Atlanticus Holdings Corp Income Taxes Disclosure

13.	Income Taxes

 

Deferred tax assets and liabilities reflect the tax effects of temporary differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases and are measured using enacted tax rates that apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

 

The current and deferred portions (in thousands) of our federal, foreign, and state and local income tax expenses or benefits are as follows:

 

		For the Year Ended December 31,
		2025				2024
Federal income tax (expense):
Current tax benefit		$	204			$	1,916
Deferred tax (expense)			(32,138	)			(24,946	)
Total federal income tax (expense)		$	(31,934	)		$	(23,030	)
Foreign income tax (expense):
Current tax (expense)		$	(119	)		$	(142	)
Deferred tax (expense)			(4	)			(1	)
Total foreign income tax (expense)		$	(123	)		$	(143	)
State income tax (expense):
Current tax (expense) benefit		$	(535	)		$	248
Deferred tax (expense)			(6,512	)			(5,546	)
Total state income tax (expense)		$	(7,047	)		$	(5,298	)
Total income tax (expense)		$	(39,104	)		$	(28,471	)

 

We experienced effective income tax rates of 24.2% and 20.4% for the years ended December 31, 2025, and December 31, 2024, respectively. Our effective income tax rate for the year ended December 31, 2025, is above the statutory rate principally due to our expenses for (1) state income taxes, including the effects of law changes enacted in the year ended December 31, 2025, in certain states in which we operate and (2) taxes on global intangible low-taxed income. Offsetting the foregoing items were the tax effects of deductions associated with (1) exercises of stock options and vestings of restricted stock at the times when the fair value of our stock exceeded such share-based awards’ grant date values and (2) amounts characterized in our condensed consolidated financial statements as dividends on preferred stock (which was outstanding until its redemption in the first quarter of 2025), such amounts which constituted deductible interest expense on debt for tax purposes. Our effective income tax rate for the year ended December 31, 2024, is below the statutory rate principally due to the tax effects of deductions associated with (1) amounts characterized in our consolidated financial statements as dividends on a preferred stock issuance, such amounts constituted which deductible interest expense on debt for tax purposes and (2) a loss related to our unrecovered investment in a foreign subsidiary which ceased operations during the year and with respect to which we had used “permanently reinvested earnings” accounting in our consolidated financial statements.

 

We report income tax-related interest and penalties (including those associated with both our accrued liabilities for uncertain tax positions and unpaid tax liabilities) within our income tax line item on our consolidated statements of income. We likewise report the reversal of income tax-related interest and penalties within such line item to the extent we resolve our liabilities for uncertain tax positions or unpaid tax liabilities in a manner favorable to our accruals therefor. We recognized $0.2 million and $0.6 million in potential interest associated with uncertain tax positions during the years ended December 31, 2025, and December 31, 2024, respectively.

 

We adopted ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, for the year ended December 31, 2025, and elected to apply the standard retrospectively to all periods presented.

 

Reconciliations of the statutory U.S. federal income tax rate to our effective income tax rates for the years ended December 31, 2025, and December 31,2024, is presented accordingly as follows (dollar amounts in thousands):

 

		For the Year Ended December 31,
		2025								2024
Statutory federal rate		$	33,875				21.0	%		$	29,351				21.0	%
(Decrease) increase in statutory federal tax expense rate resulting from:
State and local income taxes, net of federal income tax effects (1)			5,635				3.5				4,223				3.0
Foreign tax effects			(262	)			(0.2	)			(287	)			(0.2	)
Effects of cross-border tax laws			385				0.2				430				0.3
Tax credits			(235	)			(0.1	)			(598	)			(0.4	)
Nontaxable or nondeductible items
Interest expense on preferred stock classified as debt for tax purposes			(294	)			(0.2	)			(3,151	)			(2.3	)
Loss on foreign subsidiary liquidation			—				—				(2,086	)			(1.5	)
Other			229				0.1				492				0.4
Changes in unrecognized tax benefits			(229	)			(0.1	)			97				0.1
Effective income tax expense rate		$	39,104				24.2	%		$	28,471				20.4	%

 

(1) State taxes in California, Georgia, Texas, and New Jersey comprised the majority of the tax effect in this category for the year ended December 31, 2025, and state taxes in California, Massachusetts, New York, and Colorado comprised the majority of the tax effect in this category for the year ended December 31, 2024.

