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INCOME TAXES (Tables) | 12 Months Ended
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Dec. 31, 2024
Sources of income before income taxes | The sources of income before income taxes we re as follows:
Years Ended December 31, |  | 2024 |  |  | 2023 |  |  | 2022 |
U.S. |  | $ | 725,603 |  |  | $ | 710,327 |  |  | $ | 758,734 |
Foreign |  |  | 77,041 |  |  |  | 79,563 |  |  |  | 70,679 |
|  | $ | 802,644 |  |  | $ | 789,890 |  |  | $ | 829,413 |
Components of Income Tax Expense | The components of income tax expense from our wholly owned operations and investments and our controlling interest in the Carrier joint ventures were as follows:
Years Ended December 31, |  | 2024 |  |  | 2023 |  |  | 2022 |
Current: |  |  |  |  |  |  |  |  |  |  |  |
U.S. Federal |  | $ | 115,991 |  |  | $ | 119,133 |  |  | $ | 71,475 |
State |  |  | 30,331 |  |  |  | 29,749 |  |  |  | 27,202 |
Foreign |  |  | 20,353 |  |  |  | 14,048 |  |  |  | 13,574 |
|  |  | 166,675 |  |  |  | 162,930 |  |  |  | 112,251 |
Deferred: |  |  |  |  |  |  |  |  |  |  |  |
U.S. Federal |  |  | 1,392 |  |  |  | (5,581 | ) |  |  | 10,766 |
State |  |  | 377 |  |  |  | (1,301 | ) |  |  | 3,695 |
Foreign |  |  | (1,540 | ) |  |  | (297 | ) |  |  | (995 | )
|  |  | 229 |  |  |  | (7,179 | ) |  |  | 13,466 |
Income tax expense |  | $ | 166,904 |  |  | $ | 155,751 |  |  | $ | 125,717 |
Reconciliation of Effective Income Tax Rate | Following is a reconciliation of the effective income tax rate:
Years Ended December 31, |  | 2024 |  |  | 2023 |  |  | 2022 |
U.S. federal statutory rate |  |  | 21.0 | % |  |  | 21.0 | % |  |  | 21.0 | %
State income taxes, net of federal benefit and other |  |  | 3.6 |  |  |  | 3.5 |  |  |  | 4.6 |
Excess tax benefits from share-based compensation |  |  | (1.8 | ) |  |  | (1.8 | ) |  |  | (8.6 | )
Tax effects on foreign income |  |  | 1.0 |  |  |  | 0.2 |  |  |  | 0.3 |
FDII |  |  | (0.1 | ) |  |  | (0.1 | ) |  |  | (0.1 | )
Change in valuation allowance |  |  | 0.2 |  |  |  | 0.3 |  |  |  | 0.4 |
Tax credits and other |  |  | (0.4 | ) |  |  | (0.8 | ) |  |  | (0.4 | )
Effective income tax rate attributable to Watsco, Inc. |  |  | 23.5 |  |  |  | 22.3 |  |  |  | 17.2 |
Taxes attributable to non-controlling interest |  |  | (2.7 | ) |  |  | (2.6 | ) |  |  | (2.0 | )
Effective income tax rate |  |  | 20.8 | % |  |  | 19.7 | % |  |  | 15.2 | %
Significant Components of Net Deferred Tax Liabilities | The following is a summary of the significant components of our net deferred tax liabilities:
December 31, |  | 2024 |  |  | 2023 |
Deferred tax assets: |  |  |  |  |  |  |  |
Share-based compensation |  | $ | 34,215 |  |  | $ | 30,847 |
Capitalized inventory costs and adjustments |  |  | 4,891 |  |  |  | 5,387 |
Allowance for doubtful accounts |  |  | 2,636 |  |  |  | 4,096 |
Self-insurance reserves |  |  | 1,164 |  |  |  | 1,701 |
Capitalized research and development costs |  |  | 10,026 |  |  |  | 6,712 |
Other |  |  | 6,562 |  |  |  | 7,678 |
Net operating loss carryforwards |  |  | 4,804 |  |  |  | 4,584 |
|  | 64,298 |  |  |  | 61,005 |
Valuation allowance |  |  | (11,554 | ) |  |  | (10,468 | )
Total deferred tax assets |  |  | 52,744 |  |  |  | 50,537 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Deductible goodwill |  |  | (106,221 | ) |  |  | (104,026 | )
Depreciation |  |  | (21,798 | ) |  |  | (24,973 | )
Unremitted earnings of domestic affiliates |  |  | (6,563 | ) |  |  | (5,008 | )
Other |  |  | (4,466 | ) |  |  | (4,390 | )
Total deferred tax liabilities |  |  | (139,048 | ) |  |  | (138,397 | )
Net deferred tax liabilities (1) |  | $ | (86,304 | ) |  | $ | (87,860 | )
(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, 2021 |  | $ | 6,727 |
Additions based on tax positions related to the current year |  |  | 1,867 |
Reductions due to lapse of applicable statute of limitations |  |  | (842 | )
Balance at December 31, 2022 |  |  | 7,752 |
Additions based on tax positions related to the current year |  |  | 1,215 |
Reductions due to lapse of applicable statute of limitations |  |  | (1,093 | )
Balance at December 31, 2023 |  |  | 7,874 |
Additions based on tax positions related to the current year |  |  | 1,439 |
Reductions due to lapse of applicable statute of limitations |  |  | (1,530 | )
Balance at December 31, 2024 |  | $ | 7,783 |

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- Definition Tabular disclosure of the components of income tax expense attributable to continuing operations for each year presented including, but not limited to: current tax expense (benefit), deferred tax expense (benefit), investment tax credits, government grants, the benefits of operating loss carryforwards, tax expense that results from allocating certain tax benefits either directly to contributed capital or to reduce goodwill or other noncurrent intangible assets of an acquired entity, adjustments of a deferred tax liability or asset for enacted changes in tax laws or rates or a change in the tax status of the entity, and adjustments of the beginning-of-the-year balances of a valuation allowance because of a change in circumstances that causes a change in judgment about the realizability of the related deferred tax asset in future years. + References Reference 1: http://www.xbrl.org/2009/role/commonPracticeRef -Topic 740 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 9 -Publisher FASB -URI https://asc.fasb.org/1943274/2147482685/740-10-50-9 + Details
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