Mitigating the Impact of Tariffs on Manufacturing Business Imports in 2025

New tariffs on imports are putting pressure on manufacturers in 2025—raising costs, tightening margins, and creating new challenges for supply chains and financial planning. With rates as high as 145% on goods from China, companies that rely on global materials are seeing everything from raw components to packaging suddenly become more expensive.

This isn’t just a supply issue, it’s a financial one. Higher landed costs can distort inventory values, complicate year-end tax planning, and put a strain on cash flow. But it’s not all downsides. With the right tax strategies, accounting adjustments, and sourcing shifts, manufacturers can take control of the impact and stay ahead.

In this blog, we’ll break down how to adapt, starting with understanding the real cost of tariffs on imports and moving into actionable strategies for smarter tax planning, inventory management, and long-term resilience.

Table of Contents

• Understanding the Financial Ripple of Tariffs on Imports
• Aligning Tariff Strategy with Tax Planning
• Deducting Tariff-Related Expenses—What Counts?
• Leveraging Duty Drawback and Refund Programs
• Shifting Sourcing and Manufacturing Strategies
• Strategic Inventory and Procurement Planning
• Working with CPAs and Advisors To Mitigate Tariff Impacts

Understanding the Financial Impact of Tariffs on Imports

Tariffs on imports create more than just higher line-item costs. They trigger a chain reaction that reshapes direct expenses, inventory valuation, working capital demands, and profit margins.

Beyond the duty itself, tariffs often bring:

• Additional customs brokerage fees, increasing the administrative cost of getting goods through customs.
  
  
• Higher shipping and insurance costs, as the increased value of imported goods drives up transport and coverage expenses.
  
  
• Greater working capital needs, with businesses tying up cash in larger inventory orders to beat tariff deadlines.
  
  
• Elevated inventory valuation and COGS, which directly erode gross margins if the added costs aren't absorbed elsewhere.

Left unchecked, these effects move beyond supply chain logistics and into financial reporting, compressing profitability and increasing pressure on pricing and operational decisions.

Aligning Tariff Strategy with Tax Planning

Tariffs are a cost. But taxes are an opportunity—especially when coordinated well.

Smart tax planning can help manufacturers soften the blow of increased expenses due to tariffs on imports. One place to start is by reassessing your timing of income and expenses. 

If tariff-related costs push profits lower in 2025, this might be the time to:

• Defer income to future periods when margins may recover
  
  
• Accelerate deductible expenses—such as equipment purchases, software investments, or consulting services—to reduce taxable income now
  
  
• Maximize depreciation schedules, especially for recent capital investments made to adapt your operations

Here’s where working closely with your CPA makes a difference. Not all tariff-related expenses are clearly labeled. Some may be buried in indirect costs or capitalized into inventory. A tax professional can help ensure these are properly accounted for and deducted where applicable.

Deducting Tariff-Related Expenses—What Counts?

When importing goods, tariffs are generally considered part of the inventory cost and must be capitalized. This means they are added to the value of the inventory and deducted through the Cost of Goods Sold (COGS) when the inventory is sold, rather than being expensed immediately. This treatment aligns with the IRS's uniform capitalization rules under Section 263A of the Internal Revenue Code.​

However, certain situations allow for earlier deduction of tariff-related expenses:

• Damaged or Obsolete Inventory: If imported goods become unsellable due to damage or obsolescence, the associated tariff costs may be deductible in the year the loss is recognized.
  
  
• Lost or Destroyed Goods: In cases where goods are lost or destroyed, businesses can deduct the loss, including the capitalized tariff costs, provided they adjust their inventory records accordingly. 

To ensure compliance and proper deduction:

• Maintain Detailed Records: Keep thorough documentation of all import-related expenses, including customs forms, invoices, and shipping records.
  
  
• Consult with a Tax Professional: Work with a CPA to accurately determine which tariff costs must be capitalized and which can be expensed, ensuring adherence to IRS regulations.​

Proper handling of tariff-related expenses is crucial for accurate financial reporting and tax compliance.

