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INCOME TAXES (Tables)
 12 Months Ended
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