Income Taxes

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

Note 8 – Income Taxes

Income before income taxes consists of the following (in thousands):

	Years Ended December 31,
	2023			2022		2021
Domestic	$	(4,058	)	$	16,552	$	22,424
Foreign		10,343			14,172		10,767
Total	$	6,285		$	30,724	$	33,191

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

	Years Ended December 31,
	2023			2022			2021
Current:
Federal	$	3,867		$	9,349		$	4,203
State		1,922			3,819			2,272
Foreign		2,907			2,402			2,147
Total current		8,696			15,570			8,622
Deferred:
Federal		(3,872	)		(5,513	)		334
State		(1,597	)		(1,788	)		(663	)
Foreign		8			649			54
Total deferred		(5,461	)		(6,652	)		(275	)
Income tax expense	$	3,235		$	8,918		$	8,347

A reconciliation of the federal statutory rate to Forrester’s effective tax rate is as follows:

	Years Ended December 31,
	2023			2022			2021
Income tax provision at federal statutory rate		21.0	%		21.0	%		21.0	%
Increase (decrease) in tax resulting from:
State tax provision, net of federal benefit		8.1			5.2			3.8
Foreign tax rate differential		2.7			(0.5	)		(0.4	)
Stock compensation		17.5			0.9			(0.4	)
Withholding taxes		6.2			1.7			1.3
Non-deductible expenses		8.1			1.5			—
Permanent differences		(1.7	)		(0.3	)		(0.3	)
Change in valuation allowance		0.5			1.0			—
Foreign subsidiary income subject to U.S. tax		1.2			1.3			0.2
Foreign-derived intangible income benefit		(3.8	)		(0.7	)		(0.7	)
Change in tax legislation		(8.1	)		(1.6	)		(0.3	)
Foreign exchange gain on previously taxed earnings and profits		1.6			—			—
Other, net		(1.8	)		(0.5	)		0.9
Effective tax rate		51.5	%		29.0	%		25.1	%

The increase in the effective tax rate during 2023 as compared to 2022 was primarily due to 1) the impact from the decline in income before taxes to $6.3 million in 2023 from $30.7 million in 2022 and 2) increased non-deductible stock compensation due primarily to the effect from the settlement of share-based awards in 2023.

The components of deferred income taxes are as follows (in thousands):

	As of December 31,
	2023			2022
Non-deductible reserves and accruals	$	3,077		$	2,736
Net operating loss and other carryforwards		6,262			6,215
Stock compensation		2,676			2,051
Depreciation and amortization		435			—
Lease liability		12,276			17,715
Gross deferred tax asset		24,726			28,717
Less - valuation allowance		(1,065	)		(989	)
Sub-total		23,661			27,728
Other liabilities		(733	)		(807	)
Depreciation and amortization		—			(1,023	)
Goodwill and intangible assets		(15,181	)		(18,648	)
Operating lease right-of-use assets		(9,163	)		(13,705	)
Deferred commissions		(6,545	)		(6,913	)
Net deferred tax liability	$	(7,961	)	$	(13,368	)

As of December 31, 2023 and 2022, long-term net deferred tax assets were $0.7 million and $0.8 million, respectively, and are included in other assets in the Consolidated Balance Sheets. Long-term net deferred tax liabilities were $8.7 million and $14.1 million at December 31, 2023 and 2022, respectively, and are included in non-current liabilities in the Consolidated Balance Sheets.

As of December 31, 2023, the Company has fully utilized its U.S. federal net operating loss carryforwards.

The Company has foreign net operating loss carryforwards of approximately $18.1 million, which can be carried forward indefinitely. Approximately $3.2 million of the foreign net operating loss carryforwards relate to a prior acquisition, the utilization of which is subject to limitation under the tax law of the United Kingdom.

As of December 31, 2023, the Company has no U.S. federal and state capital loss carryforwards.

The Company considers all available evidence, both positive and negative, to determine whether, based on the weight of that evidence, a valuation allowance is needed for some portion or all of a net deferred income tax asset. Judgment is required in considering the relative impact of negative and positive evidence. In arriving at these judgments, the weight given to the potential effect of negative and positive evidence is commensurate with the extent to which it can be objectively verified. Although realization is not assured, based upon the Company’s historical taxable income and projections of the Company’s future taxable income over the periods during which the deferred tax assets are deductible and the carryforwards expire, management believes it is more likely than

not that the Company will realize the benefits of these deductible differences, net of the existing valuation allowances, as discussed below.

As of December 31, 2023 and 2022, the Company maintained a valuation allowance of approximately $1.1 million and $1.0 million, respectively, primarily relating to foreign net operating loss carryforwards from an acquisition, and as of December 31, 2021, also from U.S. capital losses from the Company’s investment in technology-related private equity funds.

The following table provides a summary of the changes in the deferred tax valuation allowance for the years ended December 31, 2023, 2022, and 2021 (in thousands):

	2023			2022			2021
Deferred tax valuation allowance at January 1	$	989		$	1,114		$	1,237
Additions		39			106			—
Deductions		—			(336	)		(108	)
Change in tax legislation		(4	)		186			—
Translation adjustments		41			(81	)		(15	)
Deferred tax valuation allowance at December 31	$	1,065		$	989		$	1,114

The Company will generally be free of additional U.S. federal tax consequences on additional unremitted foreign earnings that have been subject to U.S. tax primarily through GILTI or would be eligible for a dividends received deduction for earnings distributed after January 1, 2018. Notwithstanding the U.S. taxation of these amounts, the Company intends to continue to invest all of its unremitted earnings of $30.1 million, as well as the capital in these subsidiaries, indefinitely outside of the U.S. unless there are opportunities in the future to repatriate in a tax efficient manner. The Company does not expect to incur any material, additional taxes related to such amounts.

The Company utilizes a two-step process for the measurement of uncertain tax positions that have been taken or are expected to be taken on a tax return. The first step is a determination of whether the tax position should be recognized in the financial statements. The second step determines the measurement of the tax position. A reconciliation of the beginning and ending amount of unrecognized tax benefits is summarized as follows for the years ended December 31, 2023, 2022, and 2021 (in thousands):

	2023		2022			2021
Unrecognized tax benefits at January 1	$	—	$	5		$	28
Reductions for tax positions of prior years		—		(4	)		(24	)
Translation adjustments		—		(1	)		1
Unrecognized tax benefits at December 31	$	—	$	—		$	5

As of December 31, 2023, the Company had no unrecognized tax benefits. The Company does not expect the liability for unrecognized tax benefits to change materially within the next 12 months.

The Company recognizes interest and penalties related to uncertain tax positions in income tax expense and such amounts were not significant in the years ended December 31, 2023, 2022, and 2021. Accrued interest and penalties were insignificant at December 31, 2023, 2022, and 2021.

The Company files income tax returns in the U.S. and in foreign jurisdictions. Generally, the Company is no longer subject to U.S., state, local, and foreign income tax examinations by tax authorities in its major jurisdictions for years before 2016, except to the extent of net operating loss and tax credit carryforwards from those years. Major taxing jurisdictions include the U.S., the Netherlands, the United Kingdom, Germany, and Switzerland. As of December 31, 2023, the Company has no jurisdictions under audit.