Tax Deductions for Goodwill Impairment & Investment Banking

by Jeannine Mancini

Many possible tax deductions are overlooked. Business owners may be eligible to deduct goodwill impairment losses and even certain investment banking charges. In financial statements, a goodwill arises when a company is worth less than the fair market price paid. Goodwill impairment is writing off the worthless goodwill on the company's taxes.

About Goodwill

When one company purchases another, the amount it paid is referred to as the purchase price. The book value is subtracted from the purchase price to calculate the goodwill amount. Goodwill s required to be amortized against earnings for up to 40 years from the date of purchase. Each year, one-fortieth of the goodwill amount must be subtracted from the company's earnings. By the 40th year, there will be no goodwill remaining on the balance sheet.

Goodwill Impairment Testing

Sometimes the value of a company decreases and the goodwill is no longer accurate. To test for goodwill impairment, identify all tangible and intangible company assets. The standalone market value of the assets must be determined. If the value is less than the carrying value of the goodwill, it is considered impaired. When deemed impaired, the goodwill must be charged off. The charge lowers brings the value of the goodwill to the fair market value.

Reporting Requirements

Although annual testing is required, periodic testing at other times may be required. A company can select any desired date for impairment testing, but when a date is chosen, testing must occur on the same date annually. The impairment losses must be entered on a before-tax basis on a separate line in the operating section of the income statement under “other gains and losses.”

Investment Banking Deductions

As a business owner, you will likely need professional help for your accounting needs. You can write off the cost of professional accounting advice and legal guidance. You can also write off fees paid to portfolio managers. Tax preparation fees can also be deducted.

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