As business owners across California and the nation grapple with the dual challenges of tariffs and rising business costs, it’s never been more important to pursue smart, effective business tax strategies. At The Law Office of Pietro Canestrelli, A.P.C., our mission is to help companies proactively offset tariffs and combat the impact of inflation through advanced tax planning for businesses.

Whether you operate in manufacturing, retail, technology, or professional services, the right tax approach can protect your bottom line, reduce business tax liability, and strengthen your long-term success. Here’s how you can leverage the latest strategies to reduce business taxes and keep your company thriving—even in today’s high-tariff, high-cost environment.

Understanding Tariffs and Rising Costs

Many companies are feeling the pressure as import tariffs raise the cost of inventory and materials. At the same time, inflation is driving up expenses for wages, raw goods, shipping, insurance, and more. Without a solid business tax plan, these challenges can quickly erode profit margins.

But not all hope is lost. The U.S. tax code contains powerful tools for offsetting tariffs, managing high costs, and securing cash flow. By working with a business tax attorney at our California tax law firm, you can unlock legal solutions tailored to your unique industry and structure.

1. Optimize Your Business Entity Structure

Your company’s legal structure—whether a C corporation, S corporation, LLC, or partnership—directly affects your corporate tax planning and overall liability.

• Why it matters: The right structure can lower your effective tax rate and open the door to additional business tax deductions and credits.
• Strategy: Many business owners in California benefit from reviewing their entity type regularly with a San Diego business tax lawyer or Temecula tax attorney. Electing S corporation status can avoid double taxation, while C corporations might capitalize on the flat 21% tax rate.
• Action step: Schedule a tax structure review each year with a qualified business tax attorney near you to adapt to evolving laws and costs.

2. Maximize Your Business Tax Deductions

One of the most direct ways to reduce business taxes and offset new costs is to maximize every legitimate business tax deduction.

Key Deductions to Focus On:

• Cost of Goods Sold (COGS): All tariff-related costs should be properly captured in COGS. An experienced tax attorney in California can help you ensure accurate reporting, especially if tariffs affect your imported inventory.
• Operating Expenses: Deduct rising costs like rent, utilities, wages, insurance, and technology upgrades. Keep detailed records—especially as remote work and hybrid arrangements change what counts as a business expense.
• Section 179 and Bonus Depreciation: If you’re investing in equipment or software to boost efficiency (or offset higher labor costs), take advantage of accelerated depreciation options.
• Home Office and Remote Work: With more employees working remotely, you may be able to claim additional deductions for home office spaces and related expenses.

Pro Tip: Partner with a California business tax lawyer to uncover industry-specific deductions you might be missing.

3. Leverage Business Tax Credits to Lower Your Liability

Business tax credits are one of the most effective ways to offset tariffs and rising costs because they directly reduce your tax bill—dollar for dollar.

Top Credits for Business Owners:

• Research & Development (R&D) Tax Credit: Qualifying for the R&D credit isn’t just for high-tech firms. If you innovate or improve products/processes, you may be eligible—even as a small business. See also: R&D Credit Qualifications
• Work Opportunity Tax Credit (WOTC): Hiring veterans, long-term unemployed, or other target groups can save your business thousands annually.
• Employee Retention Credit (ERC): Many companies that kept workers on payroll during downturns still qualify for this valuable credit.
• Energy Efficiency and Green Incentives: Investments in sustainability—like solar panels or efficient lighting—often yield state and federal credits.
• Foreign Tax Credit: If your business pays taxes to foreign governments due to international operations or tariffs, the IRS offers a way to reduce your U.S. tax burden.

4. Smart Inventory Accounting to Manage Tariff Costs

Rising import prices mean it’s time to revisit your inventory accounting method.

• LIFO vs. FIFO: Using Last-in, First-out (LIFO) can minimize taxable income by matching higher, recent inventory costs to sales. It’s especially effective for businesses hit by rising material costs or tariffs, but not all companies qualify.
• Inventory Write-Downs: If tariffs cause your inventory to lose value, you may be able to write down or write off those losses for a valuable tax deduction.

Consult with a tax attorney in Riverside, CA or a San Diego business tax attorney to determine the most advantageous method for your operations.

5. Implement Cost Segregation for Real Estate Savings

Do you own commercial real estate or facilities in California? Cost segregation is a powerful but underutilized tax strategy.

