Intangible Asset

Loading the player...

What is an 'Intangible Asset'

An intangible asset is an asset that is not physical in nature. Corporate intellectual property, including items such as patents, trademarks, copyrights and business methodologies, are intangible assets, as are goodwill and brand recognition. Intangible assets exist in opposition to tangible assets which include land, vehicles, equipment, inventory, stocks, bonds and cash.

BREAKING DOWN 'Intangible Asset'

An intangible asset can be classified as either indefinite or definite. A company brand name is an indefinite asset, as it stays with the company as long as the company continues operations. However, if a company enters a legal agreement to operate under another company's patent, with no plans of extending the agreement, the agreement has a limited life and is classified as a definite asset.

To learn more about asset classes, check out "What is the difference between tangible and intangible assets?"

Value of Intangible Assets

While intangible assets don't have the obvious physical value of a factory or equipment, they can prove valuable for a firm and can be critical to its long-term success or failure. For example, a business such as the Coca-Cola Company wouldn't be nearly as successful were it not for the high value obtained through its brand-name recognition. Although brand recognition is not a physical asset that can be seen or touched, its positive effects on bottom-line profit are the driving force behind Coca-Cola's global sales year after year.

Reporting Intangibles to the IRS

Businesses may create or acquire intangible assets. For example, a business may create a mailing list of clients or it may establish a patent. However, another business may eventually buy or acquire either of those intangibles. If a business creates an intangible asset, it cannot write off its value on its income tax return, but if a business acquires the asset, it may claim the cost as a capital expense.

To illustrate, if a business takes out a patent, it may claim the cost of paying inventors, filing the patent application, hiring a patent lawyer and other related costs as business expenses. It may not, however, evaluate the patent and claim that amount as a business expense as well. However, if another business buys the patent, it may write off the cost of the patent. The IRS requires businesses to amortize the cost of intangibles, which means to write them off incrementally over a number of years.

Tangible Vs. Intangible Assets

Tangible assets include both real and financial assets. Real assets include machinery, vehicles, buildings and equipment, while financial assets include those that derive their value from a contractual claim, such as stocks and bonds.

RELATED TERMS
  1. Intangible Personal Property

    Intangible personal property is something of individual value ...
  2. Amortization Of Intangibles

    A tax term relating to the practice of deducting the cost of ...
  3. Real Asset

    A real asset is a physical or tangible asset, such as gold, real ...
  4. Intangible Cost

    An intangible cost is an unquantifiable cost relating to an identifiable ...
  5. Active Asset

    An active asset can be a tangible or intangible asset used by ...
  6. Business Asset

    A piece of property or equipment purchased exclusively or primarily ...
Related Articles
  1. Managing Wealth

    How to Calculate Your Tangible Net Worth

    You can calculate your tangible net worth with a simple equation.
  2. Managing Wealth

    What are Intangible Assets?

    Intangible assets represent potential revenue. Take an intangible asset like brand recognition: There is value in people remembering your company and then wanting to buy its products.
  3. Investing

    Explaining Amortization In The Balance Sheet

    Read to find out more about amortization, an important way to account for the value of intangible assets.
  4. Insights

    Amazon Was the Biggest Gainer in Patents Last Year

    The Seattle company registered a 46% growth in its patent count.
  5. Small Business

    What's The Cost To File A Patent?

    When filing a patent, be ready to pay attorney fees, filing fees and other related expenses. Usually the total bill is a few thousand dollars.
  6. Small Business

    How Patent Trolls Hurt Competition

    Patent trolls are known to have a negative impact on the overall business ecosystem. Site Edit explores how.
  7. Investing

    How to Evaluate a Company's Balance Sheet

    Asset performance shows how what a company owes and owns affects its investment quality.
  8. Small Business

    How To Protect Your Intellectual Property

    Intellectual property rights - patents, trademarks, trade secrets and copyrights - protect creators of everything from new products to new pop songs.
  9. Insights

    See How China Overtook the World in Patent Applications

    Not so long ago Japan was the clear global leader in IP. China took its place (and the U.S. took the Soviet Union's).
  10. Small Business

    Pharma Patent Trolls: Cheap Drugs At A Steep Price

    Though patent trolls can help patients achieve cheaper medication in the short-term, everyone pays for it in the long term.
RELATED FAQS
  1. What types of companies have a high proportion of intangible assets?

    Explore what types of companies are most likely to have a high proportion of intangible assets, due to the nature of the ... Read Answer >>
  2. What kinds of events or circumstances will increase or decrease the proportion of ...

    Learn the variety of events and circumstances which can significantly increase or decrease the proportion of intangible assets ... Read Answer >>
  3. What is the difference between a spot rate and a forward rate?

    Understand the concept of intangible assets and learn how they are handled in the purchase agreement when a company is bought ... Read Answer >>
  4. What is the difference between tangible and intangible assets?

    Tangible assets are physical assets such as land, vehicles, equipment, machinery, furniture, inventory, stock, bonds and ... Read Answer >>
  5. What are some examples of fixed assets?

    Learn the difference between fixed tangible assets and fixed intangible assets, and review examples of these two types of ... Read Answer >>
  6. Human capital vs. physical capital: What is the difference?

    Learn the difference between physical capital and human capital. How to find the value of each type of capital in a company's ... Read Answer >>
Hot Definitions
  1. Ethereum

    Ethereum is a decentralized software platform that enables SmartContracts and Distributed Applications (ĐApps) to be built ...
  2. Cryptocurrency

    A digital or virtual currency that uses cryptography for security. A cryptocurrency is difficult to counterfeit because of ...
  3. Financial Industry Regulatory Authority - FINRA

    A regulatory body created after the merger of the National Association of Securities Dealers and the New York Stock Exchange's ...
  4. Initial Public Offering - IPO

    The first sale of stock by a private company to the public. IPOs are often issued by companies seeking the capital to expand ...
  5. Cost of Goods Sold - COGS

    Cost of goods sold (COGS) is the direct costs attributable to the production of the goods sold in a company.
  6. Profit and Loss Statement (P&L)

    A financial statement that summarizes the revenues, costs and expenses incurred during a specified period of time, usually ...
Trading Center