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companies often consider making this change: 1. Better matching of current costs to current revenues: Under LIFO, the most recently acquired (and typically most expensive) inventory is considered sold first. This means the cost of goods sold (COGS) on the income statement reflects higher, more current costs—especially relevant when purchase prices are increasing due to tariffs or inflation. 2. Reduced taxable income: Because COGS is higher under LIFO during periods of rising costs, gross profit and taxable income will be lower compared to first-in, first-out (FIFO), or average cost methods. Lower taxable income can result in significant tax savings, improving cash flow during challenging economic conditions. 3. Tax deferral and cash conservation: The LIFO method defers tax liability to future periods, allowing businesses to conserve cash in the short term. This can be especially helpful when tariffs or supply chain disruptions make maintaining profitability more difficult. 4. Inventory valuation impact: LIFO mannpublications.com
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usually results in lower inventory values on the balance sheet during inflationary times. This can be beneficial if you want to avoid overstating asset value based on older, cheaper inventory. Tariffs and LIFO: Tariffs often raise the purchase cost of inventory. LIFO allows you to use the costs of the most recently purchased (and most highly tariffed) goods against current revenue, reducing the immediate tax burden associated with higher costs.
Here’s what to keep in mind if you are considering using the LIFO method: • LIFO is only allowed under U.S. generally accepted accounting principles (GAAP) and for tax purposes in the United States; it is not permitted under International Financial Reporting Standards (IFRS). • Switching methods requires IRS approval and can affect financial statements, ratios and covenants. The financial advisors at CBIZ can work with your lenders to understand the impact on your financial statements and adjust covenants for these tax savings.
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LOGISTICS
Over long periods, if costs stabilize or decline, LIFO can result in lower COGS and higher taxable income.
During periods of high tariffs and rising inventory costs, switching to LIFO can help businesses lower taxable income, better match current costs with sales and conserve cash through tax deferral—important advantages in volatile economic environments. If you need specific guidance or analysis tailored to your industry or situation, consult a tax advisor or accountant familiar with inventory accounting methods. At CBIZ, we are prepared to assist with any questions you may have. Until next time, remember what I always conclude with—if you are not having fun, then do something else!
February 2026
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