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Goodwill Hunting: How to Write It Off

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in Small Business Tax

Q. My small building-maintenance business is negotiating to buy a competitor in the area. The owner says that its reputation as a reliable business is worth something. If I add such a separate provision to the contract for this value, can I deduct it this year? R.P., Toledo, Ohio

A. Not exactly. Essentially, you’re talking about placing a value on “good will,” a common practice. Under Section 197 of the tax code, the cost of good will and similar intangible items must be amortized over a period of 15 years. Consider this factor in your negotiation. Tip: The amortization of good will begins in the month in which a business acquisition takes place.

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