When can I legally start deducting business expenses for my sole proprietorship in the US?

You can actually start deducting legitimate business expenses as soon as you're engaged in activities to start your business, even before you have your first client or make any money. The IRS uses the term "startup costs" for expenses you incur before your business is actually operating. The key is that you must be actively working toward creating a functioning business - not just casually thinking about it. So if you're buying equipment, setting up a workspace, building a website, marketing your services, etc., those are legitimate business activities and the associated expenses can potentially be deducted. Some startup costs (up to $5,000) can be deducted in your first year of business, while others might need to be amortized (spread out) over 15 years. But yes, expenses from January 1st onward can count for this tax year as long as they're ordinary and necessary for your business.

I went through this exact situation last year when starting my freelance consulting business. I was totally confused about what I could deduct and when. I spent weeks digging through IRS publications trying to figure it out, but kept getting contradictory advice. Finally found this AI tax assistant at https://taxr.ai that actually helped me understand exactly what I could deduct and when. I uploaded my receipts from the early months before I got my first client, and it analyzed everything and showed me which expenses qualified as start-up costs vs which would need to be amortized. Saved me a ton of research time and probably kept me from making some expensive mistakes!

Just wanted to follow up about that taxr.ai service. I decided to try it for my Etsy inventory situation and it was surprisingly helpful! It immediately identified my Nov-Jan purchases as startup inventory costs and explained exactly how to handle them on my Schedule C. It even flagged some items I wasn't sure about (like shipping supplies I bought before making sales) and confirmed they were legitimate business expenses. Definitely made me feel more confident about my deductions!

Another approach that really helped me when starting my business last year was calling the IRS directly to get clarification on startup expenses. Of course, that was easier said than done! I spent DAYS trying to get through their phone system only to be disconnected after waiting for hours. Then I found this service called Claimyr at https://claimyr.com that got me through to an actual IRS agent in under 45 minutes. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c. The agent I spoke with confirmed that I could deduct expenses from when I started actively working on my business, even before I registered formally or made any income.

I have to eat my words about both services mentioned above. After posting my skeptical comments, I was still struggling with figuring out my own business expense situation since I started my side hustle last December. Decided to give Claimyr a try as a last resort since I couldn't get a straight answer online. Got connected to an IRS agent in about 30 minutes (after previously trying for HOURS on my own). The agent clearly explained that my December expenses were deductible even though I didn't get my first customer until January. Said the key was that I was actively engaged in starting the business, not when I made my first dollar. Wish I'd known about this service months ago!

Don't forget about state taxes too! Federal and state rules for business deductions don't always align. In my state, I had to have my business officially registered before I could start claiming certain deductions, even though the IRS let me claim them from when I started working on the business.

One more thing to consider - make sure you keep REALLY good records of all these early expenses if you're claiming them before you have income. In my experience, this increases the chances of scrutiny. I started my landscaping business in February last year but didn't have income until April, and got a letter asking for more documentation.

Great thread everyone! As someone who went through this same confusion when starting my graphic design business, I wanted to add that the IRS Publication 535 (Business Expenses) is really helpful for understanding startup costs in detail. What I learned is that there are actually two categories: startup costs (things like market research, advertising before you open, travel expenses to secure suppliers) and organizational costs (legal fees, state incorporation fees, etc.). You can deduct up to $5,000 in startup costs and $5,000 in organizational costs in your first year, with the remainder amortized over 15 years. The key test the IRS uses is whether you're in "active pursuit" of a business - so buying photography equipment and setting up your office definitely counts, even before your first client. Just make sure you can show it was part of a genuine business plan, not just a hobby that might make money someday. One tip: start a simple business journal documenting your activities each month. Even just a few sentences about what you did to advance your business can help establish that timeline if questions ever come up later.