Smart Tax Planning Helps Middle Market Companies Manage Tariffs

June 20, 2025, 8:30 AM UTC

The Trump administration’s tariff expansions have prompted many middle-market companies to reevaluate various aspects of their business. These businesses—which often operate with limited pricing power, narrower margins, and less flexibility than large corporations—are particularly vulnerable to cost fluctuations and changes in trade policy.

In addition to cash flow pressure and supply chain considerations, changing tariffs can upend a business’s tax strategy. To position themselves for success during change and uncertainty, business leaders must remain agile by adjusting their tax strategy in response to changing tariffs.

Middle-market companies should understand available options, including tax strategies, which can position them for long-term success during times of change.

Foreign trade zones. Foreign trade zones, the US equivalent of internationally recognized free trade zones, operate under different trade laws than the rest of the country. In these zones, the movement of foreign and domestic merchandise into designated areas for indefinite operations, storage, assembly, manufacturing, and processing is permitted.

Foreign trade zones are supervised by the US Customs and Border Protection. They enable businesses to defer or eliminate customs duties and federal excise tax, if applicable, until they enter the domestic market for consumption.

They also allow companies to manage their inventory more efficiently, free up cash flow, and increase production speed through streamlined customs processes.

Duty drawback programs. If your company imports goods that are re-exported or used to manufacture goods that are later exported, it may qualify for refunds to offset the costs related to the production of these products. Businesses may be able to recover funds from customs duties, certain internal revenue taxes, and certain fees collected at importation, significantly lowering material costs.

Free trade agreements. Some companies may be able to take advantage of free trade agreements between companies offering more favorable trade terms, reducing the cost of imported goods. Benefits of FTAs include expanded market access and increased efficiency.

LIFO method. With the last in, first out inventory methodology, the business assumes it sold its most recent purchases first. During times of increased costs, the LIFO method can be beneficial for tax deduction purposes and help ease cash flow pressures.

Determining whether this method makes sense for your business requires carefully evaluating your company’s inventory cycle and the method’s suitability for financial reporting purposes. A professional adviser can help determine whether all inventory or a specific subset could benefit most.

Integration moves. Effective integration of a company’s tax and customs departments will provide more opportunities to reduce tariff exposure. This includes adjusting the characterization of intercompany transactions, procurement, and customs methodologies

Credits and incentives. Altering supply chains to import goods from countries less affected by tariffs can increase costs and present potential tax incentives. Businesses should be aware of the following federal and state tax credits and other incentives that may offset tariff-related costs:

  • Research and development tax credit: Tariffs may push companies to innovate new processes, products, and sourcing strategies. This credit allows companies to offset some of their R&D expenses, which can benefit businesses expanding operations domestically to avoid tariffs.
  • Investment tax credit: Companies that invest in qualifying assets can claim a percentage of the investment cost as a tax credit. For example, this tax credit is used for investments in renewable energy, such as solar panels and fuel cell technology.
  • Section 179D deduction: When businesses invest in new equipment or technology associated with the impact of tariffs, they may be able to deduct a portion of the cost.
  • Job creation tax credits: Many states offer tax credits for creating new jobs within that state, which can help offset the costs associated with expanding operations into the US and hiring new employees.
  • Capital investment tax credits: States often provide credits for businesses that make significant capital investments in their infrastructure, helping to reduce the financial burden of establishing or upgrading facilities.
  • Training and workforce development grants: Some states offer grants and tax credits to businesses that invest in employee training and workforce development with the goal of building a skilled workforce to support expanded operations.
  • Sales and use tax exemptions: Some states offer exemptions or refunds on sales and use taxes for certain business purchases, such as manufacturing equipment or raw materials.

Tariffs present a multifaceted challenge for middle market businesses, impacting everything from the cost of goods sold and supply chain logistics to transfer pricing and financial reporting. By using the above strategies, businesses can mitigate the impact of tariffs and maintain competitiveness.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Mark Baran is managing director, national tax office, at CBIZ.

Jan Smallenbroek is national service line leader for international tax and transfer pricing at CBIZ.

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To contact the editors responsible for this story: Rebecca Baker at rbaker@bloombergindustry.com; Melanie Cohen at mcohen@bloombergindustry.com

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