Deducting New LLC Startup Costs vs Personal Tax Write-offs

Does the $5k limit apply to all startup costs combined or can you have separate $5k deductions for different categories like organizational costs vs startup costs? And what exactly counts as a "startup cost" anyway? Like if I bought equipment, is that different?

Great question. The $5,000 immediate deduction is actually available for two separate categories: business startup costs and organizational costs, so you could potentially deduct up to $10,000 in your first year ($5,000 for each category). Startup costs include market research, advertising, employee training, travel costs for securing suppliers or customers, and similar expenses incurred before your business begins operating. Organizational costs include legal fees for forming the LLC, state filing fees, and other costs directly related to creating the business entity. Equipment purchases are treated differently - they're capitalized assets subject to depreciation rules, and you may be eligible for Section 179 expensing or bonus depreciation, which could allow you to deduct the full cost in year one, subject to certain limitations. This is separate from the startup cost rules.

Does taxr.ai work for all types of business entities? I have an S-Corp and wondering if it would help with my situation too with identifying which expenses go where.

I'm a bit skeptical... how does it handle state-specific rules? My business operates in California and I've found that sometimes the state rules are even more complicated than federal.

Yes, it works for any business entity - sole props, LLCs, S-Corps, partnerships, and C-Corps. It actually has specific templates for each entity type that help you categorize expenses properly based on how your business is structured for tax purposes. It definitely handles state-specific rules. I'm actually in California too, and it flagged several expenses that had different treatment under California law compared to federal. It breaks everything down by jurisdiction and even shows you the relevant tax code sections so you can verify everything yourself if you want to.

How does this service actually work? I've literally spent hours on hold with the IRS and always end up hanging up because I can't wait anymore. Is it legit or just another scam?

Yeah right. Nobody gets through to the IRS that quickly. I'll believe it when I see it. I've tried calling at every hour of the day and it's always the same "due to high call volume" message before being disconnected.

It uses a system that monitors IRS phone lines and calls repeatedly until it gets through, then it calls you and connects you directly to the IRS agent. It's basically doing the wait time for you. Once you're connected, it's just a normal call with an IRS representative who can answer your specific questions. It's definitely legitimate. The IRS even acknowledges third-party services like this exist because their call centers are so overwhelmed. I was skeptical too, but I had a complicated question about business expense categorization that I couldn't get answered anywhere else, so I decided to try it as a last resort.

So would it be better to classify as much as possible as equipment/property to take advantage of Section 179 rather than having it count as startup costs with that small $5k deduction? I'm confused about which would be more advantageous.

Absolutely, if you have legitimate equipment/property purchases as part of your startup, it's generally more advantageous to categorize them properly as depreciable assets rather than as startup costs. This allows you to potentially deduct the full cost in year one under Section 179 or bonus depreciation. For example, if $400k of your $820k is actually for equipment, vehicles, computers, furniture, etc., you could potentially deduct that entire $400k in year one rather than having it subject to the 15-year amortization schedule that applies to startup costs. Just make sure you're properly categorizing expenses - the IRS is very specific about what qualifies as a startup cost versus a depreciable asset.

Not OP but my guess would be either a restaurant, manufacturing, or something with heavy equipment/real estate component. My restaurant startup was around $600k and that was considered on the lower end for a full-service place.

I'm opening a specialty manufacturing facility for custom automotive parts. A big chunk of the startup cost is specialized CNC equipment and other machinery. Thanks for all the advice everyone! I've been taking notes on the Section 179 option vs startup cost amortization. Sounds like I should definitely separate out the equipment purchases from the other startup expenses for better tax treatment.

This is really valuable advice about the "in service" timing! I hadn't thought about that distinction between purchase date and when equipment is actually operational. Since I'm planning to have some equipment delivered in Q4 but may not have it fully set up and running until early next year, this could significantly impact my tax planning. @Grace Patel - you might want to coordinate the timing of your equipment installations with your CPA to optimize the tax benefits across tax years. And Charlotte s'point about state incentives is spot on - I d'definitely research manufacturing incentives in your state. Some states even offer property tax abatements for new manufacturing facilities. One more thing to consider: if you re'doing any facility improvements or build-outs for the manufacturing space, those might qualify for different depreciation schedules than the equipment itself.