If you’ve decided to start your own business, congrats! Welcome to the world of entrepreneurship. Coordinating all the startup and administrative details can be overwhelming for new business owners. That’s why we’ve put together a guide to help you organize some of the tax deductible expenses you might encounter when getting started.
Key takeaways
- The IRS allows new businesses to deduct a certain amount of their startup costs.
- You can deduct some startup costs for your business, such as market research, accounting fees, marketing, and organizational costs.
- Startup expenses can only be deducted once the business is operating.
- If you don’t launch a business, your startup costs are considered personal expenses and are not deductible, though some may qualify as capital losses.
What expenses can new business owners deduct?
The IRS allows business owners to deduct up to $5,000 (for expenses under $50,000) in the first year. If you happen to make a purchase over $5,000, you’re required to gradually write off the cost of that item over a 15-year period.
Here’s a look at examples of deductible expenses commonly incurred in the early stages of launching a business.
Check out our Tax Prep Checklist for the Small Business Owner for more tax deductible business expenses you may be able to claim.
Startup costs that are not tax deductible
- Personal expenses
- Capital expenses
- Research costs before operations start
- Acquisition of assets (patents, copyrights)
- Costs for acquiring an existing business
- Expenses for issuing stock
- Fines and penalties
When can you start writing off business expenses?
Startup business owners can begin to deduct expenses once they officially launch and start business activities. While pre-launch costs are typically personal and not deductible, the IRS allows deductions of up to $5,000 in startup costs in the first year, as long as total costs don’t exceed $50,000. Any expenses exceeding this amount must be amortized over 15 years, which means business owners can spread out the deduction over time.
How to claim startup tax deductions
To claim startup tax deductions, decide if you want the first-year deduction and report it on your respective business tax form: Schedule C for sole proprietors, K-1 for partnerships or S corporations, or Form 1120 for corporations.
In the following years, you’ll use Form 4562 to claim the amortized deduction, carried over to Schedule C under “other expenses” for sole proprietors, while partnerships and corporations report it on their income tax forms. This allows you to continue claiming it as an expense throughout the amortization period.
TaxSlayer can simplify the process and take you through each step to ensure you get every possible tax break you deserve. To see how we can cut your tax bill, create an account or log in to start your return today.
Deduction adjustments to note for 2026
There are several tax law changes that may affect what and how much you can deduct when filing your 2025 taxes (returns filed in 2026).
- Premium Tax Credit: The Inflation Reduction Act is extended through 2025.
- Social Security tax limit: For 2025, the maximum earnings subject to the Social Security payroll tax increased to $176,100.
- Bonus depreciation: The One Big Beautiful Bill (OBBB) made the 100% bonus depreciation deduction permanent.
- Gift tax exclusions: The annual gift tax exclusion increased to $19,000 in 2025, and the lifetime exclusion increased to $13.99 million.
Frequently asked questions about startup tax deductions
How much can I deduct for my new business?
The IRS allows business owners to deduct up to $5,000 (for costs under $50,000) in the first year. After the first year, business owners must amortize their business over a 15-year period.
Can I claim my new business on my tax return?
If you’re launching a business, you can deduct certain business-related expenses on your tax return, but there’s a catch. If you decide to start your own business, and then realize you no longer want to pursue that venture, you can’t write off those expenses because your business is no longer active.
I just bought an existing business. Can I deduct its expenses in the first year of ownership?
Yes. Even though you aren’t starting a business from scratch, you can still take a deduction within the first year of owning a newly acquired business. The IRS allows a buyer of another business to take a deduction of up to $5,000 for expenses under $50,000. But, like with starting new businesses, if you make a business-related purchase over $5,000, you must amortize that purchase over a period of 15 years.
Are LLC startup costs tax deductible?
LLC startup costs are subject to specific limitations. If your expenses meet the requirements listed above, then you can write them off. But startup costs don’t include taxes, interest, or R&D costs.
Can I get a tax refund if my business loses money?
It depends. Business losses do not always result in a tax refund. Your tax refund will still be based on your adjusted gross income, tax filing status, taxes you’ve paid throughout the year, etc.
