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Note 7 - Income Taxes
 12 Months Ended
Dec. 31, 2024
Notes to Financial Statements  
Income Tax Disclosure [Text Block]

NOTE 7 – INCOME TAXES

 

The components of income before income taxes for the years ended  December 31, 2024 and 2023 are as follows:

 

  

YEARS ENDED December 31,

 
  

2024

  

2023

 
         

Domestic

 $1,086,000  $666,000 

Foreign

  151,000   30,000 

Income before income taxes

 $1,237,000  $696,000 

 

For the year ended  December 31, 2024 and 2023, the Company recorded an income tax benefit of $295,000 and income tax expense of $431,000, respectively. 

 

The components of the provision for income taxes for the years ended  December 31, 2024 and 2023 consists of the following:

 

  

YEARS ENDED December 31,

 
  

2024

  

2023

 

Current:

        

Federal

 $(83,000) $940,000 

State

  (190,000)  115,000 

Foreign

  337,000   135,000 

Total current

  64,000   1,190,000 
         

Deferred:

        

Federal

  (380,000)  (672,000)

State

  30,000   (77,000)

Foreign

  (9,000)  (10,000)

Total deferred

  (359,000)  (759,000)
  $(295,000) $431,000 

 

Significant components of the Company’s deferred tax liabilities and assets as of December 31, 2024 and 2023 are as follows:

 

  

December 31,

 
  

2024

  

2023

 

Deferred tax liabilities:

        

Property and equipment

 $(644,000) $(323,000)

Prepaid expenses

  (444,000)  (409,000)

Investment in partnerships

  (956,000)  — 

Other

  (14,000)  — 

ROU asset

  —   (12,000)
         

Total deferred tax liabilities

  (2,058,000)  (744,000)
         

Deferred tax assets:

        

Net operating loss carryforwards

  651,000   155,000 

Accruals and allowances

  168,000   438,000 

Lease liabilities

  —   12,000 

Tax credits

  —   4,000 

Transaction costs

  231,000   — 

Other

  169,000   140,000 

Capital loss carryover

  —   646,000 
         

Total deferred tax assets

  1,219,000   1,395,000 
         

Valuation allowance

  (85,000)  (714,000)
         

Deferred tax assets net of valuation allowance

  1,134,000   681,000 
         

Net deferred tax liabilities

 $(924,000) $(63,000)

 

 

NOTE 7 – INCOME TAXES (CONTINUED)

 

The provision for income taxes differs from the amount computed by applying the U.S. federal statutory tax rate (21% in 2024 and 2023) to income before taxes as follows:

 

  

YEARS ENDED December 31,

 
  

2024

  

2023

 

Computed expected federal income tax

 $390,000  $218,000 

State income taxes, net of federal benefit

  (84,000)  12,000 

Foreign rate differential

  14,000   38,000 

Pass-through income

  (18,000)  — 

Bargain purchase gain

  (790,000)  — 

Stock compensation

  1,000   7,000 

Non-deductible expenses

  230,000   6,000 

Return to provision true-up

  3,000   18,000 

Uncertain tax positions

  (72,000)  9,000 

Capital loss expired

  645,000   — 

Change in valuation allowance

  (627,000)  17,000 

Other deferred tax adjustments

  13,000   106,000 
         
  $(295,000) $431,000 

 

Due to uncertainty surrounding the realization of impairment losses, capital losses and foreign operating losses in future years, the Company has placed a valuation allowance against a portion of its net domestic and foreign deferred tax assets. The net valuation allowance decreased by $627,000 and increased by $17,000 for the years ended December 31, 2024 and 2023, respectively.

 

The Company has federal net operating loss carryforwards of approximately $1,966,000 and $0 as of  December 31, 2024 and 2023, respectively. All federal net operating losses have an indefinite carryforward period. 

 

The Company has various state net operating loss carryforwards. The determination of the state net operating loss carryforwards is dependent upon apportionment percentages and state laws that can change from year to year and impact the amount of such carryforwards. If such net operating carryforwards are not utilized, they will begin to expire in 2029.

 

The tax return years 2019 through 2024 remain open to examination by the major domestic taxing jurisdictions to which the Company is subject. 

 

 

NOTE 7 – INCOME TAXES (CONTINUED)

 

The Company has adopted accounting standards which prescribe a recognition threshold and measurement attribute for the financial statement recognition and measurement of uncertain tax positions taken or expected to be taken in a company’s income tax return, and also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. Additionally, these accounting standards specify that tax positions for which the timing of the ultimate resolution is uncertain should be recognized as long-term liabilities. The Company has made no reclassifications between current taxes payable and long term taxes payable under this guidance.

 

As of December 31, 2024, the unrecognized tax benefit was $161,000 which, if recognized, will not affect the annual effective tax rate as these unrecognized tax benefits would increase deferred tax assets, which would be subject to a full valuation allowance. A reconciliation of the beginning and ending amount of unrecognized tax benefit is as follows:

 

  

YEARS ENDED December 31,

 
  

2024

  

2023

 

Balance at beginning of year

 $287,000  $278,000 

Additions based on tax positions of prior years

  13,000   9,000 

Additions based on tax positions of current year

  12,000   — 

Reductions in tax positions of prior years

  (18,000)  — 

Lapse of statues of limitations

  (75,000)  — 

Removal of penalties

  (58,000)  — 
         

Balance at end of year

 $161,000  $287,000 

 

The Company’s policy for deducting interest and penalties is to treat interest as interest expense and penalties as income taxes. As of December 31, 2024, the Company had $36,000 accrued for the payment of penalties and zero interest related to unrecognized tax benefits. The Company does not expect any material changes to our uncertain tax positions within the next 12 months. The Company does not expect any material changes to uncertain tax positions within the next twelve months.