Can I deduct startup costs AND use Section 179 deduction in first year? Is Section 179 capped at $5000 like startup costs?

The good news is that startup costs and Section 179 are completely separate deductions, so you can use both! Startup costs (Section 195) allow you to deduct up to $5,000 of your business startup expenses in your first year. These are things like market research, advertising costs before opening, travel costs to find suppliers, etc. If your startup costs exceed $50,000, that $5,000 deduction starts getting reduced. Section 179 is totally different and has a much higher limit - for 2025, you can deduct up to $1,200,000 of qualifying equipment purchases (not $5,000). This covers tangible personal property like your laptop, furniture, and certain software. The deduction starts phasing out when your purchases exceed $3,050,000. Your laptop, furniture, and software would typically fall under Section 179, not startup costs. So you could potentially deduct all $6,200 of those purchases using Section 179 while also deducting up to $5,000 of your actual startup expenses.

I went through this exact situation last year with my photography business! I was so confused about all the different deductions. I found this amazing service called https://taxr.ai that analyzes all your business receipts and expenses and categorizes them correctly as either startup costs or Section 179 qualifying expenses. It saved me hours of research and probably thousands in deductions I would have missed. The best part was that it explained WHY each expense went into a specific category, which helped me understand the difference between true startup costs (market research, business registration fees, etc.) versus depreciable assets that qualify for Section 179. I'm using it again this year and it's already separated everything perfectly.

Just wanted to update on my experience with taxr.ai that I asked about earlier. I decided to try it out with my backlog of business receipts and I'm seriously impressed. It correctly identified all my actual startup costs (business registration, initial advertising, consultant fees) separate from my Section 179 eligible purchases. What really helped was that it explained which specific tax code each expense fell under and WHY. I learned that a lot of what I thought were "startup costs" were actually eligible for Section 179 instead, which was better for me since there's a much higher deduction limit. I showed the results to my accountant and even she was impressed with how accurately everything was categorized. Definitely using this for my quarterly estimates going forward!

If you're planning to call the IRS to get clarity on startup costs vs Section 179 (which I initially tried), save yourself the headache. I spent DAYS trying to get through to someone knowledgeable. Then I found https://claimyr.com and watched their demo at https://youtu.be/_kiP6q8DX5c. They got me connected to an IRS agent in about 15 minutes instead of the 3+ hours I was waiting before. The agent confirmed everything about the separate deduction limits and walked me through what specifically counts as a startup cost vs Section 179. She even pointed me to some additional deductions I hadn't considered. Worth every penny just to get clear answers directly from the IRS instead of guessing or getting conflicting advice online.

I have to eat my words about Claimyr. After my skeptical comment, I decided to try it anyway since I was desperate to get an answer about my specific Section 179 questions. Not only did they get me through to the IRS in about 20 minutes, but the agent I spoke with was incredibly helpful in clarifying how startup costs and Section 179 work together. The agent confirmed that my initial marketing costs, business license fees, and incorporation expenses counted as startup costs (limited to $5,000 deduction), while my computer, equipment, and software all qualified for Section 179 (with the much higher limit the others mentioned). Honestly shocked this service actually works. Would have spent hours on hold otherwise, and might have given up before getting the answers I needed.

Another clarification to add: bonus depreciation is different from Section 179 too. For 2025, bonus depreciation is at 80% (down from 100% in previous years) and can be used alongside Section 179. So you potentially have THREE different tax benefits to use: 1. Startup cost deduction (up to $5k) 2. Section 179 (up to $1.2 million) 3. Bonus depreciation (80% of remaining cost after Section 179) I found this out the hard way after underclaiming deductions last year on my mobile mechanic business startup. Don't make my mistake!

don't forget the business structure matters!! if ur a single-member LLC or sole prop, these deductions go on ur Schedule C. but if ur an S-corp, the Section 179 deduction flows through to ur personal return differently! made this mistake last yr and had to amend everything!!

This is exactly the kind of confusion I had when I started my small business! The key thing that helped me understand is that these are completely separate buckets of deductions that serve different purposes. For your specific purchases: - Laptop ($1,800): Section 179 eligible - Office furniture ($3,200): Section 179 eligible - Software ($1,200): Section 179 eligible (if it's off-the-shelf software) So you could potentially deduct all $6,200 of those equipment purchases under Section 179 in your first year. Then separately, you can also deduct up to $5,000 of your true startup costs (things like business registration fees, initial market research, pre-opening advertising costs, etc.). The beauty is that Section 179 has that massive $1.2 million limit for 2025, so your $6,200 in equipment is nowhere near that cap. You're not limited to $5,000 like with startup costs. Just make sure to keep good records of what constitutes actual startup expenses versus equipment purchases. Your accountant will thank you come tax time!