Leveraging Duty Drawback and Refund Programs

Tariffs on imports continue to increase the cost structure for many businesses, but not all duties have to be permanent. Following the Executive Order issued in April 2025, U.S. Customs and Border Protection (CBP) has confirmed that duty drawback is available for the new 10% tariff on imported goods classified under HTSUS 9903.01.25.

Businesses that import goods subject to the additional tariff and later export them or use them in manufacturing may be eligible to recover up to 99% of the duties paid. Taking advantage of duty drawback programs can help reduce the overall cost imports add to operations and protect profitability.

Eligible activities include:

• Exporting unused imported goods
  
  
• Using imported goods in products that are exported
  
  
• Destroying imported goods under CBP supervision

To maximize recovery opportunities under the duty drawback program:

• Ensure proper HTSUS classification, especially for goods falling under 9903.01.25
  
  
• Track additional duty payments separately in customs entry summaries
  
  
• Maintain detailed documentation for exports, destruction, or manufacturing uses
  
  
• Work closely with drawback specialists and accounting teams to update claims strategies
  
  

Reducing the impact of tariffs on imports through duty drawback can improve cash flow and offset the rising cost imports place on your supply chain.

Shifting Sourcing and Manufacturing Strategies

Operational changes can also help mitigate the cost of imports driven by tariffs.

If you’re heavily reliant on a country or region that’s subject to higher duties, consider diversifying your supplier base or exploring nearshoring options. While it’s not always possible to shift overnight, even partial diversification can help stabilize your long-term cost structure and reduce risk.

Tax and accounting implications to keep in mind:

• Moving production domestically may make you eligible for certain federal or state tax incentives, such as hiring credits or capital investment deductions.
  
  
• Switching suppliers or regions may alter your transfer pricing obligations if you operate internationally. Make sure intercompany transactions are reviewed and updated.
  
  
• Be sure to reassess your landed cost models. A cheaper unit price doesn’t always mean lower total cost if the tariff on imported goods is higher.
  
  

Work with a CPA before making big shifts. It's important to understand the full tax implications of supplier changes, including what may show up on your financial statements.

Strategic Inventory and Procurement Planning

With the unpredictability of tariffs on imports, your inventory strategy matters more than ever.

Some businesses have started pre-purchasing inventory ahead of known tariff increases—essentially locking in lower rates before the duty kicks in. Others are staggering purchases or entering into longer-term contracts to stabilize pricing.

Here are a few ways accounting and procurement can work together:

• Forecast more accurately. Use historical tariff trends and market data to model different cost scenarios.
  
  
• Update standard costs regularly. Don’t let outdated cost assumptions skew your margins or mislead your pricing decisions.
  
  
• Coordinate timing. Be strategic about when you recognize costs and revenue, especially around year-end reporting.

Tariffs may be out of your control—but how you prepare for them is not.

Working with CPAs to Mitigate Tariff Impacts

In the current trade environment, tariffs on imports can significantly impact a manufacturer's cost structure and profitability. Engaging with CPAs and financial advisors is crucial to navigate these challenges effectively.​

CPAs can assist in modeling various scenarios to assess how changes in tariffs might affect your business. For instance, evaluating the impact of a new 10% tariff on imported goods or understanding how supplier-specific duties could alter your cost imports. Such scenario planning enables businesses to anticipate financial outcomes and develop strategies to mitigate potential risks .​

Key areas where your CPA can provide valuable insights include:

• Cash Flow Projections: Analyzing how different tariff scenarios affect liquidity and working capital.
  
  
• Asset Purchase Timing: Determining optimal periods for capital investments to maximize tax benefits.
  
  
• Entity Structure Evaluation: Reviewing organizational structures, especially if importing through multiple jurisdictions, to ensure tax efficiency.
  
  
• Tariff Exposure Assessment: Identifying which product lines or suppliers are most affected by tariffs on imports and developing strategies to address these vulnerabilities.

Collaborating with your CPA on these aspects ensures that your business remains resilient and adaptable in the face of evolving trade policies.

At the MB Group, we help manufacturing and distribution companies not just stay compliant, but get ahead. With smart tax planning, we can help you build a stronger, more resilient business in the face of changing trade policies. Contact our team today.