Income Taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

I. Income Taxes

The Company periodically undertakes a review of its valuation allowance and evaluates all positive and negative factors that may affect whether it is more likely than not that the Company would realize its future tax benefits from its deferred tax balances. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become realizable.

During 2021, the Company released its valuation allowance over a portion of its deferred tax assets as the deferred tax assets became more likely than not to be realized.

Income tax (benefit) provision for the years ended December 31, 2022 and 2021 is as follows:

	2022			2021
	(in thousands)
Current:
Federal	$	(147	)	$	588
State and local		209			69
Total Current		62			657
Deferred:
Federal		(1,411	)		2,893
State and local		(180	)		301
Total before change in valuation allowance		(1,591	)		3,194
Change in valuation allowance		—			(379	)
Net deferred		(1,591	)		2,815
Income tax (benefit) provision	$	(1,529	)	$	3,472

A reconciliation of the (benefit) provision for income taxes and the amount computed by applying the statutory federal income tax rate to income before income taxes is detailed below:

	2022			2021
	(in thousands)
Tax (benefit) provision at expected statutory rate	$	(1,344	)	$	3,365
State taxes, net of federal benefit		(114	)		371
Permanent differences		43			(278	)
Tax credits		—			(116	)
Change in rate		(17	)		—
Change in valuation allowance		—			(379	)
Change in uncertain tax positions		29			458
Other		(126	)		51
Income tax (benefit ) provision	$	(1,529	)	$	3,472
Effective tax rate		23.9	%		21.7	%

Deferred income taxes for 2022 and 2021 were provided for the temporary differences between the financial reporting basis and the income tax basis of the Company's assets and liabilities. Tax effects of temporary differences and carryforwards at December 31, 2022 and 2021 were as follows:

	December 31, 2022				December 31, 2021
	Deferred Tax				Deferred Tax
	Asset		Liability		Asset			Liability
	(in thousands)
Inventory reserve	$	12	$	—	$	11		$	—
Allowance for doubtful accounts		20		—		19			—
Lease liability		31		—		48			—
Other reserves and accruals		17		—		72			—
Unrealized gains on marketable securities		166		—		—			1,024
Stock-based compensation		8		—		41			—
Right-of-Use Asset		—		31		—			48
Depreciation and amortization		11		—		9			—
Tax credit carryforwards		—		—		318			—
Federal tax loss carryforwards		—		—		23			—
Total deferred income taxes		265	$	31		541		$	1,072
Net deferred tax assets (liabilities)	$	234			$	(531	)

Significant judgment is required in determining our provision for income taxes. In the ordinary course of business, there are many transactions for which the ultimate tax outcome is uncertain. We review our tax contingencies on a regular basis and make appropriate accruals as necessary.

As of December 31, 2022, our unrecognized tax benefits totaled $637,000, and are included within other liabilities in our consolidated balance sheet. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

	2022		2021
	(in thousands)		(in thousands)
Balance at January 1	$	458	$	—
Additions for tax positions of prior years		142		29
Additions based on tax positions related to the current year		37		429
Balance at December 31	$	637	$	458

The Company will recognize any interest and penalties related to unrecognized tax positions in income tax expense. Net adjustments to accruals for interest and penalties associated with uncertain tax positions were immaterial as of December 31, 2022. The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate is $637,000. We do not expect a significant change to the amount of unrecognized tax benefits over the next 12 months. We believe that the taxes accrued in our consolidated balance sheet fairly represent the amount of income taxes to be settled or realized in the future.

The Company files income tax returns in the U.S. federal, various state, Hong Kong and India jurisdictions. The statute of limitations for assessment by the Internal Revenue Service ("IRS") and state tax authorities is open for tax returns for years ended December 31, 2019, 2020 and 2021; although carryforward attributes that were generated prior to tax year 2019, including NOL carryforwards and tax credits, may still be adjusted upon examination by the IRS or state tax authorities, if they either have been or will be used in a future period. The Company is generally subject to examinations by foreign tax authorities from 2017 to the present.