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Can I deduct startup costs irs?

TL;DR

Startup costs can be deducted, but there are limits and specific conditions under which they can be amortized or expensed in the first year.

Detailed Answer

The IRS allows you to deduct up to $5,000 of startup costs in the first year of business, provided your total startup costs do not exceed $50,000. Any remaining costs must be amortized over 180 months. Startup costs include expenses incurred to create an active trade or business, such as market research, advertising, and employee training. However, costs related to acquiring business assets or inventory are not deductible as startup costs.

Where to Put It on the Tax Form

Form 4562 for amortization; Schedule C, Line 27a for other business expenses.

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.

Audit Risk & Documentation Tips

Moderate audit risk. Keep detailed records of all startup expenses, including receipts, contracts, and invoices. Document the purpose of each expense and ensure it directly relates to starting the business.

IRS Reference

IRS Publication 535, Business Expenses; IRC §195.

Relevant Industries

Small Business OwnersFreelancersConsultantsStartups

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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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