Section 195 Start-Up Cost Deduction (Section 195)
Internal Revenue Service
Section 195 allows a new active trade or business to deduct up to $5,000 of investigatory and pre-opening costs in its first year, with any remaining start-up costs amortized ratably over 180 months (15 years), rather than treating all pre-opening spend as non-deductible until a later sale.
Objectives
Give new businesses immediate tax relief for the real costs of getting started — market research, travel to secure suppliers or customers, professional fees — rather than locking that spend away until the business winds down.
Who can apply?
- Applies to costs incurred investigating or creating an active trade or business before it begins operating.
- The $5,000 immediate deduction phases out dollar-for-dollar once total start-up costs exceed $50,000.
- Costs must otherwise be deductible if paid for an existing business.
What do you get?
- Up to $5,000 immediately deductible in the first year of operation.
- Remaining costs amortized over 180 months.
- Applies alongside a similar rule for organizational costs (Section 248/709).
How to apply
Elect and calculate the deduction on your business's federal tax return (Form 4562 for amortization) in the year the business begins active operation; consult a tax advisor on what qualifies as a start-up vs. organizational cost.