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Can freelancers deduct startup costs irs?

TL;DR

Freelancers can generally deduct startup costs, but there are limits and specific rules about how much can be deducted in the first year versus amortized over time.

Detailed Answer

Startup costs for freelancers are deductible up to $5,000 in the first year if total startup costs do not exceed $50,000. Any excess over $5,000 must be amortized over 15 years. Startup costs include expenses incurred before the business begins operations, such as market research, advertising, and training. However, costs related to acquiring business assets are not considered startup costs and must be capitalized. If the total startup costs exceed $50,000, the $5,000 immediate deduction is reduced dollar-for-dollar by the amount over $50,000.

Where to Put It on the Tax Form

Schedule C, Line 27a for the amortized portion; Form 4562 for amortization.

Real World Example

A freelance graphic designer spends $3,000 on market research, $1,500 on advertising, and $1,000 on training before starting their business. They can deduct the full $5,000 as startup costs in their first year of operation.

Audit Risk & Documentation Tips

Moderate audit risk. Keep detailed records of all startup expenses, including receipts, invoices, and contracts. Document the date the business began operations to establish when startup costs were incurred. Maintain a clear distinction between startup costs and capital expenditures.

IRS Reference

IRS Publication 535, Business Expenses; IRC §195.

Relevant Industries

FreelancersConsultantsSmall Business Owners

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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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