What expense category are start up costs?

Audrey CarrollAudrey Carroll, Senior Manager, Accounting, Ramp

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Starting a new business comes with a variety of expenses, and knowing how to categorize startup costs is essential for effective financial management. Properly classifying these costs helps you budget accurately and take advantage of potential tax benefits.

Classifying startup costs expenses

Startup costs typically fall into several key categories:

  • Product development costs: Expenses related to creating your product or service, such as research and development, prototyping, and initial production.
  • Market research: Costs for understanding your target audience and competitors, including surveys, focus groups, and market analysis reports.
  • Legal and professional fees: Fees for legal assistance with licenses and permits, as well as consulting costs for accountants or business advisors.
  • Operating expenses: Day-to-day costs of running your business, like office rent, utilities, and employee salaries.

Examples of startup costs

Organizing your expenses into the right categories gives you a clear picture of where your money is going and helps in strategic planning. Common examples of startup costs include:

  • Incorporation fees: Costs for legally registering your business.
  • Website development: Expenses for creating and launching your business website.
  • Office equipment: Purchasing computers, furniture, and other necessary equipment.
  • Initial inventory: Buying products or materials needed to start selling.
  • Marketing expenses: Costs for initial advertising campaigns to promote your business.

For example, if you spend $2,000 on market research surveys to understand your customer base, this expense falls under market research expenses.

Tax implications of startup costs

Properly categorizing your startup costs can have significant tax benefits:

  • Deductible expenses: You can deduct up to $5,000 of startup costs in the year your business begins operations if your total startup expenses don’t exceed $50,000.
  • Amortization: Startup costs that exceed the initial $5,000 deduction can be amortized over 15 years, spreading out the deductions over time.
  • Capitalized costs: Some startup expenses can be capitalized and added to your balance sheet as assets, which may be depreciated over time.

Keeping detailed records ensures you maximize tax deductions and stay compliant with IRS regulations.

Let Ramp automate your expense process

Managing startup expenses doesn't have to be overwhelming. Ramp automates the categorization, tracking, and management of your expenses, giving you real-time insights into your spending. Let Ramp handle the financial details so you can focus on growing your new business.


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As we scale we need tools that are built to scale with us - we need to see expenses real time, we need to see duplicate spend. These types of insights are important to the health of our business.

Steve Padis

SVP Finance & Strategy, Barry's

The information provided in this article does not constitute legal or financial advice and is for general informational purposes only. Please check with an attorney or financial advisor to obtain advice with respect to the content of this article.

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