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Income taxes
 12 Months Ended
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.