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Income Taxes
 12 Months Ended
Dec. 31, 2023
Income Tax Disclosure [Abstract]  
Income taxes Income taxes
For the years ended December 31, 2023, 2022, and 2021, income from continuing operations before taxes consisted of amounts related to U.S. operations and income associated with the Company’s foreign operations. The geographical breakdown of the Company’s income (loss) before provision for (benefit from) income taxes is as follows (in thousands):
202320222021
Domestic$(16,899)$(1,347)$(1,870)
International1,190 2,607 7,808 
(Loss) income before income taxes$(15,709)$1,260 $5,938 
Income tax expense attributable to income from continuing operations consists of (in thousands):
202320222021
Current provisions for income taxes:
Federal$4,142 $7,280 $3,666 
State798 1,339 440 
Foreign1,528 1,442 601 
Total current$6,468 $10,061 $4,707 
Deferred tax expense (benefit):
Federal$(8,777)$(9,164)$(2,529)
State(1,170)(1,910)(579)
Foreign(82)(211)1,312 
Total deferred tax expense (benefit)$(10,029)$(11,285)$(1,796)
Total provision for (benefit from) income taxes$(3,561)$(1,224)$2,911 
Tax rate reconciliation
The following table presents a reconciliation of the federal statutory rate to the Company’s effective tax rate:
202320222021
U.S. federal tax benefit at statutory rate21.0 %21.0 %21.0 %
State income taxes, net of federal benefit3.4 (60.0)(3.9)
Foreign income taxed at different rates(0.9)(37.9)(9.6)
Foreign-derived intangible income deduction9.1 (39.2)(3.9)
Research and development credits12.9 (146.4)(6.6)
Tax impact of foreign earnings and losses(1.4)89.4 7.8 
Subpart F(5.3)67.2 23.1 
Share-based compensation(12.2)7.1 21.7 
Other permanent adjustments(0.8)1.9 1.0 
Prior year true up due to tax rate change1.6 (47.1)(0.6)
Change in valuation allowance, net(6.5)60.6 1.1 
162M compensation(0.7)4.4 — 
Foreign tax credit2.1 (19.6)— 
Other0.4 1.5 (2.2)
Effective tax rate22.7 %(97.1)%48.9 %
Significant components of deferred taxes
The tax effects of temporary differences and carryforwards that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2023 and 2022 are presented below (in thousands):
20232022
Deferred tax assets
Net operating loss carryforwards$1,414 $755 
Foreign tax credit carryforward854 492 
Research and development credit carryforward1,647 904 
Stock based compensation3,171 1,578 
Legal settlement4,458 4,050 
Deferred revenue6,061 4,415 
Research and development capitalization10,135 4,948 
Inventory reserve1,760 881 
Accrued bonus1,292 1,236 
Lease liability2,631 3,388 
Other accruals2,544 3,108 
Gross deferred tax assets35,967 25,755 
Valuation allowance(2,268)(1,248)
Net deferred tax assets$33,699 $24,507 
Deferred tax liabilities
ROU assets$(2,392)$(3,053)
Depreciation and amortization(820)(995)
Net deferred tax liabilities$(3,212)$(4,048)
Net deferred tax assets (liabilities)$30,487 $20,459 
The Company assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to utilize the existing deferred tax assets. During 2020, the Company released the valuation allowance on its U.S. deferred tax assets. The Company believes its deferred tax assets are more likely than not to be realized except for one entity in China which is expected to incur tax losses due to research and development deductions available.
As of December 31, 2023, the Company maintained a valuation allowance with respect to one of its foreign subsidiary’s net operating loss that it believes is not more likely than not to be realized. The Company will continue to reassess the valuation allowance annually and if future evidence allows for a partial or full release of the valuation allowance, a tax benefit will be recorded accordingly.
As of December 31, 2023 and 2022, the Company does not have state net operating loss carryforwards. As of December 31, 2023 and 2022, the Company had state tax credit carryforwards of $3.1 million and $1.8 million, respectively, to offset future tax liability. The credit carryforwards are not subject to expiration. As of December 31, 2023 and 2022, the Company had foreign tax credit for Cytek (Shanghai) Bio Sciences Co., Ltd of $0.9 million and $0.5 million, respectively, which expires in 2027 if not utilized.
Internal Revenue Code Section 382 places a limitation on the amount of taxable income that can be offset by net operating loss carryforwards and tax credit carryforwards after a greater than 50% change in control in ownership. California has similar rules. The Company had performed a Section 382 analysis and determined that its capitalization have resulted in such a change in prior year and current year. Utilization of the net operating loss carryforwards and tax credit carryforwards had been subject to the annual limitations under IRC Section 382 and similar state provisions. The annual limitation may result in the expiration of the state net operating loss carryforwards before utilization.
Uncertain Tax Positions
The following is a tabular reconciliation of the total amounts of unrecognized tax benefits (in thousands):
202320222021
Unrecognized tax benefits as of the beginning of the year$2,235 $1,321 $737 
Increases related to prior year tax provisions217 298 65 
Increase related to current year tax provisions1,183 616 519 
Unrecognized tax benefits as of the end of the year$3,635 $2,235 $1,321 
The Company accounts for uncertain tax positions under ASC 740. As of December 31, 2023, 2022 and 2021, there was approximately $3.6 million, $2.2 million and $1.3 million of unrecognized tax benefits, respectively. Of the unrecognized tax benefits, $3.4 million, $2.0 million and $1.1 million represents the amount that if recognized, would favorably affect the effective income tax rate in 2023, 2022 and 2021, respectively. The Company does not expect a significant change to its unrecognized tax benefits or recorded liabilities over the next twelve months. The unrecognized tax benefits may increase or change during the next year for items that arise in the ordinary course of business.
The Company files income tax returns in U.S. federal jurisdiction, various state jurisdictions and foreign jurisdictions. The U.S., state and foreign jurisdictions have statutes of limitations that generally range from three to five years. The Company’s federal, state and foreign income tax returns are subject to examination unless the statutes of limitations close. The Company is not currently under examination for federal, state or foreign income tax purposes.
As of December 31, 2023, the Company’s management is asserting that it is their intent to indefinitely reinvest unremitted foreign earnings for all its foreign entities.