Before you make your first sale, you're already spending money: a paid course on sourcing or flipping, a weekend driving around scouting which thrift stores and estate sales in your area are actually worth the gas, a bookkeeping app subscription you started the month before you listed anything, a consultation to figure out how to structure the business. None of that is inventory — you haven't bought anything to resell yet, or the inventory is separate from these costs. None of it is equipment either. It's a third category almost nobody talks about, it has its own section of the tax code, and a 2025 law change just made it worth ten times what it used to be.
What Section 195 actually covers
Section 195 governs "start-up expenditures" — costs you paid to investigate or set up a business, before that business began, that would have been an ordinary deductible expense if the business had already been running. For a reseller, that's things like:
- A paid course, coaching program, or certification on sourcing, flipping,
- or running a resale business
- Travel and mileage to scope out thrift stores, estate sales, storage
- auctions, or wholesale suppliers before you'd made a single sale
- Legal or accounting consultations to figure out how to set the business
- up
- Software subscriptions — bookkeeping, listing tools — paid for before
- you opened for business
- Advertising or a website built to announce the business before it
- launched
The common thread: these are ordinary running-a-business costs, just incurred on the wrong side of a line — before the business existed instead of after.
What it doesn't cover
Two things resellers reliably lump in here that don't belong:
- Inventory. The first batch of items you bought to resell isn't a
- start-up cost no matter when you bought it. It's cost of goods sold,
- deducted when each item sells, exactly the same as inventory bought on
- day 900 of the business.
- Equipment. A postal scale, laptop, or label printer bought before
- your first sale doesn't run through Section 195 either — it's still
- equipment, governed by its own rules: the de minimis safe harbor,
- Section 179, and bonus depreciation, [covered in full
- here](/blog/equipment-deduction-de-minimis-section-179-resellers-2026).
- Those rules apply the same whether you bought the gear before or after
- you opened.
Section 195 is specifically for the pre-opening version of costs that would otherwise just be ordinary deductible expenses — not for anything that's already got its own separate tax treatment.
What changed in 2025
Under the law as it stood for years, a business could deduct up to $5,000 of start-up costs immediately in the year it began, with that $5,000 allowance reduced dollar-for-dollar once total start-up costs passed $50,000 — fully gone by $55,000. Anything not immediately deducted got amortized in equal amounts over 180 months (15 years), starting the month the business began.
The One Big Beautiful Bill Act (OBBBA), signed July 2025, raised both numbers by 10x for tax years beginning after December 31, 2024 — meaning any reseller whose business began in 2025 or 2026 is already under the new rule. The immediate deduction is now $50,000, and the phase-out doesn't start until total start-up costs exceed $500,000, reducing dollar-for- dollar above that and fully phased out at $550,000. Below $500,000 in total start-up spend — which covers essentially every individual reseller — there's no phase-out to think about at all. Costs above whatever you can deduct immediately still amortize over the same 180 months.
You don't file a separate election — but you do need to know your number
There's no extra form to elect this. You're treated as having made the election automatically for the tax year your business begins, just by claiming the deduction on your timely filed return for that year. (You can elect out and capitalize everything instead, but almost nobody has a reason to.) What you do need is an accurate total: every pre-opening cost added up, because that total determines both how much you can deduct immediately and how the remainder amortizes.
A worked example
Say in the months before your first sale you spent: $1,200 on a sourcing course, $600 in travel and mileage scouting estate sales and a regional liquidation auction, $450 setting up bookkeeping software and a one-time consultation on how to structure the business, and $250 on a small pre-launch ad campaign to build a following before your storefront opened. Total: $2,500 — the same $2,500 an equipment purchase would need to qualify for the de minimis safe harbor, but this is a completely separate deduction because none of it is equipment.
Under the current rule, all $2,500 is deductible in the year your business began — nowhere close to either the $50,000 immediate cap or the $500,000 phase-out.
Now say you went bigger: a more serious launch with $18,000 in real pre-opening costs — a longer sourcing/business course, a multi-week trip to build supplier relationships, a contractor to set up your Shopify storefront and branding, and a real pre-launch marketing push. Under the current law, all $18,000 is deductible immediately, since it's under the $50,000 cap. Under the old law — which would still apply if you'd started this same business in, say, 2023 — only $5,000 would have been immediately deductible, with the remaining $13,000 spread over 180 months, about $72 a month. At a blended 24% tax rate, that's the difference between an $4,320 tax benefit landing this year and a $1,200 benefit this year followed by roughly $208 a year for the next 15 years. Same $18,000 spent, same business — the only thing that changed is which side of 2025 you started on.
When did your business actually "begin"?
This is the part that decides which tax year all of this lands in, and it's less obvious than it sounds. A business begins when it starts the income-producing activity it was set up to do — for a reseller, that's generally when you're actually open and selling, not when you first thought about it, registered a business name, or bought your first item to flip. Money spent scouting and preparing is a start-up cost precisely because it happened before that point. Once you've made your first sale, later spending on the same categories — more courses, more scouting trips — is just an ordinary current-year business expense, not part of this bucket at all.
What to actually do
- Keep pre-opening costs in their own bucket, separate from inventory
- cost basis and equipment purchases. They run through three different
- parts of the tax code, and mixing them in your own records makes all
- three harder to defend.
- Total them up before you file the year your business began — that
- total is what determines your immediate deduction and, if you're over
- $50,000, what gets amortized and for how long.
- **Don't assume big pre-launch spending needs 15 years to pay off
- anymore.** Below $500,000 in total start-up costs, the entire amount is
- deductible the year you open.
- Pin down your actual "began business" date. It's the year the
- deduction applies to, and it's earlier than "registered the LLC" and
- later than "watched a few YouTube videos about flipping."
PalmFlow's Expenses ledger has categories for exactly this kind of cost — subscriptions, mileage, professional fees — so what you spend before your first sale doesn't just sit in a bank statement until tax season. Expenses is part of the paid plans; the free plan still covers per-item cost basis and fees on 50 items, no card.
Disclaimer: this is general information, not tax advice. Whether a specific cost qualifies as a Section 195 start-up expenditure, and when your business is treated as having begun, depend on your specific facts — confirm your own numbers and filing approach with a CPA or tax software before you rely on them.