The money you burn before launch is deductible, but not the way ordinary expenses are. The tax code draws a line at the moment your business actually starts operating: costs after that line are regular deductions, while costs before it are "startup costs" governed by IRC Section 195 and its own timetable. Founders who miss this distinction either overclaim pre-launch spending or, more often, forget to claim it at all.
The $5,000 first-year allowance under Section 195
Section 195 lets you deduct up to $5,000 of startup costs in the year the business begins. Qualifying costs are things you spent investigating and preparing to launch: market and customer research, travel to meet potential suppliers or advisors, pre-launch marketing, consultant fees, and tools or subscriptions used to build before you could sell. A parallel rule gives a separate allowance of the same size for organizational costs, the legal side of creating the entity itself: state incorporation fees, drafting the charter or operating agreement, and related legal fees, under IRC Sections 248 and 709.
There is a catch aimed at bigger launches: the $5,000 allowance shrinks dollar for dollar once total startup costs pass $50,000, disappearing entirely at $55,000. A garage-stage SaaS founder rarely hits that; a funded company doing a heavy pre-launch build can.
180 months for the rest
Startup costs beyond the first-year allowance are not lost; they amortize in equal monthly slices over 180 months, 15 years, beginning with the month the business becomes active. A founder with $23,000 of startup costs deducts $5,000 immediately and the remaining $18,000 at $100 per month. The deduction is claimed on your return, with the amortization election reported on Form 4562, and it continues on autopilot each year after.
Two timing points matter. First, none of this is deductible until the business actually starts; costs for a venture you explored and abandoned before starting follow different, less generous rules, so getting to a genuine launch matters. Second, "started" does not require revenue. A SaaS product that is live and capable of taking customers has generally started even if MRR is zero.
Where the launch line falls for a SaaS founder
Everything after the start date escapes Section 195 entirely and is simply deducted as ordinary expenses under Section 162: cloud hosting, software subscriptions, contractors, ads. That makes the start date valuable, and founders have some practical influence over it: incorporating, opening the accounts, and making the product available marks the transition. From that day forward, an AWS bill is just an expense; the week before, it was a startup cost on a 15-year clock.
Keep the pre-launch ledger clean: date-stamped records of what was spent before launch, split between startup costs, organizational costs, and asset purchases like equipment, which are capitalized under their own depreciation rules rather than Section 195. The categories decide whether a dollar deducts this year, over 15 years, or over the life of a laptop.