What you spend to get a freelance business ready before you land your first client isn’t deducted like an ordinary expense. The IRS treats it as startup costs. You can elect to deduct up to $5,000 of them in the year the business begins, and whatever is left is spread evenly over 180 months, or 15 years, starting the month you begin operating. The $5,000 shrinks once your total passes $50,000.
This matters in your first year because the order is easy to get wrong. A course you paid for in March before you had a client is a startup cost, and the same course bought in June after your first invoice is a regular expense deducted in full. The details below come from IRS Publication 583 and the Form 4562 instructions. For everything you can deduct after you open, see the freelancer deductions guide.
What counts as a startup cost
Publication 583 says business startup costs are the expenses you incur before you begin business operations, that they depend on the kind of business, and that they may include advertising, travel, surveys and training. It calls them generally capital expenses. The line that matters is when operations begin: startup costs come before, ordinary expenses after.
For a freelancer that might mean:
- A training course to learn a skill you’ll sell.
- Advertising, such as business cards or a website you pay for before you take your first client.
- Travel to meet people or scope the work.
- Market research and surveys.
The IRS gives no complete list. Whether a specific cost counts is a question for your tax preparer, since the pub lists only examples.
What isn’t a startup cost
Equipment. Publication 583 says you usually recover the cost of a particular asset, such as machinery or office equipment, through depreciation, and that you can deduct a limited amount of certain depreciable property in the year you place it in service under section 179. A laptop or a camera goes there. It’s the same treatment whether you bought it before or after your first client, which our deductions guide covers. If your home office is part of the setup, the home office guide explains how that deduction works separately.
Organizational costs are a separate category. The Form 4562 instructions list organizational costs for a corporation and for a partnership as their own items. They aren’t part of the startup rules for a freelancer working as a sole proprietor, so if you formed a company, read the LLC vs. sole proprietorship guide and ask a professional how your structure is taxed.
How the deduction works
The rule has three parts, all from Publication 583 and the Form 4562 instructions:
- You can deduct up to $5,000 of startup costs in the year the business begins.
- That $5,000 is reduced by the amount your total startup costs exceed $50,000.
- The rest is amortized, which means deducted in equal monthly pieces over 180 months starting with the month you begin business operations.
| Total startup costs | Deducted in year one | Amortized over 180 months | Per month |
|---|---|---|---|
| $3,800 | $3,800 | $0 | $0 |
| $8,000 | $5,000 | $3,000 | $16.67 |
| $52,000 | $3,000 | $49,000 | $272.22 |
| $55,000 or more | $0 | All of it | Total / 180 |
$3,800
- Deducted in year one
- $3,800
- Amortized over 180 months
- $0
- Per month
- $0
$8,000
- Deducted in year one
- $5,000
- Amortized over 180 months
- $3,000
- Per month
- $16.67
$52,000
- Deducted in year one
- $3,000
- Amortized over 180 months
- $49,000
- Per month
- $272.22
$55,000 or more
- Deducted in year one
- $0
- Amortized over 180 months
- All of it
- Per month
- Total / 180
Our arithmetic from the rule in Publication 583 and the Form 4562 instructions. $52,000: the $5,000 is reduced by the $2,000 above $50,000, leaving $3,000, and the other $49,000 / 180 = $272.22. Amortization starts the month the business begins; the first year's share is the monthly amount times the months left in the year.
A worked example
A freelance copywriter spends $8,000 before her first client: $2,400 on a training program, $1,800 on a website and branding, $1,300 on a trip to a conference and $2,500 on a market survey and ads, which Publication 583’s list of examples fits. Her first paid project starts in October.
She can deduct $5,000 in the year the business begins. The other $3,000 is amortized over 180 months, or $16.67 a month. With October as the first month, that’s three months in the first year, $50, for a first-year total of $5,050. Her tax is figured on a lower profit by that amount. After that, $200 a year comes off her profit until the 180 months run out.
Notice what she doesn’t do: she doesn’t deduct the $8,000 all at once. The $3,000 above the first-year amount comes back slowly, which is the real cost of spending a lot before opening.
The two tests every startup cost must pass
The IRS tax tip on startup costs says a cost is recoverable only if it meets both of two requirements. First, it’s a cost the business could deduct if it paid it to operate an existing active business in the same field. Second, it’s a cost paid or incurred before the day the active business begins. The tip defines startup costs as amounts paid or incurred for creating an active trade or business, or for investigating the creation or acquisition of one.
The IRS lists these examples of what’s included: an analysis or survey of potential markets, products, labor supply or transportation facilities, advertisements for the opening of the business, salaries and wages for employees being trained and their instructors, travel and other necessary costs for securing prospective distributors, suppliers or customers, and salaries and fees for executives, consultants or similar professional services. It says startup costs don’t include deductible interest, taxes or research and experimental costs. For someone buying an existing business, only the investigative costs of a general search count. Costs to buy a specific business are capital expenses that can’t be amortized. The tip dates from 2021, so we use it for the definitions, and the amounts and the amortization period come from the 2025 instructions and Publication 583.
