Taxpayer asks:
I have an online website sponsored through a company where I sell items and make a percentage off each sale. I am in the process of trying to get a trademark for the mark I use on the items that I sell. Unfortunately, there is someone else trying to get a similar trademark at the same time so my costs for getting the trademark (basically paying the attorney and the fees) are much more than I thought it would be. I have made over $600 from the site and my question is – are the costs for the trademark deductible? Do I need to form a small business in order to do this?
Taxgirl says:
Congrats on moving forward with your business! I know exactly what you’re talking about – I trademarked my mark, too.
You can absolutely deduct reasonable legal fees related to your business – and that includes your trademark. Even if you don’t eventually secure the trademark, the work may be deductible.
And no, you do not need to be incorporated in order to take the deduction.
You do need to be aware, however, that this is an area where the hobby/loss rules may apply. If you’re not sure whether you are operating as a business (even if you are not incorporated) or as a hobby, make sure you check out my prior post on hobby/loss rules.
For more information about other business related expenses which may be deductible, see this “ask the taxgirl” question with links to other resources!
Good luck!
(Note: Please read the comments below for additional important considerations!)
Before you go: be sure to read my disclaimer. Remember, I’m a lawyer and we love disclaimers.
If you have a question, here’s how to Ask The Taxgirl.
You have to be careful with intangible assets like trademarks. Often the costs incurred to create the intangible must be capitalized and are not deductible for tax purposes, unless an amortization exception applies (such as a 15-year section 197 intangible).
Vinny – Thanks! You’re absolutely right to suggest caution with respect to intangible assets – and a trademark (as is most intellectual property) is considered intangible. See section 197 of the Tax Code for more information.
I think this is another example of the importance of separating expenses – you can find a whole lot of discussion and case law as between attributable costs versus actual costs and the resulting tax consequence. It may well be that you have to segregate some of the costs that would not otherwise qualify as “ordinary and necessary.”
This is an extremely tricky area – as always, use make sure that you consult with a tax professional about your specific circumstances.
First of all, I would recommend that all small businesses try trademarking their names and/or logos. I did. And secondly, according to several online trademark resources, getting a trademark is indeed a business expense that can be deducted. Thanks!
The benefits of trademark registration far outweigh the cost of registration. Although its value cannot be evaluated in financial terms at this time, the market turnout provided by a registered trademark plays an important part in the growth of a company. As a result, file a Trademark Registration application as soon as possible before someone else does.