Income Taxes

12 Months Ended

Dec. 31, 2024

Income Tax Disclosure [Abstract]

Income Taxes

Note 6.  Income Taxes

The following table summarizes the income tax (expense) benefit for the years ended December 31, 2024 and 2023 (in thousands):

	2024			2023
Current:
Federal	$	(171	)	$	40
State		(98	)		(61	)
Foreign		(2	)		(7	)
Current Total		(271	)		(28	)
Deferred:
Federal		(219	)		(258	)
State		2			(20	)
Foreign		75			48
Deferred Total		(142	)		(230	)
Total	$	(413	)	$	(258	)

The income tax (expense) benefit differs from the amount computed by applying the statutory federal and state income tax rates to the net income before income tax. The following table shows the reasons for these differences (in thousands):

	2024			2023
Computed income tax expense at statutory rate	$	(290	)	$	(187	)
Decrease (increase) in taxes resulting from:
Permanent and other deductions, net		(20	)		55
Forfeiture of stock options, net		(144	)		–
Foreign income taxes		75			(61	)
State income taxes, net of federal benefit		(65	)		(46	)
Deferred tax effects		31			(19	)
Total income tax (expense) benefit	$	(413	)	$	(258	)
Effective tax rate		40.2%			37.3%

The Company’s effective tax rate was 40.2% and 37.3% for the years ended December 31, 2024 and 2023.

Generally, the Company’s combined effective tax rate is high relative to reported income before taxes as a result of certain amortization expense and stock based compensation not being deductible and income being attributable to certain states in which it operates. In recent years, the majority of taxes paid by the Company were state and foreign taxes, not U.S. federal taxes. The Company operates in three states which have relatively high tax rates: California, New York, and Florida. Realization of net operating loss carryforwards, foreign tax credits, and other deferred tax temporary differences are contingent upon future taxable earnings. The Company’s deferred tax assets are reviewed for expected utilization by assessing the available positive and negative factors surrounding recoverability, including projected future taxable income, reversal of existing taxable temporary differences, tax-planning strategies, and results of recent operations. A valuation allowance is recorded when it is more likely than not that a deferred tax asset will not be realized. There was no valuation allowance at December 31, 2024.  The Company will continue to assess the evidence used to determine the need for a valuation allowance if warranted by changes in estimated future income and other factors.

The following table shows the tax effect of significant temporary differences, which comprise the deferred tax asset and liability (in thousands): 

	2024			2023
Deferred tax asset:
Net operating loss carryforward	$	142		$	84
Foreign tax credits		–			184
Accrued expenses		736			660
Allowance for doubtful accounts		110			124
Lease liability		821			1,026
Share-based compensation		–			141
Other intangible assets		–			1
Total deferred income tax asset		1,809			2,220
Deferred tax liability:
Property and equipment		(47	)		(83	)
Right of use asset		(737	)		(930	)
Intangible assets-trade name		(1,172	)		(1,197	)
Goodwill		(450	)		(455	)
Other intangible assets		(760	)		(770	)
Total deferred income tax liability		(3,166	)		(3,435	)
Deferred income tax, net	$	(1,357	)	$	(1,215	)

Net deferred tax assets and liabilities are presented as noncurrent within the Company’s consolidated balance sheets. Deferred income tax balances reflect the effects of temporary differences between the carrying amounts of assets and liabilities and their tax bases and are stated at enacted tax rates expected to be in effect when the taxes are actually paid or recovered. The Company recognizes a valuation allowance for deferred tax assets when it is more likely than not that these assets will not be realized. In making this determination, all positive and negative evidence is considered, including future reversals of existing taxable temporary differences, tax planning strategies, future taxable income, and taxable income in prior carryback years.

At December 31, 2023, the Company had $0.1 million U.S. federal net operating loss carryforwards and has $0.2 million of foreign tax credit carryforwards which expire between 2027 and 2031. At December 31, 2024, the Company had $0.1 million U.S. federal net operating loss carryforwards and had no foreign tax credit carryforwards.

The Company does not believe that it had any significant uncertain tax positions at December 31, 2024 and December 31, 2023, nor is this expected to change within the next twelve months due to the settlement and expiration of statutes of limitation.

The U.S. Tax Cuts and Jobs Act (the “Tax Act”) was enacted on December 22, 2017 and introduced significant changes to U.S. income tax law. Effective in 2018, the Tax Act reduced the U.S. statutory tax rate from 35% to 21% and created new taxes on certain foreign-sourced earnings and certain related-party payments, which are referred to as the global intangible low-taxed income tax and base erosion tax, respectively. In January 2018, the FASB released guidance on the accounting for tax on the global intangible low-taxed income (“GILTI”) provisions of the Tax Act. The GILTI provisions impose a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. The Company elected to treat any potential GILTI inclusions as a period cost.