Tax Cuts vs. Tariffs: How Trump-Era Policies Created Mixed Results for DMV Businesses
Key Takeaways:
The Trump-era tariffs may undermine many of the economic gains promised by the 2017 Tax Cuts and Jobs Act (TCJA).
These tariffs have created new costs for import-heavy industries and small businesses, particularly those relying on foreign goods or components.
While tax cuts lowered rates and incentivized investment, tariffs effectively increased the cost of doing business—creating a conflicting policy environment.
Business entities including LLCs, partnerships, and S-Corps are especially exposed to the cash flow and planning challenges caused by these shifts.
Taxpayers need proactive legal and tax strategies to navigate this volatile policy landscape.
Tax Cuts vs. Tariffs: A Mixed Bag for Growth
When the Tax Cuts and Jobs Act (TCJA) was signed into law in 2017, it promised a boost for U.S. businesses and individuals through lower rates, increased deductions, and repatriation incentives. For many in the DMV region—business owners, investors, and high-net-worth individuals—these changes created opportunities for expansion, increased cash flow, and strategic tax planning.
However, the subsequent rollout of tariffs on billions of dollars' worth of imported goods—part of a broader trade strategy under the Trump administration—introduced a counterweight to those benefits. While tax reform put money back into the pockets of businesses, tariffs increased the costs of materials, supplies, and finished goods, especially from China and other major trading partners.
For DMV-based businesses that rely on global supply chains or operate in industries sensitive to international prices—such as manufacturing, construction, retail, and technology—the result has been a complicated and sometimes contradictory policy environment.
Let's break down how this plays out in practice.
1. The Tax Cuts: Relief and Opportunity
The TCJA significantly altered the tax landscape:
The corporate tax rate was reduced from 35% to 21%.
Pass-through entities received a potential 20% Qualified Business Income (QBI) deduction.
The estate tax exemption was nearly doubled temporarily, but made permanent in the OBBBA.
Lower individual tax rates passed benefits through to business owners and high earners.
For a well-structured business, this meant increased after-tax profits, more ability to reinvest, and new planning strategies for income splitting, entity restructuring, and long-term estate preservation.
As a result, many of our clients in Maryland, Virginia, and D.C. took the opportunity to revisit their business formation. Some reclassified themselves as S-Corps to capitalize on the QBI deduction. Others moved quickly to shift assets—such as real estate or intellectual property—to tax-advantaged vehicles to maximize depreciation or minimize future estate tax exposure.
But these strategies assumed relative stability (and predictability) in the cost of running a business. Even though the One Big Beautiful Bill Act signed on July 4, 2025, extended or made permanent some provisions of the TCJA, business owners need to review their business strategies in light of the new laws to protect their best interests.
2. The Tariffs: A Rising Cost of Doing Business
The Trump administration's tariffs hit imported goods in multiple waves, targeting critical sectors like steel, aluminum, and electronics. For manufacturers and contractors sourcing foreign inputs, the result was a direct increase in cost.
While these tariffs were aimed at protecting American industries, they also had side effects:
Tariffs functioned as a tax on imported goods. This meant many small or mid-sized businesses saw dwindling margins, especially when price increases couldn't be passed along to consumers.
Industries with complex global supply chains suddenly faced uncertain input costs and sourcing difficulties. This impacted budgeting and forecasting.
Many businesses in the DMV area that rely on international trade—such as logistics firms, construction companies, and engineering firms—had to quickly adapt their strategies.
For example, a manufacturing firm in Northern Virginia saw a 12% increase in raw material costs tied to imported steel. Even with the lowered corporate tax rate, their net income fell that year due to squeezed margins and lagging project timelines.
What's crucial to understand is that while the TCJA was designed to create breathing room for businesses to grow, the tariffs pulled in the opposite direction for businesses with import exposure. Even though The One Big Beautiful Act increased the SALT deduction cap from $10,000 to $40,000 in 2025 for households with income up to $500,000, some DMV-area taxpayers may find the tariffs outweigh the increase in SALT deduction cap.
