Amortization Definition

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In business, amortization is defined as a process that systematically reduces the value of an intangible asset, such as a copyright or patent, over its useful life. Amortization impacts a company’s income statement and balance sheet, and has a unique set of rules for tax purposes. As the asset drops in value, it’s deducted as a non-cash expense, which reduces the company's overall tax burden. Businesses usually calculate amortization using the straight-line method. The formula divides the annual amortization expense by its estimated useful life.

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