Handbook / Business deductions

Startup costs deduction for 2026: deducting costs before you open

Tax-year note: Tax information on this page applies to the 2026 tax year (returns filed in 2027), from IRS pages checked in November 2026. Figures and dates are labelled with their tax year where they appear. Check current IRS pages before you rely on them.

Before you take your first client or make your first sale, you often spend money: researching the market, building a website, getting advice, advertising the launch. Those pre-opening costs are not ordinary business expenses, because the business has not started yet. Instead, they are startup costs with their own rules. This guide covers the 2026 tax year, using IRS pages checked in November 2026. The Schedule C instructions quoted are the 2025 edition, the latest available when checked; check for a 2026 edition before filing.

What startup costs are

The IRS explains that startup costs are amounts paid or incurred to create an active trade or business, or to investigate creating or acquiring one. To qualify, a cost must meet both requirements:

1. it is a cost you could deduct if you paid it to operate an existing active business in the same field
2. it is paid or incurred before the day your active business begins

The IRS gives examples such as:

• an analysis or survey of potential markets, products, labor supply and transportation facilities
• advertisements for the opening of the business
• salaries and wages for employees being trained, and their instructors
• travel and other costs to secure prospective customers, suppliers or distributors
• salaries and fees for executives, consultants and similar professional services

What does not count

The IRS says startup costs don't include deductible interest, taxes, or research and experimental costs. Equipment and other property you buy are also treated separately: they are generally capital assets recovered through depreciation or similar rules; see Section 179.

When buying an existing business, the IRS explains that recoverable startup costs include only investigative costs incurred during a general search or preliminary investigation. Costs to purchase a specific business are capital expenses.

The first-year deduction

The Schedule C instructions (2025 edition) say that you can elect to deduct up to $5,000 of certain business startup costs in the year your business begins. The $5,000 limit is reduced, but not below zero, by the amount by which your total startup costs exceed $50,000. Your remaining startup costs can be amortized over a 180-month period beginning with the month the business began.

That means:

• if your startup costs total $5,000 or less, you can generally deduct them all in the first year
• if they total between $5,000 and $50,000, you can deduct $5,000 and amortize the rest
• above $50,000, the first-year deduction shrinks, and disappears at $55,000

Example

You spend $8,000 on market research, launch advertising and professional advice before opening in March 2026. Total startup costs are below $50,000, so you can elect to deduct $5,000 in 2026. The remaining $3,000 is amortized over 180 months starting in March 2026. For 2026, that is 10 months: $3,000 ÷ 180 × 10, about $167. The total 2026 deduction is about $5,167.

Organizational costs

If you form a corporation or partnership, the costs of organizing the entity, such as state filing fees and legal fees for formation documents, are organizational costs with a separate, similar limit. The Form 4562 instructions explain that amounts not deducted currently are amortized ratably over 180 months, starting with the month you begin business operations.

How to claim it

For amortization that begins in the tax year, the Schedule C instructions direct you to complete Form 4562, Part VI. The Form 4562 instructions say you are not required to attach a statement to make the election to deduct startup and organizational costs, and that the election is irrevocable once made.

Because the forms and instructions change, check the current editions when you file.

Timing matters

The key date is the month your business begins operating. Costs before that date are startup costs; costs after are generally ordinary business expenses deductible in the year paid, subject to the usual rules. Note the date your business opened, such as the first day you were available for clients.

Records to keep

• receipts and invoices for each cost
• a list showing the date, amount and purpose
• the date the business began
• calculations of the first-year deduction and amortization

The guide to startup costs helps you plan the spending itself.

For 2026, startup costs paid before opening can be deducted up to $5,000 in the first year, reduced dollar for dollar above $50,000, with the rest amortized over 180 months from the month you begin; equipment is handled separately.