Under IRC §195, new business owners can elect to deduct up to $5,000 in startup expenses—before your business even opens its doors.
Here’s how it works:
• You can deduct up to $5,000 of costs spent before your business starts operating (things like legal fees, market research, software setup, branding, etc.)
• The $5,000 deduction phases out if your total startup costs exceed $50,000
• Any remaining costs can be amortized (spread out) over 15 years
Quick example:
You spent $12,000 on startup costs before your first sale.
– You deduct $5,000 this year
– The remaining $7,000 is spread out over 15 years ($467/year)
Tips to maximize this:
• Keep detailed records of all pre-launch expenses
• Track your start date carefully—deductions kick in when your business is “active”
• Consider timing—if your costs are >$50K, you’ll lose the immediate $5K write-off
If you’re launching something new this year, it’s worth planning how to structure those early expenses. The IRS is actually giving you a break—don’t miss it!