The IRS also says that when you start a business, all eligible costs incurred before you begin operating are treated as capital expenditures that are part of your basis in the business, and the business can generally recover the cost of assets through depreciation. That’s the rule behind the equipment exception above.
When the business begins
The date matters twice. A cost paid before it is a startup cost, and a cost paid after it is an ordinary expense. And the 180 months of amortization start with the month you begin operating, per the Form 4562 instructions. The 2025 Schedule C instructions describe the election the same way for a business that began in 2025: you can elect to deduct up to $5,000 of certain startup costs, the $5,000 is reduced by the amount your total startup costs exceed $50,000, and the rest can be amortized over 180 months beginning with the month the business began.
The month of the first client changes the first-year deduction for the $8,000 of startup costs in our example. The first-year amortization is $3,000 divided by 180, which is $16.67 a month, times the months from the start month through December.
| Business begins | Months of amortization in year one | Amortization | Year-one deduction with the $5,000 |
|---|---|---|---|
| January | 12 | $200 | $5,200 |
| April | 9 | $150 | $5,150 |
| July | 6 | $100 | $5,100 |
| October | 3 | $50 | $5,050 |
| December | 1 | $17 | $5,017 |
January
- Months of amortization in year one
- 12
- Amortization
- $200
- Year-one deduction with the $5,000
- $5,200
April
- Months of amortization in year one
- 9
- Amortization
- $150
- Year-one deduction with the $5,000
- $5,150
July
- Months of amortization in year one
- 6
- Amortization
- $100
- Year-one deduction with the $5,000
- $5,100
October
- Months of amortization in year one
- 3
- Amortization
- $50
- Year-one deduction with the $5,000
- $5,050
December
- Months of amortization in year one
- 1
- Amortization
- $17
- Year-one deduction with the $5,000
- $5,017
Hypothetical $8,000 of startup costs, our arithmetic from the Form 4562 rule: $5,000 deducted, $3,000 amortized over 180 months starting with the month the business begins. Amounts are rounded to the dollar.
The differences are small, since most of the benefit is the $5,000. What’s worth getting right is the sequence. The $5,000 election is available in the year the business begins, so a business that begins in December still gets it for that year. A cost you pay in December before opening is a startup cost, and the same cost paid in January after opening is an ordinary expense, which is deducted in full in the year paid.
Taxes a new business owes from day one
Starting a business also starts the tax obligations on its profit, which Publication 334 summarizes. If you’re a sole proprietor, you generally pay self-employment tax and file Schedule SE if your net earnings from self-employment were $400 or more. Startup costs lower that profit, so a first-year deduction lowers both income tax and self-employment tax, as our self-employment tax guide shows. Once you expect to owe $1,000 or more, you generally pay estimated tax too, which the quarterly payments guide covers. Startup costs and amortization appear on your return like other business deductions.
Records for the months before the first client
Publication 583 gives one habit to start on day one: open a business checking account and keep it separate from your personal one. It says to deposit all daily receipts in that account, make payments from it to document business expenses, write checks payable to yourself only when making withdrawals for personal use, and reconcile the account each month against the bank statement. For startup costs, add a simple list with the date, the amount, what it was and why it was a startup cost, because the split between startup and ordinary costs depends on dates. Our paying yourself guide covers what to do once money starts coming in.
What happens at filing
You report amortization in Part VI of Form 4562. The IRS says you don’t attach a statement to make the election for costs paid after September 8, 2008, and that once made it’s irrevocable. Tax software asks about startup costs in its business section, and a preparer will carry the monthly amount forward each year. The amount carried goes on each year’s return, so keep a schedule with the total, the start month and the monthly figure.
The date the business begins is what sets the clock, so write down when your first client engagement or first sale happened.
Note
You don’t attach a statement to make the election, and the Form 4562 instructions say that once it’s made it’s irrevocable. If you’re unsure whether you want to deduct startup costs this way, talk to a tax professional before you file the first return for the business.
Keep the records
You’ll need proof of what you paid and when, because the split between startup and ordinary costs turns on dates. Keep receipts and a short note of what each was for. The first-time filing guide covers the records to keep for Schedule C, and the same folder works for startup costs.
How we got these rules
The meaning of startup costs, the examples, the generally capital nature, the treatment of assets through depreciation and section 179, and the $5,000 and $50,000 figures come from IRS Publication 583 (12/2024). The 180-month amortization, the start month, the election mechanics, the irrevocability and the Form 4562 Part VI reporting come from the 2025 Instructions for Form 4562. We opened both on October 13, 2026. The table and the copywriter’s numbers are our own arithmetic from those rules, and the examples are hypothetical. We did not use the older Publication 535 text, which the IRS has discontinued. For how we choose sources, see How We Research.
This is general information, not tax advice for your situation. Whether a cost is a startup cost, and when your business began, depend on the facts, so confirm them with a tax professional before you file.
