The modern startup runs on subscriptions, and the tax code has no problem with that. Every tool a founder pays for to build and run the company is deductible under IRC Section 162 as an ordinary and necessary business expense. For a SaaS company the list is long, recurring, and worth capturing completely, because at a typical founder's combined tax rate, every $100 of untracked subscriptions is real money left on the table.
From AWS to Figma: ordinary and necessary
Ordinary means common for your kind of business; necessary means helpful and appropriate. Software clears both bars trivially for a startup. Cloud hosting and infrastructure like AWS, GCP, or Vercel; dev tools and repos; design tools like Figma; productivity suites, Slack, and Notion; CRMs and support desks; analytics; accounting software; AI coding and writing tools; API costs and per-seat licenses for contractors. Domain renewals and app store developer fees belong on the list too.
Where the deduction lands depends on the entity. A solo founder operating as a sole proprietor or single-member LLC deducts subscriptions on Schedule C. A C corp or S corp deducts them on the corporate return, which is one more reason every subscription should be paid from a company card: the company gets the deduction, and the books match the bank feed without founder expense reports reconstructing history.
Annual plans and the 12-month rule
Monthly subscriptions are simple: deduct as billed. Annual prepayments raise a timing question with a founder-friendly answer. Under the 12-month rule, a cash-method business can generally deduct a prepaid expense immediately if the benefit does not extend more than 12 months beyond when the benefit starts, and not beyond the end of the following tax year. An annual Figma or hosting plan bought in December is deductible that December. This makes converting key tools to annual billing, which vendors usually discount anyway, a legitimate year-end profit lever. A prepayment covering multiple years does not qualify and must be spread.
One boundary worth knowing: buying software outright or paying to develop it is different from subscribing to it. Purchased and developed software follows capitalization and amortization rules, and the treatment of development costs has shifted in recent years, so confirm current rules before assuming a big build deducts immediately. Subscriptions dodge that entire question, which is quietly one of their advantages: SaaS you rent is an expense as you go.
Personal accounts do not count as-is
The deduction covers business use. A subscription used entirely for the company deducts in full; a genuinely mixed tool, say one Adobe or AI plan serving both the startup and personal projects, should be deducted only for the business-use share, with a documented, reasonable split. The cleaner fix is structural: keep a company account on a company card for work, and a personal account for the rest. Audit defense for subscriptions is nothing more than invoices and a card statement that only contains business charges. Founders lose these deductions not to disallowance but to forgetting: export the year's charges from the card, sweep for tools billed to personal cards in the early days, and capture them before filing.