Tariffs are tax deductible when you pay them as a business, and they are not deductible when you pay them on goods you brought in for personal use. For a business, the duty paid at the border is an ordinary cost of doing business and reduces taxable income, though the timing depends on whether you imported inventory, equipment, or supplies. For an individual buying something for personal use, the duty is simply part of what the item cost, with no place to claim it on a return.
The Business Deduction and Where It Comes From
The federal tax code lets a business deduct all ordinary and necessary expenses paid or incurred while operating.1Office of the Law Revision Counsel. 26 USC 162 – Trade or Business Expenses Tariffs fit that description cleanly. If you imported the item for a genuine business reason and paid the duty during the tax year, the cost belongs somewhere on your return.
The harder question is where. The tax code routes tariffs through different mechanisms depending on what the imported item is doing for you. Inventory, equipment, and consumable supplies each get treated differently, and the timing of the deduction changes with them.
Tariffs on Goods You Plan to Resell
Most importers bringing in merchandise for resale don’t get to deduct the duty the moment they pay it. Section 263A, the Uniform Capitalization rules, requires businesses to fold direct costs and a proper share of indirect costs, including taxes, into the value of property they produce or acquire for resale.2Office of the Law Revision Counsel. 26 USC 263A – Capitalization and Inclusion in Inventory Costs of Certain Expenses
In plain terms, the tariff becomes part of your cost of goods sold. Import $100,000 in electronics and pay $15,000 in duties, and that $15,000 sits on your balance sheet inside inventory value until the products actually sell. Only then does the cost reduce your taxable income.
The mechanics: beginning inventory plus purchases (with tariffs and shipping included) minus ending inventory equals cost of goods sold, which comes off gross receipts before profit is calculated. A higher per-unit cost means lower profit per sale, which means less income exposed to tax. The deduction is real. It just follows the pace of your sales rather than arriving all at once at the border.
The Small Business Exception
Section 263A carves out businesses that meet the gross receipts test under Section 448(c), which the Tax Cuts and Jobs Act set at $25 million in average annual gross receipts, adjusted each year for inflation.3Office of the Law Revision Counsel. 26 USC 263A – Capitalization and Inclusion in Inventory Costs of Certain Expenses – Section: Exemption for Certain Small Businesses If your business falls below that threshold, you can skip the capitalization requirement and deduct tariffs more directly as a current expense.
For a sole proprietor filing Schedule C, that’s a meaningful simplification. A small retailer importing goods for resale who qualifies can report tariff costs through cost of goods sold without building out the full UNICAP calculation. Accurate records of what you paid and when are still required.
Tariffs on Equipment and Other Long-Lived Assets
When you import equipment, machinery, or other property your business will use for years rather than resell, the tariff takes a different path. It gets added to the asset’s depreciable basis, and you recover the cost through depreciation deductions over the asset’s useful life.4Office of the Law Revision Counsel. 26 USC 1016 – Adjustments to Basis
Import a piece of manufacturing equipment for $200,000, pay $50,000 in duties, and your depreciable basis is $250,000. Bonus depreciation rules may let you write off a large portion of that in the first year. Even without accelerated depreciation, the tariff cost eventually flows through as a deduction. Not immediate, but not lost.
Personal Imports Are Not Deductible
If you brought the item in for personal use, the duty is just part of the purchase price. The tax code broadly prohibits deducting personal, living, and family expenses, and tariffs on personal goods sit inside that prohibition.5Office of the Law Revision Counsel. 26 USC 262 – Personal, Living, and Family Expenses
A 25% duty on an imported watch, a piece of furniture, or a car you bought overseas and shipped home is simply what it cost to bring the item in. There is no line on Form 1040 for it. Deductions exist to offset the costs of earning income, and personal consumption doesn’t earn income. Whether you hand-carried the item through the airport or had it shipped changes nothing.
The De Minimis Rule No Longer Helps
Before August 2025, shipments valued at $800 or less entered the country duty-free under the de minimis exemption. That rule was suspended by executive order effective August 29, 2025, and remains suspended into 2026. Every commercial shipment entering the United States now requires formal customs entry and full duty payment regardless of value.6The White House. Suspending Duty-Free De Minimis Treatment for All Countries
Small orders that used to arrive duty-free now carry tariff costs. If those orders are for your business, the new duties are deductible under the rules described above. If they’re personal, the cost is simply higher than it used to be.
Reducing the Tariff Before It Reaches Your Return
Deducting a tariff softens the blow. Not paying it in the first place is better. Two established programs can reduce the underlying duty for businesses that qualify.
Duty Drawback
If you import goods and later export them, whether in the same form or after using them to manufacture something else, you can apply for a refund of the duties paid. This is called drawback, and it covers duties, certain taxes, and fees collected at importation when the merchandise is exported or destroyed under customs supervision.7U.S. Customs and Border Protection. Drawback Overview
Unused merchandise drawback applies when you export the same goods you imported without using them domestically. Manufacturing drawback applies when imported materials become part of something you then export. The paperwork and timing rules are detailed, but for businesses with real import and export flows, the refunds can be substantial.8Office of the Law Revision Counsel. 19 USC 1313 – Drawback and Refunds
Foreign Trade Zones
Foreign Trade Zones are designated areas within the United States where goods can be imported, stored, manufactured, and re-exported without paying customs duties until the goods actually enter U.S. commerce. Goods destroyed within a zone owe no duty. Goods re-exported from a zone never incur duty. For manufacturers, if the finished product carries a lower tariff rate than the raw materials used to make it, you can elect to pay the lower rate, and duty does not apply to the labor, overhead, or profit generated by production inside the zone. Zones will not eliminate tariff costs on goods ultimately sold in the U.S., but the deferral and reduction can be meaningful.
What You Need in Your Files
Any tariff deduction requires documentation. The central record is CBP Form 7501, the Entry Summary, which is the official accounting of each import transaction and identifies the goods, their appraised value, and the exact duties paid.9U.S. Customs and Border Protection. CBP Form 7501 – Entry Summary
Keep commercial invoices, packing lists, and broker documentation alongside it. These tie each duty payment to a specific business purpose. If you are capitalizing tariffs into inventory under UNICAP, you also need records showing how those costs were allocated to individual products and when those products were sold.
The IRS generally asks taxpayers to keep records supporting a return for three years from the filing date, though the statute of limitations extends to six years if the agency believes income was underreported by more than 25% of gross income.10Internal Revenue Service. How Long Should I Keep Records Given the dollar amounts and paperwork involved in imports, six years is the safer horizon. Digital copies of every CBP filing and commercial invoice cost nothing to store.
If the IRS audits you and you cannot produce the Entry Summary or supporting documents, the deduction can be disallowed. The duty you paid doesn’t disappear from your costs. You just lose the tax benefit and effectively pay the tariff twice, once to customs and again through higher taxable income.