Startup Costs for an LLC or Sole Proprietor With No Income Yet

Can I write off what I spent before my LLC or side business earned anything?

Not as ordinary expenses. Most money spent before the business begins to investigate or create it is a start-up cost (equipment, inventory, interest, taxes and research follow other rules, below), and the tax code allows no deduction for start-up costs except as section 195 provides. That section lets you deduct a limited amount in the year the business begins and write off the rest over time. The deduction comes in the start year, not the year you paid.

A case is not simple when:

• you cannot name the day the business began;
• total start-up costs pass $5,000, so part is written off over 180 months (and past $50,000 the first-year limit shrinks);
• the LLC was formed long before operations started, or two or more people own it;
• you already run a business in the same field and are putting it into a new LLC or adding a line;
• these costs were already deducted as ordinary expenses on a filed return;
• equipment, inventory or research costs are mixed in;
• the activity has little income and could be questioned as a hobby.

Gather dated invoices and receipts that show the payee and what each bought, the card or bank statements, the LLC formation papers and any operating agreement, proof of who paid, and whatever shows the day you opened: first client contact, a live website, a business license, a first sale. List each cost on its own line with its date, payee and group (start-up, organizational, equipment or inventory): the groups have separate limits and different homes on the return.

What counts as a startup cost, and what is an organizational cost?

A start-up cost is an amount paid to investigate or create a business, or to prepare an activity that is meant to become one, that a running business in the same field could deduct (26 U.S.C. 195(c)(1)). The IRS lists:

• a survey or analysis of markets, products, labor supply or transportation;
• advertising for the opening;
• wages for employees being trained, and their instructors;
• travel and other costs of finding distributors, suppliers or customers;
• fees for executives, consultants and similar professional services.

An organizational cost creates the entity itself. For a partnership, the regulation lists legal fees for preparing the partnership agreement, accounting fees for the organization, and filing fees. Costs of running the business, buying assets for it, or admitting partners later are not organizational (26 CFR 1.709-2). The cost must also be incurred in a window that starts a reasonable time before the partnership begins business and ends at the due date, extensions not counted, of its return for the year it begins (26 CFR 1.709-2(a)).

The two groups are counted separately, each with its own limit (Publication 583).

A one-member LLC has no organizational group: section 709 covers partnerships, and the Form 4562 instructions list organizational costs only for corporations and partnerships. Its formation costs (state filing fee, a lawyer's fee) first meet 26 CFR 1.263(a)-5, which requires capitalizing amounts paid to facilitate forming a disregarded entity. They escape that rule only if all the formation costs together are $5,000 or less; above that, none escapes, and commissions never do (paragraph (d)(3)). A cost that escapes is a pre-opening cost like any other and joins the start-up group and its one limit. A cost that must be capitalized does not fit the section 195 test, which asks whether a running business could deduct it, and no source read here says how it is recovered. Keep formation costs on their own line so a preparer can apply this.

How much can I deduct the first year, and when does the limit shrink?

In the year the business begins, you deduct the smaller of your total start-up costs or $5,000. Once the total passes $50,000, the limit falls dollar for dollar, never below zero (26 U.S.C. 195(b); 26 CFR 1.195-1). Every start-up cost of the business counts toward that total.

Organizational costs get the same limits on their own: $5,000, reduced once they pass $50,000 (26 U.S.C. 709(b)). Nothing is deducted for either group before the business begins.

What happens to the rest: how does the 180-month write-off work?

Whatever the first-year deduction leaves is deducted in equal monthly slices over 180 months, starting with the month the business begins (26 U.S.C. 195(b)(1)(B)). The first return also takes the slices for the months left in that year: the regulation's example counts a July start as six months, July through December (26 CFR 1.195-1).

1. Subtract the first-year deduction from the total costs.
2. Divide what is left by the months in the write-off period (180 months) to get one month's slice.
3. Multiply by the months in the first year, counting the start month.
4. In each later year, take 12 slices until the period runs out.

If the business is completely disposed of before the period ends, the balance not yet deducted may be deducted as a loss, to the extent section 165 allows (26 U.S.C. 195(b)(2)).

When does my business begin, and does it matter that I have no revenue yet?