 

 

		For the Year Ended December 31,
Income Taxes Paid, Net of Refunds, by Jurisdiction:		2025				2024
Federal		$	700			$	—
State and Local			190				122
Foreign			144				107
Total		$	1,034			$	229
Income taxes paid (net of refunds) exceed 5 percent of total income taxes paid (net of refunds) in the following jurisdictions:
Foreign
Saipan		$	110			$	62
Guam			*			$	45
State and Local
California		$	240				*
Florida		$	500			$	280
Texas		$	165			$	26
New York City			*			$	20
* Jurisdiction below the threshold for the period presented.

 

As of December 31, 2025, and December 31, 2024, the respective significant component (in thousands) of our deferred tax assets and liabilities (which are included as a component of our Income tax liability on our consolidated balance sheets) were:

 

		As of December 31,
		2025				2024
Deferred tax assets:
Capitalized research and experimentation expenditures and fixed assets		$	2,303			$	1,960
Provision for credit loss			4,971				4,640
Equity-based compensation			1,829				1,739
Accrued expenses			830				238
Credit card and other loans receivable fair value election differences			77,598				23,863
Other			1,519				1,485
Accruals for state taxes and interest associated with unrecognized tax benefits and unpaid accrued tax liabilities			229				271
Federal net operating loss carryforwards			108,737				58,225
Federal credit carryforwards			1,084				839
State tax benefits, primarily from net operating losses			27,414				24,756
Deferred tax assets, gross		$	226,514			$	118,016
Valuation allowances			(12,624	)			(14,307	)
Deferred tax assets net of valuation allowances		$	213,890			$	103,709
Deferred tax liabilities:
Prepaid expenses and other		$	(3,121	)		$	(1,396	)
Equity in income of equity-method investee			(1,672	)			(1,291	)
Market discount on loans			(366,522	)			(219,762	)
Deferred costs			0				(31	)
Deferred tax (liabilities), gross		$	(371,315	)		$	(222,480	)
Deferred tax (liabilities), net		$	(157,425	)		$	(118,771	)

 

We undertook a detailed review of our deferred asset taxes and determined that valuation allowances were required for certain deferred tax assets in state jurisdictions within the U.S. We reduce our deferred tax assets by valuation allowances if it is more likely than not that some or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences will be deductible. In making our valuation allowance determinations, we consider all available positive and negative evidence affecting specific deferred tax assets, including our past and anticipated future performance, the reversal of deferred tax liabilities, the length of carry-back and carry-forward periods, and the implementation of tax planning strategies. Because our valuation allowance evaluations require consideration of future events, significant judgment is required in making the evaluations, and our conclusions could be materially different from actual results if our expectations are not met. Our valuation allowances totaled $12.6 million and $14.3 million as of December 31, 2025, and December 31, 2024, respectively.

 

Certain of our deferred tax assets relate to federal and state net operating losses and federal tax credit carryforwards, and we have no other net other net operating loss, or credit carryforwards other than those noted herein. We have recorded a federal deferred tax asset of $109.8 million (based on indefinite-lived federal net operating loss carryforwards of $517.8 million and federal tax credit carryforwards of $1.1 million). We have recorded state deferred tax assets of $27.4 million based on state net operating loss carryforwards, some of which as indefinite-lived and some of which expire in various years beginning in 2026; valuation allowances of $12.6 million have been recorded, however, against the $27.4 million of such state deferred tax assets.

 

Our subsidiaries file federal, foreign, and state and local income tax returns. In the normal course of our business, we are subject to examination by taxing authorities throughout the world, including such major jurisdictions as the U.S. and various U.S territories and states and local jurisdictions. With a few exceptions of a non-material nature, we are no longer subject to federal, state and local, or foreign tax examinations for years prior to 2021.

 

Reconciliations (in thousands) of our unrecognized tax benefits (excluding accrued interest related thereto of $0.2 million as of December 31, 2025, and $1.3 million as of December 31, 2024) from the beginning to the end of 2025 and 2024, respectively, are as follows:

 

		2025				2024
Balance at January 1,		$	(711	)		$	(738	)
Reductions based on tax positions related to prior years			89				72
Additions based on tax positions related to prior years			(181	)			(8	)
Additions based on tax positions related to the current year			(69	)			(37	)
Balance at December 31,		$	(872	)		$	(711	)

 

Our unrecognized tax benefits that, if recognized, would affect our effective income tax expense rate are not material at only $1.1 million and $1.3 million as of December 31, 2025, and December 31, 2024, respectively.