Starting a Business — Tax Deductions, Startup Costs, and What You Can (and Can’t) Write Off

(Episode 19 – Savvy or Surrender Podcast)

Thinking about launching in 2026? Before you order the logo and set up your Instagram, get clear on one thing that can save you real money: what you can and can’t write off — especially the difference between startup costs and operating expenses. Mix them up, and you could miss deductions, overpay taxes, or send messy records to your accountant. Get them right, and you’ll set up your business for cleaner books, smarter tax planning, and stronger cash flow from day one.

What You Can and Can’t Write Off When You’re Starting a Business

• You can typically write off ordinary and necessary expenses for your industry. During startup, many of these are categorized differently (and deducted differently) than after you open.

• You can’t immediately deduct everything you spend before you’re “open for business.” Many pre-opening costs are considered startup costs that may be amortized over time.

• You can write off capital assets (like equipment) over time via depreciation; some may qualify for Section 179 or bonus depreciation after operations begin.

• You can’t deduct personal expenses. Keep business and personal completely separate to preserve deductions and protect your entity.
  

  Startup Costs vs Operating Expenses: Why the Difference Matters

Startup costs: What you spend to get ready to open your doors — research, training, pre-licensing, initial marketing, business formation, website build, initial legal/accounting help, and pre-opening travel.

Operating expenses: Ongoing costs once you’re actively offering your product or service — advertising, software, supplies, mileage, rent, utilities, payroll, merchant fees, dues, and subscriptions.

Why it matters:

1. Taxes: The IRS treats these buckets differently; misclassification can delay deductions.

2. Cash flow: Budgeting pre- vs post-launch keeps you from feeling “busy but broke.”

3. Funding: Lenders/investors want clean, categorized books.

When Does “Startup” End and “Operations” Begin?

The IRS looks at when you’re ready and available to serve customers, not just the day you register the LLC. Practical markers include:

• Licenses/permits in hand (you’re legally able to perform the work)

• Tools/systems to deliver (software, equipment, bank account)

• Actively seeking customers (listings live, calendar open, marketing launched)

Examples:

Realtor: Pre-licensing courses and exam fees = startup. Once licensed and actively listing/showing, MLS dues, E&O insurance, lockboxes, signs, mileage = operating.

Franchise owner: Franchise fee, training, site selection, build-out = often startup/capital. After opening day, payroll, supplies, royalties, rent, utilities = operating.

How Startup Costs Are Deducted (What the IRS Allows)

• Up to $5,000 of qualifying startup costs can be deducted in your first year if total startup costs are $50,000 or less. Anything above that is amortized over 15 years.

• Organizational costs (forming your LLC or corporation) have their own similar $5,000 first-year deduction and 15-year amortization rules.

• Capital assets (equipment, furniture, some software) are depreciated; many qualify for Section 179 or bonus depreciation once you’re in operation, allowing larger upfront deductions after you open.

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Common Startup Costs You Can Write Off (and Ones You Can’t Right Away)

You can deduct (subject to the startup rules above):

• Market research and pre-launch training/education

• Initial branding, website build, domain purchase

• Legal and accounting for initial setup

• Travel to training or suppliers before opening

• Initial marketing collateral (business cards, signage)

• Franchise fee and required training (typically amortized)

Not immediately deductible in full:

• Large equipment and build-out (capitalize/depreciate; potential Section 179/bonus after launch)

• Personal development unrelated to the business

• Personal living expenses during startup

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Common Operating Expenses You Can Deduct After You Launch

• Advertising and ongoing marketing

• Software subscriptions and CRM

• Office rent or home office portion

• Phone, internet, and utilities

• Mileage, travel, and client meals (with rules)

• Payroll, contractors, and merchant fees

• Insurance, licenses, dues, MLS (for realtors), and royalties (for franchises)

Real-World Examples: What’s Deductible for Realtors, Franchise Owners, and Coaches

New Realtor

Pre-licensing and exam fees = startup. MLS dues after you’re active = operating. Camera, laptop, lockboxes purchased when you’re already taking clients may qualify for Section 179. Track mileage from day one.

Franchise Buyer

Franchise fee is generally amortized over 15 years. Build-out and equipment may be capitalized and depreciated; some may qualify for Section 179/bonus once you’re open. Royalties, payroll, and supplies are operating.

Solo Service Provider (Coach/Consultant)

Pre-launch course development, market research, and website build = startup. Zoom, scheduling software, ads, and subscriptions after launch = operating. A home office deduction may be available if used regularly and exclusively.

How to Track Expenses So You Don’t Miss Legit Deductions

Open business bank accounts early. Separate personal and business spending from day one.

Use clear categories: Startup Costs, Organizational Costs, Capital Expenditures, and standard operating expenses.

Timestamp expenses. Record the date you became “open for business”; it drives classification.

Keep receipts and notes. Add memos like “pre-licensing training” or “initial brand design.”

Build a launch budget. Forecast 3–6 months of operating expenses to ease cash pressure.

Big Mistakes That Cost New Business Owners Money

• Treating everything as a first-year write-off (many items must be amortized or depreciated)

• Waiting until tax time to do bookkeeping (lost deductions, more stress)

• Mixing personal and business spending (muddies deductions; risks liability protection)

• Ignoring entity choice (LLC vs S-Corp timing can affect payroll taxes once profitable)

Bottom Line

Understanding what you can and can’t write off — and the line between startup costs and operating expenses — isn’t just a tax technicality. It’s a money-saving, stress-reducing habit that sets your business up for success. Get the categories right now, and future-you will thank you at tax time.

Starting a business? Learn what tax deductions you can and can’t write off, how startup costs work, and smart ways to track expenses for better tax savings.

Book a free consult with Savvy Tax Strategies to get your categories dialed in.