Quick question. New business started in Nov 2018 by my wife as sole proprietor and have under $5000 in startup costs. Income together is $120,000 between the both of us jointly. I have my own business as sole proprietor as well. When I enter just advertising costs for 2 months of $1200, it only decreases the Federal Tax Due (in red at top) by only $216 instead of the entire $1200. I tired to enter it under regular business expense and it is the same $216. I thought startup deduction will decrease the Fed Tax by the same amount of $1200 (up to $5000). Is it just a percentage of 18% then?
No, that's not how an expense works. Startup costs less than $5,000 are a miscellaneous expense and like your other business expenses, reduces your net profit or increases a loss. Net profit/loss is then added/subtracted from your other income items and the total (less standard/itemized deduction) is what you pay income taxes on.
Net profit is also subject to self-employment taxes, though you do get a deduction for 1/2 of the amount. Expenses are not a dollar for dollar reduction in tax liability.