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Income Taxes | 12 Months Ended
--- | ---
Dec. 31, 2024
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes Income before income taxes, classified by source of income, was as follows:
| Year ended December 31,
| 2024 |  | 2023 |  | 2022
Domestic | $ | 2,031,759 |  | $ | 1,637,756 |  | $ | 1,192,004
Foreign | (21,529) |  |  | (17,250) |  |  | (10,473) |
Income before income taxes | $ | 2,010,230 |  | $ | 1,620,506 |  | $ | 1,181,531
The components of the provision for income taxes were as follows:
| Year ended December 31,
| 2024 |  | 2023 |  | 2022
Current tax: |  |  |  |  |
U.S. Federal | $ | 412,943 |  |  | $ | 314,757 |  |  | $ | 246,210
U.S. State and Local | 104,478 |  |  | 85,355 |  |  | 79,041 |
Foreign | 1,636 |  |  | 1,162 |  |  | 374 |
| 519,057 |  |  | 401,274 |  |  | 325,625
Deferred tax: |  |  |  |  |
U.S. Federal | (32,751) |  | (7,992) |  | (23,502) |
U.S. State and Local | (10,195) |  | (1,532) |  |  | (19,940)
Foreign | (4,385) |  |  | (7,606) |  | 3,771
| (47,331) |  | (17,130) |  | (39,671) |
Valuation allowance | 4,394 |  | 7,625 |  |  | (3,524) |
Provision for income taxes | $ | 476,120 |  |  | $ | 391,769 |  |  | $ | 282,430 |
The effective tax rate differs from the statutory tax rates as follows:
| Year ended December 31,
| 2024 |  | 2023 |  | 2022
Statutory U.S. federal income tax rate | 21.0% |  | 21.0% |  | 21.0%
State income tax, net of related federal income tax benefit | 3.7 |  | 4.0 |  | 3.8
Federal tax credits | (0.9) |  |  | (1.0) |  |  | (1.0) |
Executive compensation disallowed | 0.5 |  | 0.8 |  | 0.8
Valuation allowance | 0.3 |  | 0.3 |  | 0.2
Uncertain tax position reserves | - |  | 0.4 |  | 0.3
Other | 0.2 |  | 0.2 |  | 0.6
Return to provision and other discrete items | (0.1) |  |  | (0.2) |  |  | (0.1)
Equity compensation related adjustments | (1.0) |  |  | (1.3) |  |  | (1.7) |
Effective income tax rate | 23.7% |  | 24.2% |  | 23.9%
The effective tax rate for the year ended December 31, 2024, was lower than the effective tax rate for the year ended December 31, 2023, primarily due to a decrease in nondeductible expenses and income tax reserves, partially offset by a reduction in excess tax benefits related to option exercises and equity vesting. The components of the deferred income tax assets and liabilities for continuing operations were as follows:
| December 31,
| 2024 |  | 2023
Deferred income tax liability: |  |  |
Leasehold improvements, property and equipment, net | $ | 262,692 |  | $ | 272,017
Goodwill and other assets | 1,753 |  | 1,743
Operating lease assets | 1,088,934 |  | 972,835
Total deferred income tax liability | 1,353,379 |  | 1,246,595
Deferred income tax asset: |  |  |
Gift card liability | 19,087 |  | 18,101
Capitalized transaction costs | 323 |  | 323
Stock-based compensation and other employee benefits | 61,574 |  | 50,954
Foreign net operating loss carry-forwards | 35,215 |  | 32,252
State credits | 872 |  | 1,838
Operating lease liabilities | 1,159,788 |  | 1,038,911
Allowances, reserves and other | 26,105 |  | 12,870
Capitalized research costs | 29,122 |  | 25,990
Prepaid assets and other | 10,334 |  | 6,637
State net operating loss carry-forwards | 3,867 |  | 4,332
Valuation allowance | (39,116) |  |  | (34,722) |
Total deferred income tax asset | 1,307,171 |  | 1,157,486
Deferred income tax liabilities | $ | 46,208 |  | $ | 89,109
Gross foreign net operating losses (“NOLs”) were $165,085 and $149,891 as of December 31, 2024 and 2023, respectively. Our foreign NOLs can be carried forward indefinitely. Gross state NOLs available across all jurisdictions in which we operate were $52,950 and $62,492 as of December 31, 2024 and 2023, respectively. Our state NOLs expire over varying intervals in the future. We had gross valuation allowances against certain foreign deferred tax assets of $183,346 and $160,607 as of December 31, 2024 and 2023, respectively. The increase in the valuation allowances were primarily related to net operating losses of consolidated foreign subsidiaries. Unrecognized Tax Benefits A reconciliation of the unrecognized tax benefits was as follows:
| Year ended December 31,
| 2024 |  | 2023 |  | 2022
Beginning of year | $ | 16,488 |  | $ | 8,902 |  | $ | 5,262
Increase resulting from prior year tax positions | 3,737 |  | 7,561 |  | 3,937
Decrease resulting from prior year tax positions | (3,748) |  |  | (295) |  | - |
Increase resulting from current year tax positions | 916 |  | 783 |  | 312
Settlements with taxing authorities | - |  |  | (6) |  | -
Lapsing of statutes of limitations | (505) |  |  | (457) |  |  | (609) |
End of year | $ | 16,888 |  | $ | 16,488 |  | $ | 8,902
Interest expense related to uncertain tax positions is recognized in interest and other income, net on the consolidated statements of income and comprehensive income. Penalties related to uncertain tax positions are recognized in provision for income taxes on the consolidated statements of income and comprehensive income. For the years ended December 31, 2024, 2023 and 2022, we recognized $1,441, $1,541 and $384, respectively, in interest expense related to uncertain tax positions. These are gross amounts before any tax benefits and are included in other liabilities on the consolidated balance sheets. As of December 31, 2024 and 2023, we have accrued interest of $2,959 and $2,026, respectively. We were subject to an examination by the Internal Revenue Service (“IRS”) for our U.S. income tax returns for the tax year ended December 31, 2020. As a result of the examination, the IRS has issued an immaterial assessment of income taxes, interest, and penalties. For the majority of states where we have a significant presence, we are no longer subject to tax examinations by tax authorities for tax years before 2020. Currently, we expect expirations of statutes of limitations, excluding indemnified amounts, on reserves of approximately $3,035 within the next twelve months. It is reasonably possible the amount of the unrecognized benefit with respect to certain unrecognized positions could significantly increase or decrease within the next twelve months and would have an impact on net income.

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