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Are Tariffs Tax Deductible? What Small Businesses Should Know
Plan your expenses and deductions strategically each year
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Are Tariffs Tax Deductible? What Small Businesses Should Know
When small businesses import goods, tariffs and import duties often come into play. The good news is that, in most cases, tariffs are tax-deductible. In fact, they’re usually treated as part of your Cost of Goods Sold (COGS) or as an ordinary business expense.
This means that if your business pays import taxes on raw materials, inventory, or products for resale, those costs reduce your taxable profit. However, while deductible, tariffs still increase your upfront costs — so smart planning is key.
Why Tariffs Matter for Small Businesses
- They increase your inventory cost (COGS). Higher tariffs mean higher expenses, which can squeeze profit margins.
- They don’t go away through deductions. While deductible, the cash still leaves your business upfront.
- They impact pricing strategy. Many businesses must adjust prices or sourcing to maintain profitability.
Key Takeaways
✅ Tariffs are deductible as business expenses
Import duties paid on goods for resale or business use are deductible. They’re added to your COGS, lowering taxable income when the goods are sold.
📦 They raise costs and shrink margins
Higher tariffs mean higher operating costs. If you don’t adjust your pricing or supply chain, your margins will take a hit.
⚠️ Business-only deductions
Only tariffs tied directly to business operations qualify. Importing goods for personal use does not.
📝 Good recordkeeping is essential
Always keep customs forms, invoices, and receipts as proof. The IRS requires documentation for tariff-related deductions.
💡 Consult a tax professional
Rules can be nuanced. An expert can help ensure your tariffs are classified and deducted properly while keeping you compliant.
Final Thoughts
Yes — tariffs on business imports are generally tax-deductible. But remember, deductibility doesn’t erase the cost; it simply reduces taxable income. Small businesses should plan ahead, track expenses carefully, and factor tariffs into their pricing strategy to stay profitable.
Ready to Optimize Your Tax Strategy?
At Peak Accounting, we help small businesses navigate complex tax rules, from tariffs to everyday deductions. Don’t leave money on the table — contact us today to make sure your books are accurate, your deductions are maximized, and your business stays financially strong.