LLC DBA as Franchise

Franchise business owner pay an initial franchise licensing fee, as well as ongoing residual fees that are due on an annual basis. Unlike your standard business expenses, these franchising fees are categorized by the IRS as “Intangibles” in Section 179 of the tax code. As such, you can deduct, both, the initial and ongoing franchising fees on your income tax return.

These franchising fees and licensing expenses, however, have to be amortized on your taxes over 15 years. The franchise contract is recognized as a distinct series of performance obligations and essentially is a license that allows the franchisee to use the franchisor’s intellectual property. Intellectual property may include pre-opening services, marketing services and use of the franchisor’s systems. Accordingly, the license agreements typically include multiple services and, therefore, multiple performance obligations. 

So it is important to review your agreement to determine what expenses will be capitalized and amortized long-term as opposed to in the current period.

Congrats on purchasing your franchise!

With respect to the Franchise Fees, the IRS requires that you treat these fees as an asset and amortize them over 15 years, under the straight-line method. For example, if your franchise fees were $50,000, you would amortize at ($50,000 divided by 15 years) $3,333 per year.

Hi there:

By exceptions I'm assuming you meant deductions? If not refer to purchase contract re: exceptions. For deductions, your purchase contract will detail the assets purchased and related fees: Here's a breakdown of basic fees:

Purchase price: (Equipment should be capitalized and depreciated)

Goodwill (Capitalized and amortized)

One time Franchise Fee (Capitalized and amortized)

Ongoing Franchise fees (fully deductible)