| Organization: A manufacturer that imports and processes goods for construction. | Need: Cost savings to combat increased inventory costs due to tariffs and inflation. | Outcome: $200,000 in savings by switching to the LIFO accounting method. |
Understanding the situation
A manufacturer specializing in importing and processing goods for the construction industry was being hit hard by increased inventory costs due to tariffs and inflation. To maintain its profit margins and staffing levels, the company reached out to its longtime tax and accounting advisor, CLA, to explore cost saving opportunities.
Explore if the LIFO accounting method could cut your taxes.
Exploring the challenge
As an inventory-heavy company, the CLA team thought the LIFO (last-in, first-out) accounting method could be a good cost-saving option. LIFO allows companies to reduce taxable income by deducting higher recent inventory costs against current revenues.
Modeling was conducted because the company had some inventory on LIFO and some on FIFO (first-in, first-out). CLA determined moving to a 100% LIFO-based model in 2025 could yield tax benefits ranging from 2–5 times higher compared to a normal tax year.
In times of high inflation and tariffs, switching to LIFO can provide significant cost savings for companies with hefty inventory balances. Discover how your company might save.
We appreciate the many ways CLA proactively helps us improve the financial health of our business over the years. — CFO, manufacturing company
Achieving results
Switching to LIFO cut the company’s taxable income by about $1 million, producing $200,000 in tax savings.
In addition, the company also switched to having CLA compute its LIFO calculation on a periodic basis, instead of tabulating it internally. This helps free up the manufacturing company’s valuable accounting resources and improves the calculation’s accuracy, which is key to IRS compliance. LIFO documentation and calculation errors could result in the unexpected IRS adjustments or even disallowance of this tax-favorable method.