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Income Taxes
6 Months Ended
Jul. 02, 2016
Income Tax Disclosure [Abstract]  
Income Taxes
Income Taxes
The provision for income taxes is determined using an estimated annual effective tax rate, which is generally less than the U.S. federal statutory rate, primarily due to research and development (“R&D”) tax credits and deductions available for domestic production activities. Our effective tax rate may be subject to fluctuations during the year as new information is obtained, which may affect the assumptions used to estimate the annual effective tax rate, including factors such as expected utilization of R&D tax credits, valuation allowances against deferred tax assets, the recognition or derecognition of tax benefits related to uncertain tax positions, and changes in or the interpretation of tax laws in jurisdictions where we conduct business. We recognize deferred tax assets and liabilities for temporary differences between the financial reporting basis and the tax basis of our assets and liabilities along with net operating loss and tax credit carryovers.
We record a valuation allowance against our deferred tax assets to reduce the net carrying value to an amount that we believe is more likely than not to be realized. When we establish or reduce our valuation allowance against our deferred tax assets, the provision for income taxes will increase or decrease, respectively, in the period when that determination is made.
We recorded income tax expense of $1.5 million (effective tax rate of 28%) for the three months ended July 2, 2016 compared to an income tax expense of $1.3 million (effective tax rate of 42%) for the three months ended July 4, 2015. The decrease in the effective tax rate for the three months ended July 2, 2016 compared to the three months ended July 4, 2015 was primarily due to the U.S. Federal research and development tax credit that was permanently extended in the fourth quarter of 2015 and the deduction for Qualified Domestic Production Activities.
We recorded income tax expense of $8.6 million (effective tax rate of 33%) for the six months ended July 2, 2016 compared to an income tax expense of $0.2 million (effective tax rate of 807%) for the six months ended July 4, 2015. The decrease in the effective tax rate for the six months ended July 2, 2016 compared to the six months ended July 4, 2015 was primarily due to minimal pre-tax earnings in the six months ended July 4, 2015 in addition to the U.S. Federal research and development tax credit that was permanently extended in the fourth quarter of 2015 and the deduction for Qualified Domestic Production Activities.
Our unrecognized tax benefits were $3.3 million and $3.0 million as of July 2, 2016 and December 31, 2015, respectively. $2.4 million, if recognized, would affect the annual income tax rate. We do not anticipate any significant increases or decreases to our unrecognized tax benefits in the next twelve months.