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Income Taxes | 12 Months Ended
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Dec. 31, 2022
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes The components of income (loss) before income tax expense are as follows (in thousands):
| Year Ended December 31,
| 2022 |  | 2021
U.S. | $ | 9,636 |  |  | $ | 3,723 |
Foreign | 322 |  |  | (1,030) |
| $ | 9,958 |  |  | $ | 2,693 |
Income tax expense consists of current and deferred components categorized by federal, state and foreign jurisdictions, as shown below. The current provision is generally that portion of income tax expense that is currently payable to the taxing authorities. The Company makes estimated payments of these amounts during the year. The deferred tax provision results from changes in the Company’s deferred tax assets (future deductible amounts) and tax liabilities (future taxable amounts), which are presented in the table below:
| Current |  | Deferred |  | Total
| (In thousands)
Year Ended December 31, 2022 |  |  |  |  |
Federal | $ | 1,772 |  |  | $ | 528 |  |  | $ | 2,300 |
State | 376 |  |  | 221 |  |  | 597 |
Foreign | 348 |  |  | 25 |  |  | 373 |
| $ | 2,496 |  |  | $ | 774 |  |  | $ | 3,270 |
Year Ended December 31, 2021 |  |  |  |  |
Federal | $ | 593 |  |  | $ | 493 |  |  | $ | 1,086 |
State | 197 |  |  | 219 |  |  | 416 |
Foreign | 183 |  |  | 93 |  |  | 276 |
| $ | 973 |  |  | $ | 805 |  |  | $ | 1,778 |
Income tax expense differed from the amounts computed by applying the U.S. federal statutory tax rate applicable to the Company’s level of pretax income as a result of the following (in thousands):
| Year Ended December 31,
| 2022 |  | 2021
Federal tax at statutory rates | $ | 2,091 |  |  | $ | 566 |
State taxes, net of federal income tax benefit | 471 |  |  | 297 |
Change of valuation allowance | (34) |  |  | 7 |
Uncertain tax positions | 107 |  |  | 458 |
Foreign income taxed at different rates | (38) |  |  | 66 |
Foreign tax credit | — |  |  | (270) |
PPP loan forgiveness | — |  |  | (768) |
Stock-based compensation expenses | 469 |  |  | 1,417 |
Other | 204 |  |  | 5 |
Total income tax expense | $ | 3,270 |  |  | $ | 1,778 |
The tax effects of temporary differences that give rise to significant portions of the Company’s deferred tax assets and liabilities are as follows (in thousands):
| December 31,
| 2022 |  | 2021
Deferred tax assets: |  |  |
Net operating loss and credit carryforward | $ | 4,935 |  |  | $ | 9,175 |
Operating lease liabilities | 2,417 |  |  | 2,797 |
State income taxes | 74 |  |  | — |
Accruals and allowances | 627 |  |  | 1,461 |
Stock-based compensation | 256 |  |  | 545 |
Unrealized foreign exchange losses | 329 |  |  | 273 |
Deferred revenue | 191 |  |  | 70 |
Capital loss carryforward | 410 |  |  | 410 |
Total deferred tax assets | 9,239 |  |  | 14,731 |
Valuation allowance | (4,455) |  |  | (8,717) |
Total deferred tax assets net of valuation allowance | 4,784 |  |  | 6,014 |
Deferred tax liabilities: |  |  |
Operating lease right-of-use assets | (1,416) |  |  | (1,600) |
Property, equipment and intangible assets | (146) |  |  | (465) |
Total deferred tax liabilities | (1,562) |  |  | (2,065) |
Net deferred tax assets | $ | 3,222 |  |  | $ | 3,949 |
Changes in the deferred tax assets valuation allowance for the years ended December 31, 2021 and 2022 are as follows (in thousands):
| Balance at the beginning of the year |  | Charged (Credited) to expenses |  | Charged (Credited) to other account (*) |  | Balance at end of year
Deferred tax assets valuation allowance |  |  |  |  |  |  |
2021 | $ | 10,145 |  |  | — |  |  | (1,428) |  |  | $ | 8,717 |
2022 | $ | 8,717 |  |  | — |  |  | (4,262) |  |  | $ | 4,455 |
(*) Amounts not charged (credited) to expenses are charged (credited) to stockholder's equity or deferred tax assets (liabilities). As of December 31, 2022, the Company has a valuation allowance of approximately $4.5 million related to foreign net operating loss (“NOL”) carryforwards of approximately $21.3 million primarily related to the Company's Asia Pacific entities for which it is more likely than not that the tax benefit will not be realized. The amount of the valuation allowance represented a decrease of approximately $4.3 million over the amount recorded as of December 31, 2021, and was due to the decrease of deferred tax assets and related release of the valuation allowance for the Travelzoo Australia, Travelzoo (Hong Kong) Limited and Travelzoo Local (Hong Kong), which liquidation were completed during the year ended December 31, 2022. If not utilized, $10.9 million of the remaining foreign NOL may be carried forward indefinitely, and $10.4 million will exp ire at various times between 2023 and 2027. As of December 31, 2022, the Company has US federal NOL carryforwards of $64.7 million as a result of the transaction with MTE, See Note 3 to the accompanying consolidated financial statements for further information. If not utilized, $7.4 million may be carried forward indefinitely, and $57.3 million will expire at various times between 2028 and 2037. As of December 31, 2022, the Company has state and local NOL carryforwards of $34.5 million, which will expire at various times between 2035 and 2042. The Company has not recorded these net operating losses because an uncertain tax position has been recorded relating to them. As of December 31, 2022, the Company is permanently reinvested in certain Non-U.S. subsidiaries and does not have a deferred tax liability related to its undistributed foreign earnings. The estimated amount of the unrecognized deferred tax liability attributed to future withholding taxes on dividend distributions of undistributed earnings for certain non-U.S. subsidiaries, which the Company intends to reinvest the related earnings indefinitely in its operations outside the U.S., is approximately $688,000 at December 31, 2022. The total amount of gross unrecognized tax benefits w as $16.9 million as of December 31, 2022, of which up to $6.9 million would affect the Company’s effective tax rate if realized. A reconciliation of the beginning and ending amount of gross unrecognized tax benefits in 2021 and 2022 is as follows (in thousands):
Gross unrecognized tax benefits balance at January 1, 2021 | $ | 774 |
Increase related to current year tax positions | 270 |
Settlements | — |
Gross unrecognized tax benefits balance at December 31, 2021 | 1,044 |
Increase related to current year tax positions | 15,833 |
Settlements | — |
Gross unrecognized tax benefits balance at December 31, 2022 | $ | 16,877 |
The Company’s policy is to include interest and penalties related to unrecognized tax positions in income tax expense. To the extent accrued interest and penalties do not ultimately become payable, amounts accrued will be reduced and reflected as a reduction in the overall income tax provision in the period that such determination is made. At December 31, 2022, the Company had approximately $704,000 in accrued in terest and penalties. The Company files income tax returns in the U.S. federal jurisdiction and various states and foreign jurisdictions. The Company is subject to U.S. federal and certain state tax examinations for certain years after 2018 and is subject to California tax examinations for years after 2017. Although the timing of initiation, resolution and/or closure of audits is highly uncertain, it is reasonably possible that the balance of the gross unrecognized tax benefits related to the method of computing income taxes in certain jurisdictions and losses reported on certain income tax returns could significantly change in the next 12 months. These changes may occur through settlement with the taxing authorities or the expiration of the statute of limitations on the returns filed. The Company is unable to estimate the range of possible adjustments to the balance of the gross unrecognized tax benefits.

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