Neither section 195 nor the start-up regulation names a first sale or revenue as the test, and neither sets a date for a business you created yourself. The date turns on the facts: when you started the activity the business was set up for. Forming the LLC, or having no income yet, may or may not settle it.

The date decides the year of the deduction and the first of the 180 months. The statute leaves it to regulations, except that an acquired business is treated as beginning when you acquire it (26 U.S.C. 195(c)(2)); the start-up regulation does not define it (26 CFR 1.195-1).

For a partnership, the regulation gives the closest test. Beginning business is a question of fact. Ordinarily it happens when the partnership starts the operations it was organized for. Signing the partnership agreement is not enough, and buying the operating assets the business needs may be (26 CFR 1.709-2(c)).

For a sole proprietor, the Schedule C instructions say an activity is a business when your primary purpose is income or profit and you take part with continuity and regularity; a sporadic activity or a hobby is not (instructions).

Section 195 covers creating or investigating an active trade or business. If you already earn income in the same field and are moving into a new LLC or adding a line, whether that creates a new business is decided on the facts, and the costs may be ordinary expenses of the business you already run (Revenue Ruling 99-23 notes that costs to investigate expanding an existing business were generally deductible under section 162).

A wrong start year is costly to undo. Once amortization has run on two or more returns, changing the start year is a change in accounting method (26 CFR 1.195-1(b), Example 4). If the business never begins, section 195 does not say what happens to the costs; see startup costs paid personally before the LLC.

If my business has started but has no income, are my costs ordinary Schedule C expenses?

Yes, once the business has begun and the cost is ordinary and necessary, it is deducted as an expense for the year (Publication 583). On Schedule C, expenses above income make a net loss, which can usually be deducted from other income, though some limits apply (Publication 334, chapter 9). A cost paid before the start date stays a start-up cost, even in the same tax year.

Two traps:

• Pre-launch costs deducted as ordinary expenses. Once an item has been treated that way on two or more returns, the regulation treats it as a wrong accounting method, and fixing it takes a change in accounting method (26 CFR 1.195-1, Example 3). The regulation's method-change rule starts at two returns; what to do after one is for the preparer.
• A profit motive. For an individual, an activity not engaged in for profit is limited in the deductions it gets, and its loss generally cannot offset other income (26 U.S.C. 183; Publication 334, chapter 9).

For loss limits, see business losses. For the hobby-or-business test, see hobby or business for online resellers.

Where do startup costs go: Schedule C, Form 4562 or the partnership return?

A domestic LLC that has not elected corporate treatment reports on its owner's return if it has one member who is an individual, generally on Schedule C for a business (the IRS page also lists Schedules E and F), and on Form 1065 if it has two or more members (IRS). Each attaches Form 4562 for amortization that begins in the year.

These form references come from the 2025 forms and instructions, the latest final ones. The IRS's early draft of the 2026 Form 4562 has no amortization part (draft), so confirm on the final 2026 form where amortization is reported.

You do not have to elect anything. The taxpayer is deemed to have elected to amortize, and no statement is needed (26 CFR 1.195-1(b); Form 4562 instructions). To capitalize instead, say so on a timely filed return, extensions included, for the year the business begins. Either choice cannot be changed later and covers all of the business's start-up costs.

If the first return left the costs out, the deemed election still applies, so an amended return for the start year may be the route. The 6-month amended-return relief in the Form 4562 instructions sits in the passage on costs paid before September 9, 2008, so it is not the route for current costs. The Form 1065 instructions still describe a 6-month amended-return election for partnerships, marked "Filed pursuant to section 301.9100-2," which differs from the regulation's deemed election. Which applies is for the preparer to settle.

What if the LLC has two or more owners?

A domestic LLC with two or more members is a partnership for federal tax unless it elects corporate treatment (IRS). Section 709 then covers its organizational costs and section 195 its start-up costs, both at the partnership level.

The partnership takes the deduction. Section 709 allows no deduction for organizing costs except as section 709(b) provides (26 U.S.C. 709). As with start-up costs, the partnership is deemed to elect to deduct and amortize them for the year it begins business, and may instead elect to capitalize on a timely filed return, extensions included; that choice cannot be changed later (26 CFR 1.709-1(b)). The deductions reduce the profit or add to the loss it passes to its members (Publication 583).

