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Can freelancers deduct amortize startup costs?

TL;DR

Freelancers can deduct or amortize startup costs, but there are specific conditions and limits.

Detailed Answer

Freelancers can deduct up to $5,000 of startup costs in the first year of business, provided total startup costs do not exceed $50,000. Any remaining startup costs must be amortized over 180 months. Startup costs include expenses incurred before the business begins, such as market research, advertising, and training. If total startup costs exceed $55,000, the initial $5,000 deduction is reduced dollar-for-dollar by the amount over $50,000.

Where to Put It on the Tax Form

Report on Form 4562 for amortization and Schedule C for the initial deduction.

Real World Example

A freelance graphic designer spends $3,000 on market research and $2,500 on advertising before officially starting their business. They can deduct the full $5,000 in the first year as startup costs.

Calculation Required

A calculation is required for this deduction.

Calculate the total startup costs. Deduct up to $5,000 in the first year if total costs are $50,000 or less. Amortize any remaining costs over 180 months.

Audit Risk & Documentation Tips

Keep detailed records of all startup expenses, including receipts and invoices. Document the business start date and ensure expenses are clearly related to starting the business to minimize audit risk.

IRS Reference

IRS Publication 535, Business Expenses; IRC Section 195

Relevant Industries

FreelancersSmall BusinessConsultantsIndependent Contractors

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Disclaimer: This is for informational purposes only and should not be construed as tax or legal advice. Always consult your tax advisor.

Page created on July 15, 2025

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