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Income Taxes
 12 Months Ended
Dec. 31, 2024
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
Loss before provision for income taxes was generated from the following sources (in thousands):
Year Ended December 31,
20242023
Domestic$(48,791)$(24,364)
Foreign81 126 
Total loss before provision for income taxes$(48,710)$(24,238)
A summary of the income tax expense is as follows (in thousands):
Year Ended December 31,
20242023
Current:
Federal$— $— 
State(10)14 
Foreign37 154 
Total current27 168 
Deferred:
Federal(27)9 
State(13)(19)
Foreign— — 
Total deferred(40)(10)
Total income tax (benefit) expense
$(13)$158 
A reconciliation of the provision for income taxes to the amount of income tax expense that would result from applying the federal statutory rate to the loss before income taxes is as follows:
Year Ended December 31,
20242023
Federal statutory rate21.0 %21.0 %
State tax, net of federal benefit4.2 2.0 
Equity compensation(1.6)(2.3)
International tax items(0.5)(1.6)
Foreign taxes(0.1)(0.6)
Debt extinguishment loss
— (3.5)
State net operating loss true-up
2.2 (2.9)
Miscellaneous0.2 (1.2)
Change in valuation allowance
(26.1)(9.1)
Effect of change in rate (state)
0.7 (2.5)
— %(0.7)%
The major components of the Company’s deferred tax assets and liabilities are as follows (in thousands):
Year Ended December 31,
20242023
Deferred income tax assets
Net operating loss carry forwards$46,827 $41,561 
Intangibles10,356 4,643 
Research and development expenses8,057 6,953 
Credit carry forwards2,478 2,479 
Nondeductible accruals294 405 
163j limitation
89 87 
Fixed assets392 346 
Equity-based compensation111 404 
State taxes
1,525 1,515 
Total deferred income tax assets - net
70,129 58,393 
Deferred income tax liabilities
Prepaid expenses(85)(82)
ASC 842 Lease Accounting
(11)12 
Unrealized translation gain/loss(9)(6)
Total deferred income tax liabilities - net
(105)(76)
Valuation allowance(70,152)(58,485)
Net deferred income tax liabilities$(128)$(168)
The Company has federal net operating loss (“NOL”) carryforwards of approximately $207.3 million and state NOL carryforwards $180.9 million at December 31, 2024, and federal NOL carryforwards of $189.5 million and state NOL carryforwards of $136.2 million at December 31, 2023, to reduce future cash payments for income taxes. The federal NOL carryforwards generated prior to 2018 will expire from 2031 through 2037 and state NOL carryforwards will expire through 2041. Federal NOL carryforwards generated in 2018 and thereafter have no expiration date.
The Company has federal tax credit carryforwards of approximately $2.5 million at both December 31, 2024 and December 31, 2023. The Company has state tax credit carryforwards of $0.7 million at both December 31, 2024 and December 31, 2023 . These tax credits will begin to expire in 2028. To the extent that an ownership change has occurred under Internal Revenue Code Sections 382 and 383, the Company’s use of its loss carryforwards and
credit carryforwards to offset future taxable income may be limited. No ownership changes have occurred as of December 31, 2024.
At December 31, 2024 and 2023, the Company had unrecognized tax benefits, including interest and penalties, of approximately $0.4 million, with no changes in those balances.
The Company recognizes interest and penalties accrued related to unrecognized tax benefits in income tax expense, however during 2024 and 2023, the Company did not recognize any interest or penalties. There were no  cumulative interest or penalty amounts at December 31, 2024 and 2023. The Company does not anticipate any material changes to unrecognized tax benefits within the next twelve months that will affect the effective tax rate.
In assessing whether a valuation allowance is required, significant weight is given to evidence that can be objectively verified. Realization of deferred tax assets is dependent upon the generation of future taxable income. As required by ASC 740, Smith Micro has evaluated the positive and negative evidence bearing upon its ability to realize the deferred tax assets and determined that it was more likely than not that the Company would not realize the deferred tax assets due to the Company's cumulative losses and uncertain near-term market and economic conditions, which reduce the Company’s ability to rely on projections of future taxable income in assessing the realizability of its deferred tax assets.
After a review of the four sources of taxable income as of December 31, 2024 (as described in Note 1), and after consideration of the Company’s continuing cumulative loss position as of December 31, 2024, the Company recorded a valuation allowance related to its U.S.-based deferred tax assets of $70.2 million at December 31, 2024. The valuation allowance on deferred tax assets increased by $11.7 million and decreased by $4.2 million in 2024 and 2023, respectively.
The Company is subject to U.S. federal income tax as well as to income tax of multiple state jurisdictions. Currently there are no audits in process or pending from Federal or state tax authorities. The outcome of any tax audits cannot be predicted with certainty. If any issues addressed in the Company’s tax audits are resolved in a manner not consistent with management’s expectations, the Company could be required to adjust its provision for income tax in the period such resolution occurs. As of December 31, 2024, a current estimate of the range of changes that may occur within the next twelve months cannot be made due to the uncertainty regarding the timing of these events.
For financial reporting purposes, income before provision for income taxes for the Company’s foreign subsidiaries was approximately $0.1 million for both years ended December 31, 2024 and 2023. Smith Micro does not provide for U.S. taxes on its unremitted earnings of foreign subsidiaries that have not been previously taxed since the Company intends to invest such undistributed earnings indefinitely outside of the U.S.
The 2017 US Tax Cuts and Jobs Act subjects a U.S. shareholder to current tax on global intangible low-taxed income (“GILTI”) earned by certain foreign subsidiaries. The Company's accounting policy is to recognize the tax on GILTI as a period expense in the period the tax is incurred. The current income related to the GILTI inclusion in 2024 is $1.1 million.