Glossary: Amortization

business person adding the numbers on a calculatorThe term “amortization comes up in tax discussions now and then. What does this term mean?

Amortization is similar to depreciation. The key distinction between the two terms is: depreciation applies to “tangible assets,” which are things that can be seen and touched. Buildings, machinery, equipment, etc.

Amortization applies to “intangible assets.” Intangible assets are things that cannot be seen or touched. Here’s the definition of intangible assets the IRS gives in Publication 946:

Property that has value but cannot be seen or touched, such as goodwill, patents, copyrights, and computer software.

The difference between tangible and intangible, depreciation and amortization, is more than just semantics, though. The concepts are the same but the calculation of amortization differs some from depreciation. For more information, consult Publication 946.

And for more tax terms, check out the Glossary page on this website.