The Startup Tax Deductions Bible: What You Can Deduct by Entity Type and Stage
Collated by Aparna Devalla, CPA
Curated by Rubric Financial
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The High-Value Deductions Most Startups Miss
- R&D EXPENSES: §41 credit AND §174 deduction. Post-OBBBA 2025: R&D can be deducted immediately (vs 5-year amortization). Combined with §41 credit (typically 6-14% of qualifying expenses), startups capture $50K-$500K/year. Most miss the §41(h) payroll-tax offset which lets pre-revenue startups monetize credits as cash.
- STARTUP COSTS: §195 + §248. Pre-operational expenses (legal incorporation, market research, business plan) can be deducted up to $5K in Year 1 + amortized over 15 years for the rest. Often deducted as ordinary operating expenses instead, which is wrong.
- STOCK-BASED COMPENSATION: properly accrued under ASC 718, deductible to the corporation as compensation expense. Most early-stage startups don't track SBC properly and lose the deduction.
- BAD DEBT: direct write-off method available for accrual taxpayers. Often overlooked when customers don't pay.
- STATE R&D CREDITS: stack on federal §41. CA, NY, MA, CT, NJ all have 10-20% additional credits. Most startups claim federal but not state.
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