Start-up tax benefits: QSBS, research, start-up costs and equipment
New companies have some of the best tax breaks in the code, but each has conditions. Here are the main ones for 2026, with plain-English rules.
Prepared by Prem Tax and Accounting Corp. Last checked against official sources on October 9, 2026.
Qualified small business stock (QSBS)
| Item | Stock acquired after July 4, 2025 |
|---|---|
| Holding period and exclusion | 3 years: 50%. 4 years: 75%. 5 years: 100% |
| Cap per issuer | Greater of $15 million or 10 times your basis (indexed after 2026) |
| Company gross assets | Up to $75 million before and right after the issue (indexed after 2026) |
| Company type | Domestic C corporation in an active, qualifying business |
| Your stock | Acquired at original issuance, for money, property or services |
LLCs and S corporations do not qualify unless they are converted to a C corporation before the stock is issued, and conversion has its own tax effects. Plan this before issuing shares.
Research and experimental costs
- Domestic research costs can be deducted when paid (Section 174A), for tax years beginning after December 31, 2024, or capitalized and amortized over at least 60 months by election.
- The research credit can reduce tax for qualifying activities (Form 6765).
- Payroll tax offset: a qualified small business can apply up to $500,000 of the credit against payroll taxes, first against the employer Social Security tax up to $250,000 a quarter. File Form 8974 with the payroll return.
Start-up and organizational costs
| Type | First-year deduction | The rest |
|---|---|---|
| Start-up costs (before you open: research, advertising, training) | Up to $5,000 | Over 180 months, starting when you open |
| Organizational costs (legal and filing fees to form the entity) | Up to $5,000 | Over 180 months |
| Reduction | Dollar for dollar once costs exceed $50,000 | Zero first-year deduction at $55,000 or more |
Equipment and other first-year items
- Section 179: deduct up to $2,560,000 of equipment in the year you buy and use it (limit shrinks above $4,090,000 of purchases).
- 100% bonus depreciation is permanent for qualifying property acquired after January 19, 2025.
- Home office: the simplified method is $5 a square foot, up to 300 square feet.
- Mileage: 76 cents a mile from July 1, 2026 (72.5 cents for January to June).
- Hiring family or paying owners: the rules differ by entity. Ask us before paying yourself.
We build a first-year tax plan around these. Book a 20-minute call.
Common questions
What is qualified small business stock (QSBS)?
Stock in a domestic C corporation that you buy at original issuance, in an active business that meets a gross assets test. Sell it after the required holding period and a large share of the gain can be excluded from federal tax.
What changed in 2025?
For stock acquired after July 4, 2025, you exclude 50% of the gain after 3 years, 75% after 4 years and 100% after 5 years. The company's gross assets limit rose to $75 million, and the cap per issuer is the greater of $15 million or 10 times your basis. Both amounts are indexed after 2026. Older stock follows the older rules.
Can a new company use its research costs?
Yes. Domestic research and experimental costs can again be deducted when incurred, for tax years beginning after 2024, or amortized over at least 60 months by election. Foreign research is capitalized.
What is the payroll tax research credit?
A qualified small business (under $5 million of gross receipts and no gross receipts more than 5 years ago) can use up to $500,000 of its research credit against payroll taxes, which helps companies with payroll but no income tax to offset.
How are start-up costs deducted?
Up to $5,000 of start-up costs and up to $5,000 of organizational costs in the year the business begins, each reduced dollar for dollar above $50,000 of costs, with the rest over 180 months.
Official sources
- IRS Publication 550: Investment income and expenses (QSBS)
- IRS: Research payroll tax credit for small businesses
- IRS Publication 583: Starting a business and keeping records
- IRS: 2026 inflation adjustments (Rev. Proc. 2025-32)
Let's talk about your taxes, your business, your plans.
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