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Can freelancers deduct irs start up costs?

TL;DR

Freelancers can deduct startup costs, but only up to a certain limit and under specific conditions.

Detailed Answer

Freelancers can deduct startup costs as business expenses, but the IRS limits the immediate deduction to $5,000 for startup costs and $5,000 for organizational costs. Any amount over these limits must be amortized over 15 years. Startup costs include expenses incurred before the business begins operations, such as market analysis, advertising, and training. However, if the total startup costs exceed $50,000, the immediate deduction is reduced.

Where to Put It on the Tax Form

Report on Schedule C (Form 1040) for sole proprietors, or Form 1065 for partnerships, with amortization details on Form 4562.

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 $5,500 as startup costs in the first year, subject to the $5,000 limit and amortization rules.

Calculation Required

A calculation is required for this deduction.

Calculate the total startup costs, then deduct up to $5,000 immediately. Amortize the remaining amount over 15 years by dividing the excess by 180 months.

Audit Risk & Documentation Tips

Maintain detailed records of all startup expenses, including receipts and invoices. Clearly document the business purpose of each expense to substantiate the deduction in case of an audit.

IRS Reference

IRS Publication 535, Business Expenses; IRS Code Section 195

Relevant Industries

FreelancersSmall BusinessConsultantsEntrepreneurs

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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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