Most founders don't know they can deduct up to $5,000 in startup costs in their first year of business. Here's what qualifies, what doesn't, and how to claim it.
Section 195 allows new businesses to deduct up to **$5,000 in startup costs** in the first year of operation. Costs above $5,000 are amortized over 180 months.
This applies to costs incurred **before** your business officially opened — the research, planning, and preparation phase.
You can deduct up to $5,000 startup costs + $5,000 organizational costs in year one — two separate limits.
If total startup costs exceed **$50,000**, the $5,000 deduction phases out dollar-for-dollar. At $55,000 in startup costs, you get $0 first-year deduction and must amortize everything. Most solo founders are well under this threshold.
Report on **Form 4562**. Tax software prompts for this when you indicate a new business. Keep receipts and records of when each cost was incurred.
$8,000 in startup costs: deduct $5,000 year one, amortize $3,000 over 180 months (~$200/year). Still a deduction — just spread out.
Track every dollar you spent researching and launching before your business officially opened. Domains, legal consultations, design work, market research — it all counts. Most founders leave $2,000–$5,000 in legitimate deductions unclaimed because they didn't know this rule existed.
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