Small business

What Counts as a Startup Cost for a New Business

Updated October 1, 2026

A startup cost is generally any expense you paid before your business actually began operating, like research, setup, and early marketing. These are treated differently than ordinary costs paid once the business is up and running.

Startup costs happen before you are officially open

The key dividing line is whether your business was actively operating yet. Money spent investigating whether to start the business, setting things up, or preparing to open the doors falls into a different category than the everyday costs you pay once customers are actually walking in or orders are actually coming through.

This period can stretch on longer than people expect, sometimes many months of planning and preparation before the first sale happens.

Common examples people forget to track

Market research done before deciding to start
Travel to scout locations or meet potential suppliers
Fees to set up the legal structure of the business
Early advertising or a website built before opening
Training yourself or early hires before the business opened
Professional fees paid for early advice on setting things up

Because these costs happen before the business feels real yet, in the owner's mind, they are some of the easiest expenses to lose track of entirely. Months later, a bank or card statement from the planning phase can be hard to even recognize as business related without a note made at the time.

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Keep these separate from ongoing costs

Once the business is actually operating, day-to-day expenses are handled differently than the costs you paid to get there. Mixing the two together in your records makes it harder to sort out later. Keeping a simple, separate list of everything spent before the official opening date solves this from the start.

Pick a clear opening date and use it as the dividing line in your own records, even if the real-world transition felt gradual. Something as simple as the date you took your first paying order or served your first customer is usually a reasonable marker to use consistently.

Save documentation, not just the total

A running total without receipts or records behind it is hard to support later. For every startup cost, keep the receipt or invoice, the date, and a short note on what it was for. This matters even for small amounts, since startup costs tend to be made up of many smaller purchases rather than one large one.

Digital receipts get lost just as easily as paper ones if they are left scattered across email and different apps. Forwarding every business-related receipt to one dedicated folder or email address as it arrives keeps the whole pre-opening period in one place instead of spread across months of inboxes.

What this means for a new business owner

If you are still in the planning stage, start your tracking now rather than trying to reconstruct it after the business opens. A simple spreadsheet with a date, amount, and short description for every pre-opening expense is enough to work from later, and it takes only a few minutes to set up. Ongoing business deductions are a separate topic worth understanding once the business is actually running day to day.

When to get this reviewed

Startup costs are one of the more commonly misunderstood areas for a first-time business owner, partly because the line between planning and operating is not always obvious in the moment. Having someone review your actual list of pre-opening expenses before your first business return is filed is worth the time, especially if the list is long or includes larger purchases like equipment, since the first year sets the pattern for every single year that follows after it.

FAQ

Does buying equipment before opening count as a startup cost?

Equipment is often treated differently than other startup costs and may follow its own rules. Keep the purchase documented separately so it can be reviewed on its own.

What if I decide not to start the business after spending money researching it?

Costs for a business that never actually starts are generally treated differently than costs for one that does open. Keep records either way in case your plans change.

Do I need a separate bank account before the business opens?

It is not required, but it makes tracking pre-opening expenses far easier than sorting them out of a personal account later.

Is there a point where a cost stops being a startup cost?

Yes. Once the business is actually operating, taking customers or orders, new expenses are treated as ordinary operating costs rather than startup costs.

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General information, not tax advice for your specific situation. Rules can change, and a human preparer reviews your facts before any return is filed. Zero Fuss Taxes is a PTIN-holding tax preparation firm. We are not a CPA firm, enrolled agents or attorneys.

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