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Income Taxes | 12 Months Ended
--- | ---
Jun. 30, 2024
Income Tax Disclosure [Abstract] |
Income Taxes |
8. |  | Income Taxes
The provision (benefit) for income taxes consists of the following components:
Schedule of components of income tax expense |  |  |  |  |  |  |  |
|  | Years Ended June 30, |
|  | 2024 |  |  | 2023 |
|  | (In thousands) |
Current: |  |  |  |  |  |  |  |
Federal |  | $ | – |  |  | $ | – |
State |  |  | 380 |  |  |  | 294 |
Foreign |  |  | 332 |  |  |  | 308 |
Total Current taxes |  | $ | 712 |  |  | $ | 602 |
Deferred: |  |  |  |  |  |  |  |
Federal |  |  | 33 |  |  |  | 146 |
State |  |  | – |  |  |  | – |
Foreign |  |  | – |  |  |  | – |
Provision for income taxes |  | $ | 745 |  |  | $ | 748 |
The following table presents U.S. and foreign income (loss) before income taxes:
Schedule of income before income taxes |  |  |  |  |  |  |  |
|  | Years Ended June 30, |
|  | 2024 |  |  | 2023 |
|  | (In thousands) |
United States |  | $ | (4,655 | ) |  | $ | (9,168 | )
Foreign |  |  | 884 |  |  |  | 936 |
Loss before income taxes |  | $ | (3,771 | ) |  | $ | (8,232 | )
The tax effects of temporary differences that give rise to deferred tax assets and liabilities are as follows:
Schedule of deferred tax assets and liabilities |  |  |  |  |  |  |  |
|  | Years Ended June 30, |
|  | 2024 |  |  | 2023 |
|  | (In thousands) |
Deferred tax assets: |  |  |  |  |  |  |  |
Tax losses and credits |  | $ | 8,984 |  |  | $ | 9,882 |
Reserves not currently deductible |  |  | 2,738 |  |  |  | 2,054 |
Capitalized research and development expenses |  |  | 7,511 |  |  |  | 6,975 |
Deferred compensation |  |  | 1,509 |  |  |  | 1,301 |
Inventory capitalization |  |  | 2,570 |  |  |  | 2,390 |
Lease liabilities |  |  | 2,299 |  |  |  | 2,848 |
Depreciation and amortization |  |  | 172 |  |  |  | – |
Identified intangibles |  |  | 1,172 |  |  |  | 446 |
Other |  |  | 98 |  |  |  | 263 |
Gross deferred tax assets |  |  | 27,053 |  |  |  | 26,159 |
Valuation allowance |  |  | (24,731 | ) |  |  | (22,532 | )
Deferred tax assets, net |  |  | 2,322 |  |  |  | 3,627 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
State taxes |  |  | (395 | ) |  |  | (518 | )
Right-of-use assets |  |  | (2,106 | ) |  |  | (2,676 | )
Depreciation and amortization |  |  | – |  |  |  | (579 | )
Deferred tax liabilities |  |  | (2,501 | ) |  |  | (3,773 | )
Net deferred tax assets (liabilities) |  | $ | (179 | ) |  | $ | (146 | )
Our net deferred tax liability of $179,000 and $146,000 at June 30, 2024 and 2023, respectively, represents the excess of our indefinite-lived deferred tax liabilities over our indefinite-lived deferred tax assets, and are recorded in other non-current liabilities on the accompanying consolidated balance sheets at June 30, 2024 and 2023. Realization of deferred tax assets is dependent upon the generation of future taxable income. As required by ASC 740, we have evaluated the positive and negative evidence bearing upon our ability to realize the deferred tax assets as of June 30, 2024 and 2023. We have determined that it was more likely than not that Lantronix would not realize the deferred tax assets due to our cumulative losses and uncertainty of generating future taxable income. The following table presents a reconciliation of the provision (benefit) for income taxes to taxes computed at the U.S. federal statutory rate:
Schedule of effective income tax reconciliation |  |  |  |  |  |  |  |
|  | Years Ended June 30, |
|  | 2024 |  |  | 2023 |
|  | (In thousands) |
Statutory federal provision (benefit) for income taxes |  | $ | (792 | ) |  | $ | (1,729 | )
Increase (decrease) resulting from: |  |  |  |  |  |  |  |
State taxes |  |  | 300 |  |  |  | 232 |
Stock options |  |  | 431 |  |  |  | (283 | )
Change in valuation allowance |  |  | 349 |  |  |  | 2,222 |
Change in state tax rate |  |  | 261 |  |  |  | – |
Global intangible low-tax income inclusion |  |  | – |  |  |  | 2 |
Foreign tax rate variances |  |  | 146 |  |  |  | 112 |
Other |  |  | 50 |  |  |  | 192 |
Provision for income taxes |  | $ | 745 |  |  | $ | 748 |
We continue to assert that our foreign earnings are indefinitely reinvested in our overseas operations and as such, deferred income taxes were not provided on undistributed earnings of certain foreign subsidiaries. The 2017 Act created a requirement that certain income earned by foreign subsidiaries, known as global intangible low-tax income (“GILTI”), must be included in the gross income of their U.S. shareholder. The FASB allows an accounting policy election of either recognizing deferred taxes for temporary differences expected to reverse as GILTI in future years or recognizing such taxes as a current-period expense when incurred. During the fiscal years ended June 30, 2024 and 2023, we elected to treat the tax effect of GILTI as a current-period expense when incurred. Unrecognized Tax Benefits The following table summarizes our liability for uncertain tax positions for the fiscal year ended June 30, 2024:
Schedule of uncertain tax position |  |  |  |
|  | Year Ended |
|  | June 30, 2024 |
|  | (In thousands) |
Balance as of June 30, 2023 |  | $ | 4,813 |
Change in balances related to uncertain tax positions |  |  | (524 | )
Balance as of June 30, 2024 |  | $ | 4,289 |
At June 30, 2024, we had $4,289,000 of gross unrecognized tax benefits which was recorded as a reduction to deferred tax assets, and a corresponding reduction in our valuation allowance of $4,289,000. The balance decreased from the prior year due to the expiration of certain federal research and development tax credit carryforwards. To the extent such portion of unrecognized tax benefits is recognized at a time such valuation allowance no longer exists, the recognition would reduce the effective tax rate. Our continuing practice is to recognize interest and penalties related to income tax matters in income tax expense. During the fiscal years ended June 30, 2024 and 2023, we recorded an immaterial expense for interest and penalties related to income tax matters in the provision for income taxes. At June 30, 2024, we had approximately $333,000 of accrued interest and penalties related to uncertain tax positions. At June 30, 2024, our fiscal years ended June 30, 2021 through 2024 remain open to examination by the federal taxing jurisdiction and our fiscal years ended June 30, 2020 through 2024 remain open to examination by the state taxing jurisdictions. However, we have NOLs beginning in the fiscal year ended June 30, 2005 which would cause the statute of limitations to remain open for the year in which the NOL was incurred. Our fiscal years ended June 30, 2016 through 2024 remain open to examination by foreign taxing authorities. We currently do not anticipate that the amount of unrecognized tax benefits as of June 30, 2024 will significantly increase or decrease within the next 12 months.

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