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INCOME TAXES (Tables)

12 Months Ended

Dec. 31, 2020

Components of Income Tax Expense

The components of income tax expense from our wholly owned operations and investments and our controlling interest in CIAC and joint ventures with Carrier are as follows:

Years Ended December 31,		2020				2019				2018
Current:
U.S. Federal		$	58,895			$	48,359			$	47,263
State			12,909				9,362				10,031
Foreign			4,779				8,078				7,229
		76,583				65,799				64,523
Deferred:
U.S. Federal			218				2,603				7,082
State			21				446				1,600
Foreign			(199	)			(1,771	)			(392	)
		40				1,278				8,290
Income tax expense		$	76,623			$	67,077			$	72,813

Reconciliation of Effective Income Tax Rate

Following is a reconciliation of the effective income tax rate:

Years Ended December 31,		2020				2019				2018
U.S. federal statutory rate			21.0	%			21.0	%			21.0	%
State income taxes, net of federal benefit and other			3.3				2.8				3.6
Excess tax benefits from share-based compensation			(2.3	)			(2.0	)			(2.0	)
Tax effects on foreign income			0.3				0.5				0.5
GILTI			—				(0.1	)			0.3
Tax credits and other			(0.3	)			(1.0	)			—
Repatriation transition tax			—				—				(0.9	)
Deferred tax impact of enacted tax rate changes			—				—				0.3
Effective income tax rate attributable to Watsco, Inc.			22.0				21.2				22.8
Taxes attributable to non-controlling interest			(2.8	)			(2.7	)			(3.1	)
Effective income tax rate			19.2	%			18.5	%			19.7	%

Significant Components of Net Deferred Tax Liabilities

The following is a summary of the significant components of our net deferred tax liabilities:

December 31,		2020				2019
Deferred tax assets:
Share-based compensation		$	27,223			$	24,413
Capitalized inventory costs and inventory reserves			3,189				3,627
Allowance for doubtful accounts			949				1,338
Self-insurance reserves			518				209
Other			5,090				2,212
Net operating loss carryforwards			2,930				2,036
		39,899				33,835
Valuation allowance			(668	)			(655	)
Total deferred tax assets			39,231				33,180
Deferred tax liabilities:
Deductible goodwill			(78,288	)			(73,898	)
Depreciation			(16,441	)			(14,241	)
Other			(7,050	)			(7,188	)
Total deferred tax liabilities			(101,779	)			(95,327	)
Net deferred tax liabilities (1)		$	(62,548	)		$	(62,147	)

(1) Net deferred tax liabilities have been included in the consolidated balance sheets in deferred income taxes and other liabilities.

Changes in Gross Unrecognized Tax Benefits

The changes in gross unrecognized tax benefits were as follows:

Balance at December 31, 2017		$	4,225
Additions based on tax positions related to the current year			960
Reductions due to lapse of applicable statute of limitations			(283	)
Balance at December 31, 2018			4,902
Additions based on tax positions related to the current year			1,027
Reductions due to lapse of applicable statute of limitations			(562	)
Balance at December 31, 2019			5,367
Additions based on tax positions related to the current year			1,911
Reductions due to lapse of applicable statute of limitations			(773	)
Balance at December 31, 2020		$	6,505

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