Whether trademarks are amortized depends on how you got the trademark and which set of books you’re looking at. A trademark your business purchased is generally not amortized on your GAAP financial statements, because it usually has an indefinite useful life; the same trademark is amortized straight-line over 15 years on your federal tax return under Section 197. A trademark your business built itself is not amortized on either set of books, because the costs of creating it were already expensed as you spent the money. That book-tax split is where most of the confusion lives, and it’s worth walking through carefully.
Purchased Trademarks on Your Financial Statements
When you buy a trademark, you capitalize the purchase price plus the direct costs of getting the asset ready to use, such as legal fees for due diligence and transfer registration. That total sits on your balance sheet as an intangible asset. What happens next depends on the useful life you assign it.
Under ASC 350-30, every intangible asset is classified as either definite-lived or indefinite-lived. Most acquired trademarks land in the indefinite-lived bucket. Federal law lets trademark registrations be renewed in 10-year intervals with no cap on the number of renewals, so as long as the owner keeps using the mark in commerce and pays renewal fees, the registration can survive indefinitely.1Office of the Law Revision Counsel. 15 USC 1059 – Renewal of Registration Combined with the ongoing revenue the brand produces, that perpetual renewability means there’s no foreseeable limit on the period the trademark will generate cash flows.
An intangible with an indefinite useful life is not amortized.2FASB. Accounting Standards Update 2012-02 – Intangibles Goodwill and Other (Topic 350) The carrying value stays put year after year. In place of amortization, you test the trademark for impairment at least annually, and more often if events suggest its fair value has dropped. The test can start with a qualitative screening: if there are no red flags like falling revenue on the branded line, tougher competition, negative publicity, regulatory changes, or lost key customers, you can skip the quantitative work that year. If the qualitative screen raises concerns, you compare the trademark’s fair value to its carrying amount, and if the carrying amount is higher, you record an impairment loss for the difference. That write-down cannot be reversed later, even if the brand rebounds.
When a Purchased Trademark Does Get Amortized on the Books
Some acquired trademarks have a definite useful life from the start. A trademark license that expires in 10 years, with renewal that involves substantial cost or uncertainty, gets a definite life and is amortized straight-line over those 10 years. Contract terms, regulatory limits, or economic factors that cap the cash-generating period all point in the same direction.
An indefinite-lived trademark can also become definite-lived later. If a competitor’s dominant brand enters the market, a regulatory shift limits your use of the mark, or a new licensing arrangement imposes a hard end date, you must reclassify the useful life. Two steps follow. First, you test the trademark for impairment under the quantitative framework and write down any excess of carrying value over fair value. Second, you amortize the post-impairment carrying value straight-line over the newly estimated remaining life. This is handled as a change in accounting estimate, so prior periods aren’t restated.2FASB. Accounting Standards Update 2012-02 – Intangibles Goodwill and Other (Topic 350)
Self-Created Trademarks on Your Financial Statements
If you built the brand yourself, GAAP keeps it simple: expense the costs as you incur them. Advertising, promotional events, social media, marketing salaries, and design costs for logos all flow through the income statement as period expenses. There’s no reliable way to separate the dollars that created lasting brand value from the dollars that just kept the business running, so nothing gets capitalized and nothing is available to amortize.
One narrow exception. Direct, external legal costs tied to the initial trademark registration, such as USPTO filing fees and attorney fees for preparing the application, can be capitalized because they represent a discrete, measurable expenditure that secures a specific legal right. Ongoing legal costs to defend or maintain the mark after registration are expensed as incurred. Any capitalized amount for an internally developed trademark tends to be small, and it follows the same indefinite-life framework as a purchased trademark once it’s on the books.
Purchased Trademarks on Your Tax Return
The tax rule is different, and it’s mechanical. Section 197 requires you to amortize an acquired trademark or trade name ratably over 15 years, beginning in the month of acquisition.3Office of the Law Revision Counsel. 26 USC 197 – Amortization of Goodwill and Certain Other Intangibles This applies whether you bought the trademark on its own or picked it up as part of acquiring a business.4Internal Revenue Service. Intangibles
The 15-year period is mandatory. You can’t shorten it, even if the trademark clearly has a shorter economic life. Pay $3 million for a trademark and you deduct $200,000 a year for 15 years, whether the brand is thriving or fading. Report the amortization on Form 4562.
Self-Created Trademarks on Your Tax Return
Section 197 lists trademarks and trade names as covered intangibles and doesn’t carve out self-created trademarks the way it does for most other self-created intangibles.3Office of the Law Revision Counsel. 26 USC 197 – Amortization of Goodwill and Certain Other Intangibles In practice, this rarely produces anything to amortize. The costs of building a brand internally, mainly advertising and promotional spending, are deducted as ordinary business expenses in the year incurred, so there’s no capitalized basis sitting on the tax books.
The Book-Tax Gap and Deferred Taxes
Combine the two rules and you get a growing gap. An indefinite-lived trademark keeps its full carrying value on your financial statements while its tax basis shrinks by 1/15 each year on the tax return. That temporary difference produces a deferred tax liability that grows over the amortization period.
The liability represents future taxes owed when the difference reverses, typically when you sell or dispose of the trademark. It sits on the balance sheet as long as the trademark stays indefinite-lived and unimpaired. For companies with large trademark portfolios, the deferred tax liability can be substantial, and lenders and analysts pay attention to it.
Abandonment and Disposal
Retiring a trademark, whether by rebranding or by letting the registration lapse, has consequences on both sides.
On the books, if the trademark still carries a value, abandonment triggers an immediate write-off of the remaining carrying amount as a loss in the period of abandonment.
On the tax side, Section 165 permits a loss deduction for property abandoned during the year, as long as the loss isn’t compensated by insurance or other recovery.5Office of the Law Revision Counsel. 26 USC 165 – Losses For a Section 197 intangible, the treatment of remaining unamortized basis depends on what else came with it. If you acquired the trademark alongside other Section 197 intangibles in the same transaction and you still hold any of those, you generally continue amortizing the disposed trademark’s remaining basis over the original 15-year period. Only once every intangible from that transaction is gone can you deduct the remaining basis in full.
Documentation matters. You need clear evidence of ownership, intent to abandon, and an affirmative act, such as formally notifying the USPTO, ceasing all use, or executing a written declaration. Keep the dates and correspondence in case the deduction is challenged.
A Note on IFRS
If your company reports under IFRS rather than U.S. GAAP, two things change. IAS 38 flatly prohibits recognizing internally generated brands as intangible assets, and there’s no legal-fee exception like the one under U.S. GAAP.6IFRS Foundation. IAS 38 – Intangible Assets For acquired trademarks, IFRS allows an indefinite useful life classification using criteria similar to GAAP, but it requires the useful life determination to be reassessed every reporting period, not just when triggering events appear.