Income taxes

12 Months Ended

Dec. 31, 2023

Income taxes [Abstract]

Income taxes

10. Income taxes

The components of the income tax expense (benefit) are as follows:

	December 31,
(In thousands)	2023			2022
Current:
Federal	$	(1	)	$	149
State		51			110
Foreign		85			(83	)
		135			176
Deferred:
Federal		825			(1,924	)
State		132			(217	)
Foreign		63			–
		1,020			(2,141	)
Income tax expense (benefit)	$	1,155		$	(1,965	)

Our effective tax rates were 19.6% and (24.9%) for 2023 and 2022, respectively.  The tax benefit recorded for 2022 includes the recognition of stock option cancellations for which no benefit was realized.

At December 31, 2023, we have no federal net operating loss carryforwards, $0.1 million of tax-effected state net operating loss carryforwards, $0.7 million in R&D credit carryforwards, and no state tax credit carryforwards.  Foreign income before taxes were $322 thousand and $24 thousand in 2023 and 2022, respectively.

Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the Consolidated Financial Statements.  Our deferred tax assets and liabilities were comprised of the following:

	December 31,
(In thousands)	2023			2022
Deferred tax assets:
Federal net operating losses	$	–		$	2,297
Foreign net operating losses		733			676
State net operating losses		84			149
Accrued severance		165			–
Capitalized R&D expenses		3,127			1,708
Inventory reserves		896			648
Deferred revenue		31			41
Warranty reserve		24			17
Stock compensation expense		790			769
Other accrued compensation		404			222
R&D credit carryforward		695			1,238
Other Assets		360			–
Other liabilities and reserves		–			463
Gross deferred tax assets		7,309			8,228
Valuation allowance		(719	)		(656	)
Net deferred tax assets		6,590			7,572
Deferred tax liabilities:
Depreciation and amortization		237			196
Other		49			49
Net deferred tax liabilities		286			245
Total net deferred tax assets	$	6,304		$	7,327

As of December 31, 2023 and 2022, we had a $719 thousand and $656 thousand, respectively, of valuation allowances on our net operating loss carryforwards. The following table summarizes the activity recorded in the valuation allowance on the deferred tax assets:

	Year Ended December 31,
(In thousands)	2023		2022
Balance, beginning of period	$	656	$	733
Subtractions released to income tax provisions		–		(77	)
Additions charged to income tax provision		63		–
Balance, end of period	$	719	$	656

Differences between the U.S. statutory federal income tax rate and our effective income tax rate are analyzed below:

	Year Ended December 31,
	2023			2022
Federal statutory rate		21.0	%		21.0	%
R&D credit		(5.9	)		4.3
Foreign-derived intangible income deduction		(1.7	)		–
Stock award excess tax benefit		0.4			–
State income taxes, net of federal income taxes		2.5			1.1
Business meals and entertainment		0.3			–
Executive compensation limitation		0.6			–
Uncertain tax positions		0.5			(0.5	)
Stock option cancellations		0.6			(1.9	)
Valuation allowance and tax accruals		1.0			1.0
Other		0.3			(0.1	)
Effective tax rate		19.6	%		24.9	%

We had $197 thousand and $142 thousand of total gross unrecognized tax benefits at December 31, 2023 and 2022, respectively that, if recognized, would favorably affect the effective income tax rate in any future periods.  We are not aware of any events that could occur within the next twelve months that could cause a significant change in the total amount of unrecognized tax benefits.  A tabular reconciliation of the gross amounts of unrecognized tax benefits at the beginning and end of the year is as follows:

	December 31,
(In thousands)	2023			2022
Balance, beginning of period	$	142		$	144
Tax positions taken during the current period		83			26
Lapse of statute of limitations		(28	)		(28	)
Balance, end of period	$	197		$	142

We expect $40 thousand of the $197 thousand of unrecognized tax benefits will reverse in 2024 upon the expiration of the statute of limitations.

We recognize interest and penalties related to uncertain tax positions in the income tax provision.  We have accrued interest and penalties related to uncertain tax positions of $25 thousand and $34 thousand as of December 31, 2023 and 2022, respectively.

We are subject to U.S. federal income tax as well as income tax of certain state and foreign jurisdictions.  We have substantially concluded all U.S. federal income tax, state and local, and foreign tax matters through 2019.  However, our federal tax returns for the years 2020 through 2023 remain open to examination. Various state and foreign tax jurisdiction tax years remain open to examination as well, though we believe that any additional assessment would be immaterial to the Consolidated Financial Statements.