Companies are facing a myriad of tariff charges that are increasing costs. As CPAs, we can help them.

Generally, there is now a 10 percent tariff surcharge imposed on all goods coming from our major trading partners, including Canada, Mexico, India, the UK and EU. Tariffs on goods from China and Japan are levied at 12.5 percent. Some products, like those under existing trade agreements with Canada and Mexico, are excluded. But that’s just the start.

Responding to February’s Supreme Court decision to overturn the administration’s imposition of tariffs under the International Emergency Economic Powers Act (IEEPA) of 1977, new tariffs ranging from 25 percent to 100 percent have been imposed under various prior trade acts on steel, aluminum, copper, automobiles, lumber, kitchen cabinets, certain upholstered furniture, semiconductors and pharmaceuticals.

Certain industries and countries are facing even higher tariffs. Canada, for example, has seen an additional 50 percent tariff imposed on a broad range of goods, including certain dairy products, plastics, furniture, machinery, paper and electronics. Some of these tariffs have been in effect since before the IEEPA decision and are still in effect. It’s important to know that many of these rates are surcharges above the typical tariffs charged.

It’s a lot. And it’s confusing. So, what are businesses affected by these tariffs doing to mitigate costs and navigate policies that frequently change?

Getting Refunds

Because the Supreme Court overturned the administration’s tariff levies under the IEEPA, billions in refunds are available. A company cannot apply directly for these refunds. Instead, they must go through the process with their original broker of record and apply at the U.S. Customs and Border Protection’s (CBP) CAPE refund system.

My clients tell me that refunds can take two to three months to receive. Many of the major shipping companies, like FedEx and UPS, have promised to return refunds they receive back to their customers, so it’s important to follow up with them too.

Remember that refunds are taxable, so it’s important to revisit tax payments made during the year in case they’re understated.

If you’re a CPA providing attestation services, you should also review how anticipated refunds are reported in your clients’ financial statements. Depending on the circumstances, refunds may require adjustments to inventory, cost of goods sold or other accounts. The AICPA issued guidance in September addressing recognition, presentation and disclosure issues.

Bonded Warehouses/Foreign Trade Zones

Importing products from a country into a bonded warehouse or a warehouse that’s in a foreign trade zone incurs zero tariffs until that product is eventually shipped out to its domestic location. For some of my clients, it’s a good way to defer the impact of tariffs until a future date, and, given the volatility of the administration’s tariff policies, it may actually reduce tariff exposure if tariffs are renegotiated down while products are still in the warehouse.

If a product is received into a bonded warehouse and then immediately shipped out to a foreign customer, tariffs can be avoided altogether. This arrangement comes with warehousing fees, so we need to help our clients assess the return-on-investment for this approach.

Strategic Price Increases

It’s common for businesses to pass on any cost increases caused by tariffs to their customers. However, some of my clients have learned to closely analyze their client data—sales, gross profit, collectability—and imposed different price increases (and sometimes no price increase) on a customer-by-customer basis. This way they can target customers who they believe can best absorb these additional costs and give favor to customers who are profitable and good payers.

Some have even added a separate line on their invoices to indicate the tariff “surcharge” so that customers better understand the increased cost. Doing so also makes it easier to remove tariff charges without completely changing costs in your accounting system. If you try this strategy, you may find you or your clients potentially eliminating unprofitable products or customers too.

Also, be aware that California’s Department of Tax and Fee Administration states that when the seller is the importer of record and passes import duties on to its customers, those charges are generally included in the taxable sales price. Separately identifying a tariff surcharge on an invoice does not, by itself, exempt it from California sales tax.

Diversify Supply Chain

Organizations like the World Trade Centers Association have helped a number of my clients find foreign suppliers in more tariff-friendly countries, as well as make introductions and facilitate trade agreements. Last year, the Small Business Administration launched its Make Onshoring Great Again portal, which brings together several costly databases such as Thomasnet, CONNEX and IndustryNet so small businesses can find domestic suppliers that may offer favorable pricing.

Renegotiating Purchase Agreements

In this volatile environment, many of my clients are avoiding long-term supply commitments and instead spending more time negotiating prices that take into account the added tariff cost. They’re finding ways to split the tariff costs with their suppliers so that each party shares more of the burden. They’re also using the opportunity to figure out alternative materials from similar suppliers.

Changing Assembly

Tariffs can be highest when a company purchases a finished product. One way to reduce this cost is to take on more assembly here in the U.S. U.S. assembly may reduce total import duties, depending on product classification, the value of imported components and applicable rules. To that end, ordering individual materials and then assembling them into a finished product may impact the final tariff cost paid.

Some of my clients have been doing this assembly in a bonded warehouse to further defer the cost impact until ultimately shipped. If you’re going to investigate whether changing where your product is assembled, it may also be a good opportunity to investigate the materials used in the finished good to determine whether or not some of those materials can be purchased domestically and avoid tariffs altogether, or at the very least change their classification.

Considering The “First Sale” Rule

If an American company purchases a product from a foreign distributor, it’s possible to incur a lower tariff cost related to the change in value of the goods. That’s because the tariff charge would be levied on the cost of the original purchase, not on the price the American company paid. That means that if the American company paid $100 for a product, but the foreign distributor only paid $80, the tariff could be levied on the $80. This may be tricky because people don’t like to share costs. But it’s worth asking your customs broker whether your company qualifies and pursuing the necessary documentation to prove the case.

Revisiting Overhead and Technology

In the end, it’s all about your net profits. Implementing some of the strategies above may help your gross margin. But if the difference isn’t enough, you need to look below the line and do a line-by-line review of selling, general and administrative costs to identify potential savings. In addition, you may decide to lean into AI tools or more technology to increase productivity. The goal is to find enough savings to offset the margin declines you’re suffering because of tariff costs.

Businesses are dealing with a lot of uncertainty this year. But one thing’s certain: the administration has made it clear that tariffs aren’t going away. So, it’s important to have a strategy to deal with this challenge to stay competitive and profitable. As CPAs, we all have an opportunity to help our clients—or management—with this significant challenge.