Business Start-Up Tax Deductions: What You Need to Know
Starting a new business can be exciting—but it’s also expensive. According to the U.S. Census Bureau, nearly 447,000 new business applications were filed in May 2025 alone. If you’re one of these entrepreneurs, you may not realize that many start-up expenses are not immediately deductible. Understanding the rules around business start-up tax deductions can help you make smarter decisions and potentially lower your tax bill.
What Are Start-Up Costs?
Start-up costs are expenses incurred while:
- Investigating the creation or acquisition of a business,
- Creating a business, or
- Preparing to engage in a for-profit activity.
These costs can include market research, feasibility studies, and initial advertising. However, you can’t simply deduct all of these right away.
IRS Rules for Business Start-Up Tax Deductions
Here are three key tax rules to keep in mind:
- Deduct Up to $5,000 Immediately
You may elect to deduct up to $5,000 in business start-up costs and $5,000 in organizational costs in the year your business begins. But there’s a catch:
If your total start-up or organizational costs exceed $50,000, the $5,000 deduction is reduced dollar-for-dollar by the excess amount. - Amortize the Rest Over 15 Years
Any remaining start-up or organizational costs must be amortized over 180 months (15 years) on a straight-line basis. This means you’ll claim a portion each year. - Deductions Start When the Business Does
You cannot deduct or amortize these costs until your business is “actively conducting” operations. The IRS generally considers a business active when it has all necessary elements in place and is generating (or prepared to generate) revenue.
What Qualifies as Deductible Start-Up Costs?
To qualify for a start-up tax deduction, the expense must be:
- Incurred before the business starts, and
- One that would be deductible as a business expense if paid after operations begin.
Examples of qualifying start-up expenses include:
- Market analysis and product testing
- Travel to secure suppliers or customers
- Training employees
- Advertising before launch
Organizational Costs: Special Rules
Organizational costs are specifically related to setting up a legal business entity, such as a corporation or partnership. These include:
- Legal fees for drafting incorporation documents
- Accounting fees related to formation
- State filing fees
Like start-up costs, up to $5,000 in organizational costs can be deducted, with the remainder amortized over 15 years.
Plan Now to Maximize Deductions
If you’re preparing to launch a business, it’s critical to plan your expenses and maintain detailed records. You must also make an election to deduct start-up and organizational costs on your first business tax return.
Working with a tax professional early in the process can help ensure that you:
- Meet IRS requirements
- Take advantage of every available deduction
- Set your business up for long-term success
What else is deductible? Here are 18 deductions for small businesses.
Need Help With Your Business Start-Up Tax Deductions?
We’re here to help. Whether you’re budgeting for launch or planning to grow, our team can guide you through the tax implications of your start-up decisions. Contact us today to discuss your new venture and how to make the most of your deductions.
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