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Income taxes | 12 Months Ended
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Dec. 31, 2022
Income taxes [Abstract] |
Income taxes | 10. Income taxes The components of the income tax benefit are as follows:
|  | December 31, |
(In thousands) |  | 2022 |  |  | 2021 |
Current: |  |  |  |  |  |
Federal |  | $ | 149 |  |  | $ | 26 |
State |  |  | 110 |  |  |  | 51 |
Foreign |  |  | (83 | ) |  |  | 2 |
|  |  | 176 |  |  |  | 79 |
Deferred: |  |  |  |  |  |  |  |
Federal |  |  | (1,924 | ) |  |  | (2,057 | )
State |  |  | (217 | ) |  |  | (62 | )
Foreign |  |  | – |  |  |  | (2 | )
|  |  | (2,141 | ) |  |  | (2,121 | )
Income tax benefit |  | $ | (1,965 | ) |  | $ | (2,042 | )
Our effective tax rates were (24.9%) and (33.6%) for 2022 and 2021, respectively. The tax benefit recorded for 2022 includes the recognition of stock option cancellations for which no benefit was realized and the benefit recorded for 2021 included the recognition of the gain on the forgiveness of the PPP Loan which was not taxable. At December 31, 2022, we have $10.9 million of federal net operating loss carryforwards (with an unlimited carryforward), $0.2 million of tax-effected state net operating loss carryforwards (which have varying lives), $1.2 million in R&D credit carryforwards (which generally have a twenty year life), and no state tax credit carryforwards. Foreign income (loss) before taxes was $24 thousand and ($404) thousand in 2022 and 2021, respectively. Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the Consolidated Financial Statements. Our deferred tax assets and liabilities were comprised of the following:
|  | December 31, |
(In thousands) |  | 2022 |  |  | 2021 |
Deferred tax assets: |  |  |  |  |  |
Federal net operating losses |  | $ | 2,297 |  |  | $ | 1,978 |
Foreign net operating losses |  |  | 676 |  |  |  | 624 |
State net operating losses |  |  | 149 |  |  |  | – |
Depreciation |  |  | – |  |  |  | 306 |
Capitalized R&D expenses |  |  | 1,708 |  |  |  | – |
Inventory reserves |  |  | 648 |  |  |  | 710 |
Deferred revenue |  |  | 41 |  |  |  | 24 |
Warranty reserve |  |  | 17 |  |  |  | 22 |
Stock compensation expense |  |  | 769 |  |  |  | 796 |
Other accrued compensation |  |  | 222 |  |  |  | 308 |
R&D credit carryforward |  |  | 1,238 |  |  |  | 901 |
Other liabilities and reserves |  |  | 463 |  |  |  | 250 |
Gross deferred tax assets |  |  | 8,228 |  |  |  | 5,919 |
Valuation allowance |  |  | (656 | ) |  |  | (733 | )
Net deferred tax assets |  |  | 7,572 |  |  |  | 5,186 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Depreciation |  |  | 196 |  |  |  | – |
Other |  |  | 49 |  |  |  | 43 |
Net deferred tax liabilities |  |  | 245 |  |  |  | 43 |
Total net deferred tax assets |  | $ | 7,327 |  |  | $ | 5,143 |
As of December 31, 2022 and 2021, we had a $656 thousand and $733 thousand, respectively, of valuation allowances on our net operating loss carryforwards. The following table summarizes the activity recorded in the valuation allowance on the deferred tax assets:
|  | Year Ended December 31, |
(In thousands) |  | 2022 |  |  | 2021 |
Balance, beginning of period |  | $ | 733 |  |  | $ | 659 |
Subtractions released to income tax provisions |  |  | (77 | ) |  |  | – |
Additions charged to income tax provision |  |  | – |  |  |  | 74 |
Balance, end of period |  | $ | 656 |  |  | $ | 733 |
Differences between the U.S. statutory federal income tax rate and our effective income tax rate are analyzed below:
|  | Year Ended December 31, |
|  | 2022 |  |  | 2021 |
Federal statutory rate |  |  | 21.0 | % |  |  | 21.0 | %
PPP loan forgiveness |  |  | – |  |  |  | 7.4 |
R&D credit |  |  | 4.3 |  |  |  | 7.1 |
Stock award excess tax benefit |  |  | – |  |  |  | 0.3 |
State income taxes, net of federal income taxes |  |  | 1.1 |  |  |  | 0.1 |
Business meals and entertainment |  |  | – |  |  |  | (0.2 | )
Miscellaneous permanent items |  |  | – |  |  |  | (0.3 | )
Uncertain tax positions |  |  | (0.5 | ) |  |  | (0.4 | )
Stock option cancellations |  |  | (1.9 | ) |  |  | (0.6 | )
Valuation allowance and tax accruals |  |  | 1.0 |  |  |  | (1.2 | )
Other |  |  | (0.1 | ) |  |  | 0.4 |
Effective tax rate |  |  | 24.9 | % |  |  | 33.6 | %
We had $142 thousand and $144 thousand of total gross unrecognized tax benefits at December 31, 2022 and 2021, respectively that, if recognized, would favorably affect the effective income tax rate in any future periods. We are not aware of any events that could occur within the next twelve months that could cause a significant change in the total amount of unrecognized tax benefits. A tabular reconciliation of the gross amounts of unrecognized tax benefits at the beginning and end of the year is as follows:
|  | December 31, |
(In thousands) |  | 2022 |  |  | 2021 |
Balance, beginning of period |  | $ | 144 |  |  | $ | 121 |
Tax positions taken during the current period |  |  | 26 |  |  |  | 47 |
Lapse of statute of limitations |  |  | (28 | ) |  |  | (24 | )
Balance, end of period |  | $ | 142 |  |  | $ | 144 |
We expect $28 thousand of the $142 thousand of unrecognized tax benefits will reverse in 2023 upon the expiration of the statute of limitations. We recognize interest and penalties related to uncertain tax positions in the income tax provision. We have accrued interest and penalties related to uncertain tax positions of $34 thousand and $20 thousand as of December 31, 2022 and 2021, respectively. We are subject to U.S. federal income tax as well as income tax of certain state and foreign jurisdictions. We have substantially concluded all U.S. federal income tax, state and local, and foreign tax matters through 2018. However, our federal tax returns for the years 2019 through 2022 remain open to examination. Various state and foreign tax jurisdiction tax years remain open to examination as well, though we believe that any additional assessment would be immaterial to the Consolidated Financial Statements.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 21 -URI https://asc.fasb.org/extlink&oid=121826272&loc=d3e32857-109319 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 11.C) -URI https://asc.fasb.org/extlink&oid=122134291&loc=d3e330215-122817 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 17 -Subparagraph (b) -URI https://asc.fasb.org/extlink&oid=121826272&loc=d3e32809-109319 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SAB TOPIC 6.I.5.Q1) -URI https://asc.fasb.org/extlink&oid=122134291&loc=d3e330036-122817 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 14 -URI https://asc.fasb.org/extlink&oid=121826272&loc=d3e32705-109319 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 270 -Section 50 -Paragraph 1 -URI https://asc.fasb.org/extlink&oid=6424409&loc=d3e44925-109338 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI https://asc.fasb.org/topic&trid=2144680 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 30 -Section 50 -Paragraph 2 -Subparagraph (a) -URI https://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331 Reference 9: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08(h)(2)) -URI https://asc.fasb.org/extlink&oid=120395691&loc=d3e23780-122690 + Details
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