• How it works: A cost segregation study reclassifies certain building components for faster depreciation. This means larger up-front deductions—freeing up cash to combat inflation and rising costs.
• Who benefits: Manufacturers, warehouses, and retailers with property holdings see the greatest savings.

6. Accelerate Business Expenses and Defer Income

Managing the timing of your income and expenses is a classic tax planning for businesses strategy—especially in uncertain times.

• Accelerate Expenses: Prepay for supplies, repairs, or marketing to move deductions into the current tax year—reducing this year’s taxable income.
• Defer Income: Delay invoices or shipments until the next fiscal year, if you expect a lower tax rate or reduced income.

Document all actions thoroughly and consult a California tax law firm to avoid pitfalls and IRS scrutiny.

7. Pursue International Tax Strategies for Tariff Relief

For companies affected by tariffs due to global supply chains, international tax strategies can provide significant savings.

• Transfer Pricing: Properly document and structure intercompany transactions to minimize global tax liability.
• Foreign Trade Zones (FTZ): Operating in an FTZ can defer or reduce import duties and tariffs, keeping costs in check.
• Export Incentives: Use tools like IC-DISC (Interest Charge Domestic International Sales Corporation) to lower taxes on qualifying export income.

Our business tax lawyers in San Diego and Temecula are experienced in both domestic and international tax compliance, ensuring you’re covered on all fronts.

8. Take Advantage of Qualified Business Income (QBI) Deduction

The QBI deduction—also known as the Section 199A deduction—allows eligible business owners to deduct up to 20% of their qualified business income.

• Who qualifies: S-corporations, partnerships, LLCs, and sole proprietors.
• Why it matters: This is a significant reduction in business tax liability for qualifying pass-through entities.
• Requirements: Income thresholds and wage/property tests apply, so work with a business tax attorney near you to maximize this benefit.

9. Enhance Employee Benefits While Reducing Taxes

Offering robust retirement plans and benefit programs can help your business attract and retain talent—even as inflation drives up wages—while providing powerful tax benefits.

• Deductible Employer Contributions: Payments to employee 401(k)s, HSAs, and other plans reduce your taxable income.
• Credits for New Plans: Small businesses starting new retirement programs may qualify for a startup credit.
• Health Savings Accounts: Employer HSA contributions are deductible, offering a win-win for you and your staff.

10. Review State and Local Tax Strategies

Don’t overlook the impact of state and local taxes in your quest to offset tariffs and business costs.

• State Credits: California and other states offer credits for job creation, green investments, and R&D.
• Nexus Issues: If tariffs or supply chain changes alter where you do business, review your state tax nexus to avoid double taxation or missed savings.
• Sales & Use Tax: With changing business models, ensure you’re collecting and remitting the correct sales tax, especially if you’ve expanded to online or out-of-state sales.

11. Proactive Audit Defense and Compliance

The IRS is increasing scrutiny of tariff-related deductions and international transactions. Proactive tax planning with a seasoned tax attorney provides both savings and peace of mind.

• Audit Representation: If your business is audited—especially over COGS or tariffs—an experienced California tax lawyer is your best defense.
• Ongoing Compliance: Annual tax reviews ensure you’re taking every deduction legally available, without triggering red flags.

12. Custom Legal Solutions from The Law Office of Pietro Canestrelli, A.P.C.

Every business is different. At our San Diego and Temecula law offices, we take the time to understand your industry, operations, and challenges—then develop a customized tax strategy to help you:

• Offset tariffs and rising business costs
• Minimize business tax liability
• Leverage every available deduction and credit
• Stay compliant with federal and California tax law

Frequently Asked Questions

Q: What business tax strategies work best for offsetting tariffs?
A: The most effective approaches include maximizing business tax deductions, leveraging tax credits, adjusting inventory accounting, and exploring international tax strategies like Foreign Trade Zones and export incentives.

Q: How can I know if I’m claiming all the credits and deductions my business is eligible for?
A: Schedule a comprehensive review with a business tax attorney. Our team can identify missed opportunities and help you stay compliant.

Q: Are cost segregation studies only for large companies?
A: No. Small and mid-sized businesses that own property can see major tax savings from a cost segregation study—especially in high-cost markets like California.

Start Saving with Strategic Tax Planning

Tariffs and rising costs are a reality for today’s business owners—but with proactive tax planning for businesses, you can maintain profitability, invest in growth, and stay ahead of the competition.