Are trademark fees and costs tax-deductible? Are they a business write-off?

Are trademark fees and costs tax-deductible? Are they a business write-off?

  • 06 July, 2018
  • Nyall Engfield

Are trademark fees and costs tax-deductible? Can you write off trademark expenses?

Yes! They are a legitimate business expense and both trademark fees and trademark filings costs are tax-deductible from revenue made by the trademark owner.

If your business owns trademarks or service marks and incurs costs related to them, many of those trademark fees and expenses may be eligible for tax deductions. Here are some key details on the tax deductibility of trademark fees:

Legal and Filing Fees Any fees paid to attorneys or the USPTO for legal work and official filing of a trademark application, renewal for registered trademarks, assignment, etc. are typically tax deductible as ordinary and necessary business expenses.

Trademark Maintenance Fees The fees required every 5-10 years between the 5th and 10th year anniversaries to maintain an existing trademark registration are deductible business expenses.

Trademark Search Costs Fees paid to have a comprehensive trademark search conducted before filing are also deductible as part of the costs of acquiring the mark.

Trademark Monitoring Services Subscription fees for watch services that monitor new filings for potential conflicts with your registered marks may be deducted as a cost of protecting the asset.

Income Tax vs Self-Employment Tax For income tax purposes, trademark costs are deducted as ordinary business expenses if you are a corporation or LLC. For sole proprietors, the costs are deductible against self-employment income.

Capitalization vs Current Expense For new trademark filings, costs may need to be capitalized rather than immediately expensed if the trademark has not yet been approved for registration and use.

Proper documentation of all trademark-related fees and evidence of the business purposes for incurring the costs is important to support the tax deductions if audited. Consulting a tax professional is advisable to ensure compliance.

Capitalization of Trademark Costs

When incurring costs to acquire or legally register a new trademark, those costs generally must be capitalized rather than expensed immediately. This includes fees paid to attorneys for the trademark application process, filing fees paid to the USPTO, and costs for trademark searches or other work necessary to establish legal rights to the mark. These capitalized "startup" trademark costs cannot be deducted until the year the trademark is actually obtained and put into use in the active business operations. Once the trademark is secured and being used, the capitalized fees can be recovered over 15 years through tax deductions for amortization or depreciation under IRC Section 197. Proper documentation of the capitalized costs, the date the trademark was acquired, and putting it into service is crucial to support amortizing over the correct life. Any maintenance fees for continuing use of an existing trademark are deductible expenses when incurred.

Relevant sections of Internal Revenue Code

Here are some relevant references from the Internal Revenue Code and IRS guidance to support the tax deductibility of trademark fees and costs:

Internal Revenue Code Section 162 - Trade or Business Expenses This section allows a deduction for "all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business."

IRS Publication 535 - Business Expenses (Page 8) "You can deduct the costs of obtaining and protecting trademarks..." It specifically lists trademark fees, legal expenses for getting trademarks, and renewing trademarks as deductible.

Treasury Regulation 1.263(a)-4(b)(1)(vii) Requires capitalization of amounts paid to obtain rights from a governmental agency, including payments to obtain trademark protection. But IRS Information Letter 2003-0293 clarifies that maintenance fees for existing trademarks are currently deductible.

Treasury Regulation 1.167(a)-3 Provides guidance on when capitalized trademark costs can be amortized/depreciated as the trademark is used in the business.

IRS Revenue Ruling 2000-4 States that advertising expenditures paid to obtain public recognition of a trademark may be currently deductible as ordinary advertising costs.

IRS Publication 334 - Guide to Federal Tax for Small Business (Page 11)
Confirms that fees paid to trademark property are deductible as operating expenses.

The key requirement is that the trademark relates to an active trade or business and the costs are ordinary and necessary for that business. Proper documentation is needed to claim the deductions.

Check with your accountant for the specifics, and don't forget to keep your receipts!

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