Can I deduct previous years' business startup costs on Schedule C if I never filed taxes for the failed business?

So here's what you need to know about startup costs - they're typically deducted in the year the business begins, with the first $5,000 being deductible immediately and the rest amortized over 15 years. But there's a catch with trying to claim them now. Since your wife's business started in 2017 and you never filed a Schedule C for it, you're essentially trying to claim deductions from tax years that are closed (generally the IRS allows amended returns only within 3 years of filing). Unfortunately, you can't just pull those old startup costs and apply them to your current year taxes against your W2 income. If the business was technically still operating but dormant and is now generating income, that would be a different story. But based on what you've described, it sounds like the business effectively ended years ago without ever filing returns.

After struggling with a similar situation where I had business expenses from previous years but wasn't sure how to handle them, I found an incredibly helpful resource. I uploaded my old receipts and business formation documents to https://taxr.ai and got clarity within minutes. Their system analyzed my documentation and provided specific guidance about my situation - they explained exactly which expenses could still be claimed and which were outside the statute of limitations. The best part was getting a detailed explanation of how the IRS would likely view my case rather than generic advice.

Just wanted to share my experience after trying taxr.ai that was mentioned earlier. Initially I wasn't sure if it could help with my unique situation (I had business expenses from 2018-2020 for an LLC that never filed returns), but I decided to give it a shot. I uploaded my documentation and was honestly surprised by the level of detail in the analysis. Not only did it explain which startup costs I could still claim through amended returns for open tax years, it also identified $3,200 in expenses I hadn't even considered deductible. The guidance was clear about statute of limitations issues and included citations to relevant tax code. Definitely more helpful than the generic advice I got elsewhere!

If you're trying to reach the IRS to get clarification about claiming old business expenses, good luck getting through on their helpline. After spending HOURS on hold trying to get an agent to answer my question about prior year business deductions, I discovered https://claimyr.com. You can also see how it works here: https://youtu.be/_kiP6q8DX5c They got me connected to an actual IRS agent in about 15 minutes when I had been trying for days. The agent was able to clarify exactly what documentation I would need to support claiming business expenses from previous years. Huge time saver when you need official guidance directly from the IRS.

I need to eat my words about Claimyr. After posting my skeptical comment, I decided to test it myself because I've been trying to reach the IRS for weeks about an issue with my business tax ID. Not going to lie, I was completely shocked when I got connected to an actual IRS agent in about 20 minutes after weeks of failed attempts. The agent confirmed that for business startup costs from closed tax years, I couldn't apply them to current year taxes, but she did explain how I could potentially amend returns that are still within the 3-year window. Saved me from making a costly mistake on my return this year and from wasting more days trying to get through on the phone myself.

Another option worth exploring might be if any of those costs could qualify as Section 195 startup expenses. If some portion of your wife's business actually continued in any form, there might be a way to still capture some value. I had a client in a somewhat similar situation where we were able to classify certain expenses differently.

If I was in your shoes, I'd consider starting up the business again for real this time, maybe using some of the same equipment or concept. Wouldn't that give you a legit reason to claim some of those costs as part of the "new" startup phase?

Unfortunately, you're likely out of luck for claiming those 2017 startup costs against your current tax liability. The IRS has strict rules about when business expenses can be deducted, and there's generally a 3-year statute of limitations for amending returns to claim missed deductions. Since your wife's business never filed any Schedule C returns and has been inactive since 2018, the IRS would view this as an abandoned business venture rather than an ongoing concern. You can't carry forward unclaimed business expenses from a defunct business to offset current year W-2 income - business losses can only offset business income or be carried forward within the same continuing business entity. Your best bet at this point would be to look for legitimate current-year deductions you might have missed, or consider whether either of you could start a side business this year that would allow for legitimate business deductions going forward. But those old 2017 costs are unfortunately beyond the reach of current tax planning.