Ask Maxi · Entities
Are my startup costs deductible?
Partly in the first year, and the rest over time. You can generally deduct up to $5,000 of startup costs and $5,000 of organizational costs in the year the business opens, with the remainder amortized over 15 years. Both $5,000 allowances phase out once total costs pass $50,000.
Startup costs are what you spent investigating and getting ready to open: market research, travel to look at locations, training, advertising before opening day, professional fees. Organizational costs are what it took to form the entity: state filing fees, legal work on the operating agreement.
The date the business opens is the hinge. Costs before that go in this bucket. Costs after it are ordinary expenses, deductible in full.
Equipment is separate and follows its own rules.
Keep the receipts from before you were in business. People throw them out because the business did not exist yet, which is exactly when these costs were incurred.
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