When a member paid costs personally, see startup costs paid personally before the LLC and partner-paid LLC expenses. Which return the partnership files is in which returns your business files.

Which costs are not startup costs: equipment, inventory, interest, taxes, research?

Several costs sit outside the start-up rules and follow their own. Mixing them into the start-up pool changes the year and amount of the deduction.

Can I deduct courses and training before I launch?

Sometimes, but only if the course would be deductible education for someone already running that business. Training for people you hire counts: the IRS lists wages for employees being trained and their instructors as start-up costs (IRS), and Publication 583 names training among them.

Your own education is tested twice. A start-up cost must be one a running business in the same field could deduct (section 195(c)(1)). Under 26 CFR 1.162-5, education is deductible when it maintains or improves skills the business requires. It is personal when it meets the minimum requirements to enter the field or is part of a program leading to a new trade or business. The regulation's examples: a self-employed engineer's law degree is not deductible, and a physician's two-week refresher course is.

So a course that sharpens skills in a field you already work in may be a start-up cost, while a degree or certificate that qualifies you to enter the field is treated as personal. Neither section 195 nor the education regulation says how this applies to an owner with no existing business in the field, so it is decided on the facts. Keep the course description and why you took it.

Example

These examples are illustrative; figures are in US dollars. Each business files on the calendar year, pays every cost in Year 1 and opens in July of Year 2. Costs are start-up costs unless the example calls them organizational; none is equipment, inventory, interest or research.

One owner, costs a year before opening

A single-member LLC owner pays $13,000 personally in Year 1 for a market survey, opening ads and consultant fees. The business opens in July of Year 2.

• Year 1: nothing is deducted, because the business has not begun.
• Year 2: $5,000 is deducted. The other $8,000 goes over 180 months, about $44 a month, so July through December adds about $267. Schedule C, Part V shows about $5,267, with Form 4562 attached for the amortization.
• Year 3 on: about $533 a year (12 slices) until the 180 months end.

Costs above the limit

A sole proprietor's start-up costs total $52,000. They are $2,000 over $50,000, so the $5,000 limit falls to $3,000. The other $49,000 goes over 180 months, about $272 a month. With a July start, the first return deducts $3,000 plus about $1,633 (six months), or about $4,633. At $55,000 or more, nothing is deducted at once and the whole amount goes over 180 months.

Two members: organizing and starting up

A two-member LLC pays $4,000 to organize (filing fee and operating agreement) and $9,000 to start up (survey and ads). The groups have separate limits. The $4,000 of organizational costs is under its $5,000 limit and is deducted in full in the year business begins. Of the $9,000 of start-up costs, $5,000 is deducted that year and $4,000 goes over 180 months, about $22 a month. With a July start, six months of that slice (about $133) is also deducted that year, so Form 1065, line 21 carries about $9,133.

Different for you?

• You cannot name the day the business began, you spent more than $5,000 before launch, you formed the LLC long before operations began, or you have two or more owners: the return is built from a dated list of every pre-launch cost, grouped as start-up, organizational, equipment and inventory, and the start date decides which year each group lands in. A wrong start year is hard to undo once two returns are filed. For building that list and settling the start date before the first return, see bookkeeping help.
• You paid the costs personally and have not booked them: see startup costs paid personally before the LLC and setting up books for a new LLC.
• Receipts are missing for some costs: see lost receipts for business expenses.
• The LLC elected corporate tax treatment, or a member joined or left: the election and the number of members decide which return the LLC files (IRS), so date every cost and note who paid it. See startup costs before incorporating and how LLCs are taxed.
• You already deducted these as ordinary expenses on filed returns, or returns since the start year are unfiled: after two or more filed returns the fix can be a change in accounting method; for unfiled years the books and returns need catching up first. See Schedule C expenses for unfiled years and catching up on overdue books, and bookkeeping help.
• You bought equipment or software before launch: see writing off equipment in the first year.
• The costs are for a rental property with no tenant yet: see rental expenses before the first tenant.
• Spouses own the LLC: an LLC owned by spouses files as a partnership, except that spouses who own it as community property may treat it either way (IRS). See spouse and family LLCs.
• A foreign person owns your single-member LLC: foreign status turns on citizenship and tax residence, not an overseas address (26 CFR 1.6038A-1(f)). See foreign-owned single-member LLC filing.