Short answer
Loan amortization is a payment schedule that repays principal and interest. Accounting amortization spreads the cost of an intangible asset or certain start-up costs over time. In the U.S. you can elect to deduct up to $5,000 of start-up costs in the first year, reduced by costs above $50,000, and amortize the rest.
1. Two meanings of amortization
| Loan amortization | Accounting amortization | |
|---|---|---|
| What it spreads | Repayment of borrowed money | The cost of an intangible asset or certain business costs |
| Output | Payment schedule: interest, principal, balance | A yearly or monthly deduction |
| Tool | Amortization Calculator | Your accountant, Form 4562 |
2. U.S. start-up costs, in outline
- You can elect to deduct up to $5,000 of business start-up costs, and up to $5,000 of organizational costs.
- The $5,000 is reduced by the amount your costs exceed $50,000.
- Remaining costs must be amortized. The IRS points to the Instructions for Form 4562 for the details.
Source: IRS Publication 583, Starting a Business and Keeping Records. Rules differ by situation and year, so ask a tax adviser.
3. Where the loan calculator fits
If you borrow to start the business, the loan itself amortizes on a normal payment schedule. Use the Amortization Calculator for that and see how loan amortization works.
4. Frequently asked questions
What is the difference between loan amortization and business amortization?expand_more
Loan amortization is a schedule for repaying borrowed money. Business amortization spreads the cost of an intangible asset or certain costs as a tax deduction over time.
How much of my business start-up costs can I deduct in the first year?expand_more
The IRS says you can elect to deduct up to $5,000 of start-up costs, reduced by the amount your costs exceed $50,000. The remainder must be amortized.
Does the Amortization Calculator compute business amortization?expand_more
No. It builds loan repayment schedules only.
Where do I report amortization?expand_more
The IRS refers to Form 4562, Depreciation and Amortization, and its instructions. Ask a tax adviser.