Income Taxes

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

Note 10 – Income Taxes

Loss before income taxes are as follows:

	2023			2022
Domestic	$	(4,073	)		(596	)
Foreign		(121	)		376
Total	$	(4,194	)	$	(220	)

The expense/(benefit) for income taxes for the years ended December 31 includes the following (in thousands):

	2023			2022
Current:
Federal	$	(16	)	$	1
State		2			3
Total current tax provision		(14	)		4
Deferred:
Federal		-			-
State		-			-
Total deferred tax provision		-			-
Income tax (benefit) expense	$	(14	)	$	4

The reconciliation of the federal statutory income tax rate to our effective tax rate for the years ended December 31 is as follows (in thousands):

	2023			2022
Expected provision at federal statutory tax rate at 21%	$	(881	)	$	(46	)
Increase (decrease) in valuation allowance		688			(33	)
State and local taxes		21			84
Foreign tax rate differential		(1	)		4
US taxation of foreign operations		-			80
Federal research and development credits		(75	)		(55	)
Change in tax rates		-			10
Non-deductible expenses		37			62
Disposition of Tantaline		193			-
Other		4			(102	)
Income tax (benefit) expense	$	(14	)	$	4

CVD EQUIPMENT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2023 and 2022

Note 10 – Income Taxes (continued)

The tax effects of temporary differences giving rise to significant portions of the net deferred taxes as of December 31 are as follows (in thousands):

	2023			2022
Deferred income tax assets:
Net operating loss carryforwards	$	849		$	482
R&D tax credit carryforwards		1,863			1,723
Compensation costs		113			10
Vacation accrual		153			174
Intangible assets		38			27
Capitalized research and development		759			356
Other items		303			263
Deferred income tax assets		4,078			3,035
Less: valuation allowance		(3,646	)		(2,957	)
Deferred income tax assets, net of valuation allowance		432			78
Deferred incomes tax liability:
Property, plant and equipment		(365	)		(11	)
Prepaid expenses		(67	)		(67	)
Deferred income tax asset, net	$	-		$	-

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that the deferred tax assets will be realized. The ultimate realization of deferred tax assets is based on the assessment of available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit the utilization of existing deferred tax assets. The Company considered all positive and negative evidence when determining the amount of the net deferred tax assets that are more likely than not to be realized. This evidence includes, but is not limited to, historical earnings, scheduled reversal of taxable temporary differences, tax planning strategies and projected future taxable income A significant piece of objective negative evidence evaluated was the cumulative loss incurred over the prior three-year period ended December 31, 2023. Such objective evidence limits the ability to consider subjective evidence such as our projections for future growth. Based on this assessment, we maintained a full valuation allowance against our net deferred tax assets as of December 31, 2023, and 2022. If these estimates and assumptions change in the future, we may be required to reduce our existing valuation allowance resulting in less income tax expense.

For the year ended December 31, 2023, the valuation allowance increased by approximately $0.7 million from the prior year primarily from current year operating losses for which no tax benefit was provided.

CVD EQUIPMENT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2023 and 2022

Note 10 – Income Taxes (continued)

At December 31, 2023, the Company had $4.0 million of U.S. federal net operating loss carryforwards. These net operating losses have an indefinite carryforward period but are only available to offset 80% of future taxable income. The Company also has $1.9 million of federal research and development tax credits which expire in varying amounts in tax years 2028 through 2042.

The Company applies the applicable authoritative guidance which prescribes a comprehensive model for the manner in which a company should recognize, measure, present and disclose in its financial statements all material uncertain tax positions that the Company has taken or expects to take on a tax return. As of December 31, 2023 and 2022, the Company had no uncertain tax positions. The Company does not expect that its unrecognized tax benefits will significantly increase or decrease within twelve months.

The Company files federal income tax returns and income tax returns in various state and local tax jurisdictions and in Denmark. The federal tax years open to examination are 2020 to 2023. The Company’s state and local tax years that are open to tax examination are generally 2019 to 2023.

The Inflation Reduction Act (“IRA”) and Chips and Science Act (“CHIPS Act”) were both enacted in August 2022. The IRA introduced new provisions including a 15% corporate alternative minimum tax for certain large corporations that have at least an average of $1 billion adjusted financial statement income over a consecutive three-tax-year period and a 1% excise tax surcharge on stock repurchases. The CHIPS Act provides a variety of incentives associated with investments in domestic semiconductor manufacturing and related activities. Both the IRA and CHIPS Act are applicable for tax years beginning after December 31, 2022 and had no impact to the Company’s consolidated financial statements for the years ended December 31, 2023 and 2022.