If you recently launched a new business—or plan to soon—you’re not alone. According to the U.S. Census Bureau, nearly 447,000 new business applications were filed in May 2025 alone. But what many new entrepreneurs don’t realize is that how you handle your startup expenses can have a major impact on your tax bill.
Here’s what you need to know about how the IRS treats startup costs—and how to make the most of your deductions.
Not All Startup Costs Are Immediately Deductible
It’s a common misconception that you can deduct every dollar you spend while getting your business off the ground. In reality, the IRS places limits on both the timing and amount of deductions available for startup and organizational costs.
Here are three key tax rules to keep in mind:
- What counts as a startup cost?
These are costs you incur while:- Investigating the creation or acquisition of a business
- Creating a business
- Preparing to engage in a for-profit activity
- The $5,000 deduction limit
You can choose to deduct up to $5,000 in startup costs and $5,000 in organizational costs in the year your business officially begins. But this deduction is reduced if your total startup or organizational expenses exceed $50,000. Any remaining costs must be amortized over 15 years. - Timing matters
You cannot claim startup deductions, including amortization, until your business is actively operating. That means:- You’re generating (or are ready to generate) revenue
- You’re regularly and actively involved in the business
- You’ve taken clear steps with the intention of earning a profit
What Expenses Qualify?
To be deductible, a startup or organizational expense must be one that would otherwise qualify as a business deduction if it were incurred after you officially opened. Examples include:
- Market research and competitor analysis
- Legal or accounting fees tied to forming your entity
- Filing fees paid to establish a corporation or partnership
Good record keeping is essential. If you’re planning to take deductions, you’ll need documentation that supports when the expense was incurred and how it directly relates to your business.
Plan Before You Launch
If you want to maximize your deductions and avoid surprises, the best time to start planning is before your business is officially off the ground. Decisions you make early—like how to structure your entity and when to start operating—can affect what you can write off.
At Dunn CPA Firm, we help entrepreneurs navigate these early decisions with confidence. If you’re starting a business and want to be sure you’re making the most of your tax position, we’d love to talk.
