Some types of intangible assets are categorized based on whether the asset is acquired from another party or created by the taxpayer. The regulations contain many provisions intended to make it easier to determine when capitalization is required. Definition of "intangibles" differs from standard accounting, in some US state governments. These governments may refer to stocks and bonds as intangibles.

Capital allowance A Capital allowance refers to sums of money a UK business can deduct from the overall corporate or income tax on its profits. These sums derive from certain purchases or investments. Writing down allowance, in United Kingdom taxation, is the annual rate at which capital allowances can be claimed. This rate is reduced or extended if the chargeable period is shorter or longer than one year. Capital allowance reliefs can be set against the clients taxable profits reducing the amount payable. Companies pay Corporation Tax at 20% or 26%, whilst individuals pay tax at 20%, 40% or 50%. Please note as it is an allowance against taxable profit, you have to be a tax payer to benefit. Therefore this does not normally apply to property owned in SIPPS or by charities and trusts. Allowances are generated when a business client builds or acquires commercial property. The amount of plant contained within the building or acquired property is the key to maximizing the relief. The claim should be considered as an effective discount and cash contribution to the construction cost or purchase price. The claim provides a tax saving that accrues over time.

Allowance for Doubtful Accounts The allowance for doubtful accounts is a reduction of the total amount of accounts receivable appearing on a companys balance sheet, and is listed as a deduction immediately below the accounts receivable line item. This deduction is classified as a contra asset account. The allowance for doubtful accounts represents managements best estimate of the amount of accounts receivable that will not be paid by customers. It does not necessarily reflect subsequent actual experience, which could differ markedly from expectations. If actual experience differs, then management adjusts its estimation methodology to bring the reserve more into alignment with actual results. If a company is using the accrual basis of accounting, it should record an allowance for doubtful accounts, since it provides an estimate of future bad debts that improves the accuracy of the companys financial statements. Also, by recording the allowance for doubtful accounts at the same time it records a sale, a company is properly matching the projected bad debt expense against the related sale in the same period, which provides an accurate view of the true profitability of a sale.

For example, a company records $10,000,000 of sales to several hundred customers, and projects (based on historical experience) that it will incur 1% of this amount as bad debts, though it does not know exactly which customers will default. It records the 1% of projected bad debts as a $100,000 debit to the Bad Debt Expense account and a $100,000 credit to the Allowance for Doubtful Accounts. The Bad Debt Expense is charged to expense right away, and the Allowance for Doubtful Accounts becomes a reserve account that offsets the account receivable of $10,000,000 (for a net receivable outstanding of $9,900,000).

Amortization In tax law, amortization refers to the cost recovery system for intangible property. A corresponding concept for tangible assets is depreciation. Methodologies for allocating amortization to each tax period are generally the same as for depreciation. However, many intangible assets such as goodwill or certain brands may be deemed to have an indefinite useful life, or self-created and are therefore not subject to amortization.