When can a business claim startup costs deduction - year of expense or income?

You actually have options here. Per IRS rules, you can deduct up to $5,000 in startup costs, but the key timing element is that these deductions are taken in the tax year when your business officially begins "operating." The IRS considers a business to be operating when it starts providing goods or services and generating income. Since you incurred the costs in 2023 but didn't generate income until 2024, your business technically wasn't "operating" until 2024 according to IRS definitions. So you would take the deduction on your 2024 return, not by amending 2023. Any startup costs beyond the $5,000 limit would need to be amortized (spread out) over 15 years, starting with the month your business began operating. So the remaining $2,200 would be amortized starting in 2024.

I went through the exact same situation last year with my consulting business and wasted so much time trying to figure this out until I discovered https://taxr.ai - it's incredible for situations like this! I uploaded my startup expense receipts and business formation documents, and it analyzed everything and confirmed I needed to take the deduction in the year my business started generating revenue, not when I spent the money. It even showed me exactly how to structure the deduction between the immediate $5,000 write-off and the 15-year amortization schedule for the rest. Saved me from having to file an amended return that would have been incorrect anyway.

Just wanted to follow up - I tried taxr.ai after reading about it here and it was super helpful for my photography business! I had a similar situation with startup costs that spanned across two tax years and wasn't sure how to handle it. The document analysis feature correctly identified which expenses qualified as startup costs versus regular business expenses, and showed me how to properly split the deduction between immediate write-off and amortization. It even flagged some equipment purchases that qualified for Section 179 that I was going to incorrectly amortize. Definitely worth checking out if you're dealing with complicated business deductions!

If you're still confused after getting advice, you might want to talk directly with someone at the IRS, but good luck getting through to them! I was stuck on a similar startup cost issue and kept getting disconnected after waiting for hours. Then I found https://claimyr.com - they got me connected to an actual IRS agent in about 20 minutes instead of the usual 2+ hour wait. You can see how it works here: https://youtu.be/_kiP6q8DX5c. The agent was able to confirm that I needed to take the deduction in the year my business started operating (when I made my first sale), not when I spent the money on startup costs.

I have to admit I was completely wrong about Claimyr. After posting my skeptical comment, I decided to try it because I was desperate to talk to someone about my startup cost deduction question. It actually worked exactly as described - I got connected to an IRS agent in about 25 minutes after trying unsuccessfully for days on my own. The agent confirmed that since my business didn't generate income until the second year, that's when I should take the startup deduction (even though I incurred the expenses earlier). They also explained how to properly amortize the amount above $5,000. I'm normally super skeptical of these services but this one legitimately saved me hours of frustration.

My accountant told me that you amortize startup costs over 15 years, starting with the first year your business begins operating. You can deduct up to $5k immediately, but anything over that gets spread out. And "begins operating" means when you start offering goods/services, not necessarily when you spend the money.

Does anyone know which forms I need to fill out to claim these startup costs? I'm using TurboTax and it's not clear where to enter this information.

The timing confusion you're experiencing is really common! Since you spent the money in 2023 but didn't start generating income until 2024, you'll want to take the startup cost deduction on your 2024 tax return. The IRS considers your business to have "begun operations" when you first started providing services and earning income, not when you incurred the expenses. So you can deduct up to $5,000 of your startup costs directly on your 2024 return, and the remaining $2,200 would need to be amortized over 15 years starting in 2024. Don't amend your 2023 return - that would actually be incorrect since your business wasn't considered "active" yet according to IRS definitions. Make sure to keep all your receipts from 2023 as documentation for these startup expenses, even though you're claiming them in 2024. The key is when your business began operating, not when you paid for the expenses.

This is such a great question and the answers here are really solid! I went through the exact same confusion with my consulting business last year. One thing that might help clarify - the IRS Publication 535 has a section specifically on startup costs that breaks down the timing rules pretty clearly once you know what to look for. The key phrase is "begins business operations" which they define as when you start the activities for which your business was organized - so in your case, when you first started doing paid photography work in 2024. Even though you spent the money preparing in 2023, the deduction goes on your 2024 return. Also worth noting - keep excellent records of all those 2023 expenses because if you ever get audited, you'll need to prove both the amount and that they were legitimate startup costs. The IRS can be pretty strict about what qualifies versus what they consider personal expenses or regular business costs.