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Can I deduct amortize startup costs?

TL;DR

Yes, you can amortize startup costs over a 15-year period, with the option to deduct up to $5,000 in the first year if total startup costs do not exceed $50,000.

Detailed Answer

Startup costs are expenses incurred before a business begins active operations. The IRS allows you to deduct up to $5,000 of startup costs in the first year, provided your total startup costs do not exceed $50,000. If your startup costs exceed $50,000, the $5,000 deduction is reduced dollar-for-dollar by the amount over $50,000. Any remaining startup costs must be amortized over 180 months (15 years). Examples of startup costs include market research, advertising, employee training, and professional fees.

Where to Put It on the Tax Form

Report the deduction on Form 4562, Depreciation and Amortization, and carry the deduction to Schedule C (Form 1040) for sole proprietors.

Real World Example

A new coffee shop incurs $52,000 in startup costs, including market research and employee training. The owner can deduct $3,000 in the first year ($5,000 - $2,000 excess over $50,000) and amortize the remaining $49,000 over 15 years.

Calculation Required

A calculation is required for this deduction.

Calculate the first-year deduction by subtracting any amount over $50,000 from $5,000. Amortize the remaining costs over 180 months by dividing the remaining amount by 15 years.

Audit Risk & Documentation Tips

Maintain detailed records of all startup expenses, including invoices and receipts. Clearly document the nature of each expense and its necessity for starting the business. Be prepared to justify the classification of expenses as startup costs during an audit.

IRS Reference

IRS Publication 535, Business Expenses; Internal Revenue Code Section 195

Relevant Industries

Small BusinessStartupsEntrepreneurs

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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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