In April 2025, President Donald Trump announced sweeping new tariffs on foreign imports, marking a major shift in U.S. trade policy. A 10% universal tariff on all imported goods began on April 5, with additional “reciprocal tariffs” targeting specific countries, starting April 9. These tariffs are aimed at countering what Trump described as decades of unfair trade practices by U.S. partners, with China, the EU, and the UK among those facing new duties. Special exceptions were made for Canada and Mexico due to existing trade agreements.
This policy has sparked concerns internationally and domestically. Critics warn it could trigger retaliatory actions, disrupt global markets, and increase the risk of a recession. Recent polls suggest U.S. public opinion is largely skeptical, with only 28% believing tariffs benefit the economy.
The IRS Response to Inflation
While tariffs are being used to influence international trade, inflation is the more immediate pressure point for most business owners. The IRS has taken steps to adjust for rising costs by increasing thresholds for deductions and mileage reimbursements. These inflation-based updates are intended to preserve the purchasing power of deductions year over year. But in a high-cost environment fueled by tariffs and supply disruptions, these changes can feel like too little, too late—particularly for businesses dealing with surging operating costs.
Standard Mileage Rates
The IRS standard mileage rate for 2025 is 70 cents per mile for business use, up from 67 cents in 2024. It reflects rising costs in gas, insurance, and maintenance—many of which are aggravated by tariffs affecting global oil markets and supply chains.
Standard Deduction Increases
The standard deduction for 2025 has also increased:
- $15,000 for single filers (up from $14,600)
- $30,000 for married filing jointly (up from $29,200)
- $22,500 for heads of household (up from $21,900)
These adjustments reflect general inflation trends but don’t provide new savings—they simply aim to keep pace with the increased cost of living.
How Inflation and Tariffs Are Disrupting Key Deductions
Tariff-driven inflation is affecting not just the price of goods, but also the reliability and value of key tax deductions. Deductions that once offered substantial relief are now being undermined by the timing of phaseouts and the increased cost of doing business. In this environment, previously dependable strategies can unexpectedly backfire.
Bonus Depreciation Is Shrinking While Equipment Costs Rise
The Tax Cuts and Jobs Act (TCJA) introduced 100% bonus depreciation, but that benefit is now disappearing—right when businesses are spending more on capital assets due to tariffs.
Here’s the phaseout schedule for bonus depreciation:
- 2023: 80%
- 2024: 60%
- 2025: 40%
- 2026: 20%
- 2027: 0%
With the cost of equipment—especially imported machines—surging under current tariffs, businesses are paying more for less tax relief. It’s a double hit that demands reevaluation of your asset planning strategy. Section 179 expensing may offer more control if used strategically.
The QBI Deduction Is Under Pressure
The Qualified Business Income (QBI) deduction is one of the most valuable deductions for owners of pass-through entities, but it’s vulnerable in inflationary conditions—especially when tariffs are involved.
Here’s how tariffs can erode your QBI benefit:
- Tariffs increase costs → you raise prices
- Gross revenue goes up → taxable income goes up
- Net profit remains flat or shrinks → QBI deduction drops or phases out
For 2025, the phase-out thresholds are:
- $197,300 for single filers
- $394,600 for joint filers
- Fully phased out at $247,300 and $494,600, respectively
Even if you’re collecting more in sales, your effective tax benefits may disappear if profit margins are thinning from tariff-related cost increases.
The Illusion of Growth: Why Inflation Is Misleading Your Tax Strategy
Tariffs and inflation aren’t just increasing your costs—they’re warping your numbers. On paper, your business might look like it’s thriving. Sales are up, revenue is higher, and you may even be projecting strong year-end totals. But the reality for many business owners is very different: profit margins are thinner, deductions are disappearing, and tax estimates based on outdated assumptions are falling apart.
This illusion of growth is one of the most dangerous byproducts of a tariff-distorted economy. If you’re not tracking what’s actually happening beneath the surface—especially net income—you may be overpaying or underpaying your taxes, losing valuable deductions, or structuring your business around the wrong benchmarks.
That’s why 2025 calls for a new kind of tax planning—one based on current data, not old formulas.
Estimated Taxes Aren’t Reflecting Reality
One of the clearest examples of this distortion is in your estimated tax payments. Most business owners set their quarterly payments using last year’s numbers—or this year’s gross revenue.
But when inflation and tariffs inflate your top-line revenue while your margins stay flat or drop, your tax assumptions become unreliable. You may be:
- Overpaying, tying up funds you could reinvest
- Underpaying, risking penalties and interest
- Misjudging your bracket, especially with phaseouts like the QBI deduction in play
In this kind of economic environment, it’s essential to revisit your estimated taxes at least quarterly, using real-time net income, not inflated gross receipts.
Strategic Tax Planning in a Tariff-Distorted Economy
Once you understand how tariffs and inflation are distorting deductions and projections, the next step is to adjust your strategy. Business owners who continue using last year’s tax playbook risk getting blindsided. The better approach is proactive and adaptive planning—the kind that reflects current cost structures, income trends, and shifting eligibility thresholds.
Here are a few ways to protect your business:
- Accelerate asset purchases to lock in higher depreciation before rates drop further
- Consider restructuring your entity type if you’re losing QBI benefits
- Conduct a cost segregation study if you own commercial property
- Improve COGS tracking so you can substantiate deductions and manage audit risk
- Recalculate net income quarterly to stay within optimal tax thresholds
A Real-World Example: Strategic Adjustments in Action
A California-based lighting importer saw its component costs rise 22% over 12 months due to new tariffs on Chinese goods. Although it raised retail prices, the business still saw a decline in net income. After consulting a tax attorney:
- The company restructured from an S-Corp to a C-Corp
- Reclassified delivery vehicle purchases under Section 179
- Adjusted estimated tax payments quarterly based on real-time margins
The result: better cash flow, preserved deductions, and a smoother tax year.
What If You Can’t Pay Your 2025 Tax Bill?
If you’re already behind, or if rising prices have pushed your business into a surprise liability, don’t panic. The IRS offers several resolution programs, including:
- Installment Agreements for monthly payments
- Offer in Compromise if you qualify for partial forgiveness
- Currently Not Collectible status if paying now would cause hardship
- Penalty Abatement for first-time or reasonable cause cases
- Innocent Spouse Relief for shared tax issues
The earlier you explore these options, the more flexibility you’ll have to protect your business.
Don’t Navigate This Alone—Talk to an Attorney Who Follows the Changes
Reading about tax strategy in theory is one thing. Applying it in the middle of a volatile, tariff-driven economy is another. That’s where legal guidance becomes essential.
At Delia Law, we don’t just track IRS policies—we follow the legislative changes, economic shifts, and international developments that directly affect your tax planning. We know what’s changing, what’s phasing out, and what risks you can avoid with the right plan.
If you’re concerned about how tariffs, inflation, or shrinking deductions could affect your 2025 return, now is the time to talk. Whether you need help planning, restructuring, or resolving a tax debt, our attorneys are ready to help you navigate what’s next—with clarity and strategy. Contact Delia Law today!
