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Income Taxes
 12 Months Ended
Dec. 31, 2021
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
Income from operations before income taxes consisted of the following:
(Dollars in thousands)
Year Ended December 31,
20212020
United States
$5,421 $16,226 
Canada
6,498 4,559 
Total
$11,919 $20,785 
Provision (benefit) for income taxes from operations for the years ended December 31, consisted of the following:
(Dollars in thousands)
Year Ended December 31,
20212020
Current income tax expense:
U.S. federal
$3,042 $3,858 
U.S. state
777 710 
Canada
1,133 1,288 
Total
$4,952 $5,856 
Deferred income tax expense (benefit):
U.S. federal
$(817)$236 
U.S. state
(394)52 
Canada
(1,228)(472)
Total
$(2,439)$(184)
Total income tax expense (benefit):
U.S. federal
$2,225 $4,094 
U.S. state
383 762 
Canada
(95)816 
Total
$2,513 $5,672 

The reconciliation between the effective income tax rates and the statutory federal rates for operations are as follows:
Year Ended December 31,
20212020
Statutory Federal rate
21.0 %21.0 %
Increase (decrease) resulting from:
Change in valuation allowance - current period activity
— (2.2)
Change in valuation allowance - reversal
(10.3)— 
Foreign rate differential1.9 — 
Stock compensation
(3.7)(2.0)
Compensation deduction limitation
0.9 1.5 
State and local taxes, net
3.3 3.8 
Asset basis true-up5.5 — 
Meals & entertainment
1.2 0.6 
Change in uncertain tax positions
0.4 4.6 
Provision to return differences
0.2 (0.1)
Other items, net
0.7 0.1 
Provision for income taxes
21.1 %27.3 %

Global Intangible Low Taxed Income (GILTI) is a deemed amount of income derived from controlled foreign corporations (CFC) in which a US person is a 10% direct or indirect shareholder. The Company owns two Canadian CFC’s, which are subject to GILTI inclusion. However, the Company can utilize a foreign tax credit to fully offset a significant portion of all the tax from the GILTI inclusion based on foreign taxes paid in Canada.

At December 31, 2021, the Company had $3.5 million of U.S. federal net operating loss carryforwards which are subject to expiration beginning in 2030 and $6.5 million of various state net operating loss carryforwards which expire at varying dates through 2034.
After recording pre-tax losses for many years, Lawson’s Canadian subsidiary recorded pre-tax profits in 2019 and 2020. Lawson’s Canadian subsidiary continued to generate pre-tax profits in 2021 and have utilized some of the net operating loss carryforwards. Based on available evidence, we now believe it is more likely than not that we will be able to utilize Lawson’s Canadian subsidiary deferred tax assets to offset future taxable income. Lawson released the $1.2 million valuation allowance on the Lawson Canada deferred tax assets as of December 31, 2021.

As a result of acquisitions completed in recent years, the Company recorded $21.4 million of tax deductible goodwill that may result in a tax benefit in future periods.

Deferred income tax assets and liabilities contain the following temporary differences:
(Dollars in thousands)
December 31,
20212020
Deferred tax assets:
Net operating loss carryforward
$4,073 $5,431 
Compensation and benefits
11,407 10,980 
Inventory reserve
2,222 1,772 
Transaction costs2,077 — 
Accounts receivable reserve
203 167 
Leased assets1,302 1,061 
Property, plant & equipment2,046 — 
Intangible assets202 — 
Other
58 329 
Total deferred tax assets
23,590 19,740 
Deferred tax liabilities:
Intangible assets and goodwill1,771 1,948 
Lease liabilities
2,647 1,366 
Property, plant and equipment
134 (975)
Other
598 503 
Total deferred liabilities
5,150 2,842 
Net deferred tax assets before valuation allowance
18,440 16,898 
Valuation allowance
— (1,257)
Net deferred tax assets$18,440 $15,641 

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
(Dollars in thousands)
December 31,
20212020
Balance at beginning of year$3,686 $3,242 
Additions for tax positions of current year
— 15 
Additions for tax positions of prior years
554 1,413 
Reductions for tax positions of prior year
— — 
Lapse of statute of limitations
(539)(984)
Balance at end of year$3,701 $3,686 

The recognition of the unrecognized tax benefits would have a favorable effect on the effective tax rate. Due to the uncertainty of both timing and resolution of income tax examinations, the Company is unable to determine whether any amounts included in the December 31, 2021 balance of unrecognized tax benefits represent tax positions that could significantly change during the next twelve months. The unrecognized tax benefits are recorded as a component of Other
liabilities in the Consolidated Balance Sheets. Interest and penalties related to unrecognized tax benefits are recorded as a component of Income tax expense in the Consolidated Statements of Income and Comprehensive Income. Including the impact of interest and the impact of net operating losses, the unrecognized tax benefit is $3.9 million and $3.7 million as of December 31, 2021 and December 31, 2020, respectively, which is recorded in Other liabilities on the Consolidated Balance Sheets.The Company and its subsidiaries are subject to U.S. federal income tax as well as income tax of multiple state and foreign jurisdictions. As of December 31, 2021, the Company was subject to U.S. federal income tax examinations for the years 2018 through 2020 and income tax examinations from various other jurisdictions for the years 2014 through 2020.