Can I deduct up to $5000 in startup costs on my tax return the year after I actually spent the money?

I'm in a bit of a tax pickle here and could use some clarification. I started putting together my business in late 2024 - bought equipment, paid for some consulting, created an LLC, all that fun stuff. Total startup expenses were about $4700. But I didn't actually launch operations or make any income until January 2025. So here's my question - for these startup costs of $4700 that I paid in 2024, do I need to file a Schedule C for 2024 tax year with zero income and claim these expenses? Or can I just include all of these startup costs on my 2025 Schedule C when I actually have business income to report? I've heard something about being able to deduct up to $5000 in startup costs but I'm confused about WHEN I can take this deduction. Any guidance would be super appreciated since I'm trying to get my tax situation sorted out correctly!

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18 comments

Anderson Prospero

•8M

You actually have a couple of options here for your startup costs. The IRS allows business owners to deduct up to $5,000 in startup costs in the year your business begins "active trade or business" - which sounds like 2025 in your case, not 2024. Since your business wasn't operational (no income, no customers, no active trade) in 2024, you wouldn't file a Schedule C for 2024. Instead, those expenses would be considered startup costs that you can deduct on your 2025 Schedule C when your business actually launched. The key here is that startup expenses are tied to when your business begins operating, not necessarily when you paid those expenses. So your $4,700 in startup costs from 2024 would be deductible on your 2025 return as first-year startup expenses.

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Anderson Prospero

•8M

If your startup costs exceed $5,000, you don't lose the deduction for the excess amount - you just have to handle it differently. You can deduct the first $5,000 immediately in your first year of business (subject to a phase-out if costs exceed $50,000), and then the remaining amount gets amortized (deducted gradually) over 15 years. For your $8,000 in startup costs, you could deduct $5,000 in the first year, and then amortize the remaining $3,000 over 15 years (about $200 per year for 15 years). This applies to the typical organizational and startup costs a business incurs before opening its doors.

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Toot-n-Mighty

•8M

After dealing with a similar situation, I found an amazing resource that saved me tons of time figuring out my startup deductions. I was also confused about when to claim my startup costs since I bought equipment in December but didn't open until February. I spent hours reading IRS publications until I discovered https://taxr.ai which analyzed my receipts and business formation documents. The tool actually found that some of my expenses qualified as Section 179 property that could be handled differently than regular startup costs. It organized everything by deduction type and timing, showing exactly which tax year I could claim each expense. Saved me from making a $3,200 mistake with my startup costs!

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Toot-n-Mighty

•8M

The document analysis works by uploading your receipts, bank statements, and formation documents. It uses AI to categorize each expense as startup costs, Section 179 property, or regular business expenses. It's really good at distinguishing between them based on the expense timing and nature - like recognizing that legal fees for forming an LLC are different from inventory purchases. The timing rules calculation is actually one of its strongest features. It identifies when your business officially began operations and applies the appropriate rules for each expense type. My CPA was also initially skeptical but ended up being impressed with how it handled the nuances of amortization for costs over $5,000 and properly applied Section 195 timing rules. It'll actually flag expenses that have higher audit risk too.

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DeShawn Washington

•8M

I was really skeptical about using an AI tool for something as specific as startup tax deductions, but I decided to try https://taxr.ai after struggling with conflicting advice. My situation was similar - about $6,200 in startup costs split across two calendar years before my business became operational. After uploading my docs, it correctly identified that I could take $5,000 of those expenses in my first operational year and had to amortize the remaining $1,200 over 15 years. It even flagged two expenses that were actually personal in nature that I had accidentally included! Ended up saving me from potential issues and maximized my first-year deduction correctly. Definitely made tax time less stressful.

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Mei-Ling Chen

•8M

If you're still confused about your startup deductions and need clarification directly from the IRS, good luck getting through on the phone! I spent THREE DAYS trying to reach someone about my startup cost timing question. Each time I called, I'd wait on hold for 2+ hours only to get disconnected. I finally tried https://claimyr.com after seeing it recommended on another thread. They got me connected to an IRS agent in about 15 minutes! You can see how it works here: https://youtu.be/_kiP6q8DX5c. The agent confirmed that my $4,300 in startup costs from November should be deducted in the following year when I actually started the business, not the year I incurred them. Finally got a clear answer straight from the source.

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Mei-Ling Chen

•8M

It works by using their priority callback system that businesses and tax professionals use. When you sign up, they use an automated system to continually redial and navigate the IRS phone tree until they secure a spot in the callback queue, then they transfer that spot to you. It's basically doing what you'd do manually, but with technology that doesn't give up. I was super skeptical too! I had spent literally dozens of hours trying to get through myself over several weeks. But it actually worked exactly as promised - I got a call back from an actual IRS agent about 15 minutes after using the service. The agent was able to pull up my previous return and give me specific guidance on my startup expense situation. Totally worth it for getting an official answer directly from the IRS.

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Aiden O'Connor

•8M

Alright, I owe everyone an apology. After posting my skeptical comment, I figured I'd try this Claimyr service just to prove it couldn't possibly work. Well, I was completely wrong. After trying for WEEKS to get through to the IRS about my startup costs question, I used https://claimyr.com and got a call back from an IRS agent in about 20 minutes. The agent confirmed that my software development costs of $6,200 from 2024 should be handled as startup costs on my 2025 return when I actually launched my app. She even explained the proper way to document everything to avoid audit flags. I hate admitting when I'm wrong, but this service actually delivered exactly what it promised. Sorry for being so negative before!

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Zoe Papadopoulos

•8M

Another approach worth considering is that some of your "startup costs" might actually qualify as different types of deductions. For example, equipment purchases might qualify for Section 179 depreciation rather than startup costs. This matters because Section 179 property has different rules and limits than the $5,000 startup cost deduction. Business assets like computers, tools, furniture, etc. could be deducted differently than organizational costs like legal fees, market research, etc. Might be worth categorizing your expenses correctly to maximize deductions.

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Zoe Papadopoulos

•8M

That $2,500 computer would typically qualify for Section 179 depreciation rather than being considered a startup cost. This is beneficial because it wouldn't count against your $5,000 startup cost limit. Instead, it would fall under the much higher Section 179 limit (which is $1,220,000 for 2025). The key requirement is that the computer must be used more than 50% for business purposes after your business begins operations. You'd report this on Form 4562 rather than as a startup cost, which preserves more of your $5,000 startup cost allowance for things like legal fees, marketing research, and other non-equipment expenses.

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