My cofounder left before our business opened. Who claims the startup costs we each paid?
Startup Costs When a Cofounder Leaves Before Opening. A specific owner scenario, the facts that change the answer, and the records needed for a tax review.
By AE Tax Advisors Team · Updated October 28, 2026
Determine who incurred each cost and what rights the departing founder transfers or abandons. A founder's departure does not automatically give either party all startup deductions or make every payment an immediate loss.
A specific business-owner situation
Two founders fund a venture before signing a final ownership agreement. One leaves, while the other opens the business and reimburses some expenses. The taxpayer, reimbursement and ownership history must be resolved before assigning the costs.
Illustrative example, not a client result.
What to establish before filing
- Trace original payments and any reimbursement obligations.
- Identify partnership or other entity facts from the actual arrangement.
- Classify transferred rights, retained assets and abandoned costs.
Which fact changes the answer?
A genuine reimbursement differs from purchasing the departing founder's interest or assets. Have counsel clarify the settlement so the preparer can distinguish those transactions.
A mistake to avoid
Allocating deductions solely by the ownership percentages eventually chosen can ignore who owned the costs or business activity earlier.
Records that support the decision
- Founder agreements.
- Invoices and bank evidence.
- Departure settlement.
- Entity and opening records.
The decision to document
Request a founder-level cost and settlement reconciliation. Carry supported amounts into the continuing business only through the actual documented arrangement, preserving each party's reporting responsibilities.
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Related questions
- I spent money searching for a business to buy but never formed a company. Who claims the costs?
- We trained staff months before opening. Are those wages ordinary payroll expenses for tax?
Sources and editorial context
- Section 195: startup expenditures
- IRS Publication 583: keeping business records
- IRS Publication 541: partnerships
General educational information prepared with AI assistance. No individual professional review is claimed. Apply the relevant tax-year rules to the actual records. Editorial policy · AI disclosure.