3. Why This Matters for LLCs, Partnerships, and S-Corps
One of the main beneficiaries of the TCJA was the pass-through entity.
S-Corporations and Partnerships, which play a major role in the DMV's real estate, professional services, and technology sectors, were given the opportunity to deduct up to 20% of "qualified business income." This potentially lowered the effective tax rate on some business profits to as little as 29.6%—well below previous levels.
But here's where the tariffs create a challenge:
Margins are tighter. That "20%" deduction is worth less when net income falls due to increased costs.
Cash flow is constricted. Tariff-induced expenses are real-time, but tax benefits often hinge on long-term planning.
Strategic decisions—such as taking salaries vs. distributions, or making capital investments—become more complicated when the economic outlook is murky.
We've seen local law firms and consulting companies structured as S-Corps running into issues with benefit planning. For instance, if equipment or supplies are only available through foreign vendors—with tariffs inflating prices—it may stress expense budgets and reduce QBI-eligible income.
In other cases, LLCs structured for real estate investing have faced delays on foreign-manufactured appliances or materials, increasing holding costs and blunting the expected profit boost from lower income taxes.
4. Estate Planning: The Quiet Complication
The TCJA also doubled the federal estate tax exemption—now over $13 million per individual (indexed for inflation). It opened a window of opportunity for high-net-worth families to transfer assets at reduced tax exposure, particularly through LLCs and family limited partnerships.
However, tariffs have indirectly affected these strategies:
Businesses with international value chains may see asset values fluctuate—complicating accurate estate valuations or planned gifting.
Anticipated returns on family businesses passed down or placed into trusts may need to be re-evaluated amid increased costs or supply chain issues.
Succession planning decisions that relied on certain business valuations—particularly those based on trailing earnings—may need an updated review.
5. Risk Management, Compliance, and Strategy
For DMV businesses, navigating the tug-of-war between tax relief and tariff pressures requires more than adjusting line items.
Consider the following steps:
Review Supplier Contracts and Input Cost Volatility: If your vendors import goods, clarify which party absorbs tariff costs. Build flexibility into pricing models.
Reassess Business Structures Annually: Whether you operate as an LLC, partnership, or corporation, the net tax impact will shift as policies evolve. Be ready to pivot.
Evaluate Inventory Planning and Depreciation Opportunities: With costs rising, bulk purchasing today could lower tax liabilities tomorrow via accelerated depreciation—if structured correctly.
Refine Estate Planning Timelines: Tariffs may influence not only the income of your business, but also its long-term valuation. Coordinate your planning with timing in mind.
Monitor Compliance Risks: Some businesses have approached the gray areas of tariff classifications or sourcing definitions. These short-term workarounds may create audit exposure if not legally vetted.
Your legal strategy should evolve with your business planning. Firms that stay on top of both their tax and trade situations will be better positioned than those reacting in hindsight.
Final Thoughts: A Balancing Act for Business and Planning
The Tax Cuts and Jobs Act opened powerful doors for many businesses in Maryland, Virginia, and D.C.—but the door doesn't stay open forever. And with policies like tariffs exerting parallel and sometimes opposite economic pressure, the benefits of tax reform can easily be diluted without strategic planning.
Whether you're running a family-owned construction company, managing a portfolio of real estate investments, or scaling a professional services firm, the stakes are high. Every dollar saved through tax strategies can be lost to unexpected tariff costs or compliance penalties. And every opportunity to optimize structure or timing matters.
At Thienel Law, our mission is to help entrepreneurs, professionals, and families build resilient frameworks—designed to withstand economic shifts and regulatory surprises.
If you're unsure how current tax and trade policies affect your business or personal strategy, we're here to help. Schedule a consultation with Steve Thienel to get advice tailored to your goals. Let's build a plan that works—rain or shine.