TAX BULLETIN – Tax Tips, News, & Updates: Issue No. 1 | Vol No. 10
The new incoming administration is insisting that they will impose tariffs on imports from several countries. This bulletin follows up on the last bulletin and will help small businesses understand how to mitigate (or hedge) against these eminent tariffs, when imposed!
How Do Tariffs Affect Small Businesses
Small businesses that rely on imported goods from China, Europe, Mexico, and other countries must be aware of how tariffs will affect their bottom line. Big companies may well be able to weather the tariff storm. But small and medium sized businesses may not and could even go out of business because of these tariffs.
Larger companies may be able to weather the tariff storms, but small businesses may not!!
How Can Businesses Hedge These Tariffs?
In the past large companies that imported goods mitigated tariffs by moving portions of their manufacturing operations to other countries that do not have these tariffs imposed on them. Other companies will pre-purchase products and raw materials in advance of the tariffs being imposed.
The latest sentiments on tariffs are that companies are hedging by pre-purchasing raw-materials and inventory (products) ahead of 2025 when the Trump administration takes power in DC. Some companies, like Walmart, have noted they plan to increase costs on products that have those tariffs imposed.
What Can Small Businesses Do?
The answer depends on the company and the product on which the tariff may be levied.
As with larger businesses, small businesses can also hedge their products and raw material inventory. But what if they do not have the resources to do so? What if they do not have the cash to do so? Do they need to borrow to obtain the cash then pre-purchase the inventory? These questions are important for small businesses to consider. If they are not able to borrow or pre-purchase, they can do the following:
- Learn as much as possible about tariffs
- Analyze current import structure and exposure to tariffs
- Diversify supply chains
- Renegotiating supplier & customer contracts
- Adjust products prices
- Leverage free trade agreements (FTAs) and other government assistant programs
- Most importantly, utilize local distributors, if possible
- Consult financial and tax advisors!
WE HOPE YOU ENJOYED & LEARNED FROM THIS MONTH’S BULLETIN!
Contact us for more information which is specific to your situation as there are always exceptions to the IRS rules and specific to the states’ rules!
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