In my last post, I shared a little late-night spiral about what might happen if income tax disappears (thanks, Fair Tax Act)—and spoiler: bookkeeping isn’t going anywhere. But that rabbit hole didn’t stop there.
Because if we’re talking about replacing income taxes, another idea that’s been floated is shifting more of the tax burden to tariffs.
And if you’re wondering what that actually means for your business (besides sounding like something out of an old history book), I’ve got you.
Let’s break it down.
First—What Are Tariffs?
Tariffs are taxes placed on goods imported from other countries. They’re usually paid by the importer (the business or company bringing goods into the U.S.), and those costs often get passed on to the buyer—meaning, you guessed it, consumers or other businesses down the supply chain.
Historically, tariffs were one of the main ways governments raised money before income tax became the norm. The idea of replacing income tax with tariffs is essentially bringing that back—but in a totally different economic world.
What Happens If Tariffs Replace Income Taxes?
The idea sounds simple: instead of taxing what you earn, the government taxes what comes into the country.
But the implications for small businesses—especially product-based and service-adjacent ones—are far from simple.
Here’s what could happen:
1. Prices on Imported Goods Would Likely Rise
If your business relies on materials, inventory, or equipment made overseas (and let’s face it, most of us do), you’d likely see a price hike. That could look like:
🔹 Higher costs for things like electronics, packaging, office supplies, tools, even software or tech if hosted internationally
🔹 Price increases from your vendors if they rely on imported goods—even if you don’t
🔹 Needing to increase your prices just to maintain your margins
You’d either absorb those costs (ouch), pass them on to your clients/customers (risky), or try to source American-made alternatives (not always possible or affordable).
2. Service-Based Businesses Might Feel the Pinch Too
You might think, “I’m a coach/designer/consultant—I don’t import anything.”
But even if your business is 100% service-based, you still use tools. Think laptops, phones, microphones, tablets, even software subscriptions. If those costs go up, your overhead increases.
And when your vendors, platforms, or service providers raise their prices? You’re along for the ride.
3. Cash Flow Would Get Even Trickier
If tariffs became a primary revenue source for the government, they’d likely be broad and high—meaning you could be paying a lot more upfront for the same materials or tools you use now.
That throws a wrench into your cash flow.
If you’re used to just-in-time inventory, or making tight margin decisions based on current pricing, things would need to shift fast.
Which brings me to…
4. Budgeting Would Be More Important Than Ever
If this shift ever happens, pricing would become more volatile and less predictable—especially for small businesses without big buffer budgets.
➡️ You’d need to budget for fluctuating supply costs
➡️ You’d need proactive forecasting to maintain profitability
➡️ You’d need to stay on top of which goods are subject to tariffs and what the rates are (because yes, they could vary by product or origin)
This is where solid bookkeeping—backed by someone who can help you make sense of the numbers—becomes your superpower.
5. The Income Gap Between Small and Big Business Might Widen
Let’s be real: large corporations have more buying power, more inventory storage, and stronger supplier contracts. They can weather tariff storms way more easily than solopreneurs or small businesses.
If tariffs replace income tax, big business wins again unless small businesses are prepared to:
✔️ Increase pricing without losing customers
✔️ Shift suppliers or offerings quickly
✔️ Strengthen their margins and trim unnecessary costs
All things that require clarity around your financials.
So, Would You Still Need a Bookkeeper?
A million times yes.
📌 Your bookkeeping system would need to track and categorize cost changes
📌 Your reports would become key to understanding profitability
📌 Your budget would need regular updating to reflect price swings
📌 You’d need to get strategic with pricing, sourcing, and planning
Tariffs may feel like a “supply chain issue” on the surface, but they affect the whole business. That’s why keeping your financials clean, current, and clear is non-negotiable.
Final Thoughts
Tariffs replacing income tax is still just a theory—not something on the books. But even the idea of it is a great reminder of why small businesses need flexible, informed financial systems.
Whether it’s the Fair Tax Act, tariffs, or something else entirely, Creative Balance Bookkeeping is here to help you adapt with confidence—not panic.
Let’s keep your business grounded and growing, no matter how the tax winds shift.
