Updated November 7, 2026. Quick answer: Money spent before a business opens is a start-up expenditure under section 195, and the statute lets you deduct up to $5,000 of it in the year the business begins and spread the rest over 180 months. The $5,000 shrinks dollar for dollar once start-up costs pass $50,000 and is gone at $55,000. The records that decide the numbers are a receipt for each pre-opening cost, a dated list that keeps start-up costs apart from equipment and inventory, and the date the business began.
What counts as a start-up cost
This page reads the primary sources linked under Sources, as retrieved on November 6 and 7, 2026.
Section 195(c)(1) defines it by what the money was for: an amount paid “investigating the creation or acquisition of an active trade or business”, or “creating an active trade or business”, before the business is active. A second test applies: the amount must be one that “would be allowable as a deduction for the taxable year in which paid or incurred” if paid in an existing business in the same field. This page’s reading: a cost that even a running business would have to capitalize, such as equipment, fails the second test and belongs on the asset list instead.
The $5,000 and the 180 months
The deduction rule is in section 195(b)(1): “$5,000, reduced (but not below zero) by the amount by which such start-up expenditures exceed $50,000”, and “the remainder of such start-up expenditures shall be allowed as a deduction ratably over the 180-month period beginning with the month in which the active trade or business begins”. The table applies that formula to four illustrative totals. The amounts are not from any source; each first-year figure is the formula result and the remainder is the total minus that figure.
| Start-up costs in total | Deduction in the first year | Left to spread over 180 months |
|---|---|---|
| $4,000 | $4,000 (computed) | $0 (computed) |
| $20,000 | $5,000 (computed) | $15,000 (computed) |
| $52,000 | $3,000 (computed) | $49,000 (computed) |
| $55,000 | $0 (computed) | $55,000 (computed) |
The election is deemed unless you opt out
No form is filed to elect. The regulation says “A taxpayer is deemed to have made an election under section 195(b) to amortize start-up expenditures as defined in section 195(c)(1) for the taxable year in which the active trade or business to which the expenditures relate begins.” The opt-out is affirmative: “A taxpayer may choose to forgo the deemed election by affirmatively electing to capitalize its start-up expenditures on a timely filed Federal income tax return (including extensions) for the taxable year in which the active trade or business to which the expenditures relate begins.” It is final either way: “The election either to amortize start-up expenditures under section 195(b) or to capitalize start-up expenditures is irrevocable”. Because the election is deemed, the receipts are what make the deduction provable, and they are the only paper that does.
The date the business began
Every number above turns on the opening date. The statute leaves the test to regulations: “the determination of when an active trade or business begins shall be made in accordance with such regulations as the Secretary may prescribe”. For a purchased business the rule is plain: “An acquired active trade or business shall be treated as beginning when the taxpayer acquires it.” The regulation this page read does not define the opening date for a business you start yourself, so this page does not either. Write down the facts that bear on it, such as the first client invoice and the first day you were open for work, and let your preparer apply the test.
Where it lands on Form 4562
The Form 4562 instructions list “Amortization of costs that begins during the 2025 tax year.” among the reasons to file, and say “You can amortize such items as the costs of starting a business, goodwill, and certain other intangibles.” The Part VI walk-through is on Form 4562 Part VI, lines 42 to 44.
The records to keep
One list does the work, whether it is a spreadsheet or a folder. For each pre-opening cost: the date, the payee, the amount, what it was for, whether it was paid before the opening date, and whether it is a start-up cost or a purchase that belongs on the asset list. Publication 583 tells every business to keep supporting documents, and the IRS small-business page says “Supporting documents include sales slips, paid bills, invoices, receipts, deposit slips, and canceled checks.” Keep them from the first purchase, because the first costs are the ones that come before you have a business bank account.
Where an app fits
Pre-opening receipts arrive from many places at once. SparkReceipt’s home page says you can snap a receipt at the counter in the phone app, and Dext’s US home page says you can send receipts, invoices and statements by mobile, email, WhatsApp or desktop. These are the vendors’ statements; this page has not used either product. A photo in a dated folder with the one-line list above is the free version, and it meets the same test.
Common mistakes
- Starting the receipt list on opening day and losing the cost of investigating the business, which the statute names.
- Treating a laptop or tool purchase as a start-up cost when it belongs on the asset list with its own placed-in-service date.
- Assuming a form must be filed to elect; the regulation deems the election, and opting out is the step that needs an affirmative statement.
- Mixing start-up costs and ordinary opening-year expenses in one column, which makes the $50,000 reduction impossible to check.
Related: Form 4562 Part VI, Schedule C line 48, and Receipts and Expense Records for a One-Person Business.
Sources
- 26 U.S.C. 195, Start-up expenditures (Cornell LII)
- Treas. Reg. 1.195-1, Election to amortize start-up expenditures (Cornell LII, eCFR text)
- IRS Instructions for Form 4562 (2025), Depreciation and Amortization
- IRS, What kind of records should I keep
Read from the IRS documents linked above on November 7, 2026. General information, not tax advice. Your own facts decide the outcome, and a preparer, the account provider or the IRS is the right place to confirm anything consequential.