BK Technologies Corp Income Taxes Disclosure

9. Income Taxes

 

The components of income before provision for income taxes are as follows:

 

		Years Ended December 31,
		2025				2024
Domestic			16,117				7,375
Income before income taxes			16,117				7,375

 

Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due. Deferred taxes relate to differences between the basis of assets and liabilities for financial and income tax reporting which will be either taxable or deductible when the assets or liabilities are recovered or settled.

 

The income tax expense (benefit) is summarized as follows:

 

		Years Ended December 31,
		2025				2024
Current:
Federal		$	55			$	489
State			968				1,199
			1,023				1,688
Deferred:
Federal			1,377				(1,581	)
State			181				(1,091	)
			1,558				(2,672	)
		$	2,581			$	(984	)

 

Beginning in 2025 annual reporting, we adopted ASU 2023-09 prospectively. See Note 1 - Summary of Significant Accounting Policies - Recently Adopted Accounting Pronouncements for additional details on the adoption of ASU 2023-09. A reconciliation of the U.S. federal statutory income tax rate to our effective tax rate pursuant to the disclosure requirements of ASU 2023-09 for the year ended December 31, 2025 is as follows:

 

		Year Ended December 31, 2025
		Amount				Percent
U.S. federal statutory income tax rate			3,385				21.00	%
State and local income taxes1, net of federal income tax effect			1,012				6.28	%
Tax credits
Research and development tax credits			(157	)			-0.98	%
Nontaxable or nondeductible items
Share-based Compensation			(338	)			-2.10	%
Other			25				0.16	%
Changes in unrecognized tax benefits			(1,419	)			-8.80	%
Other adjustments
Deferred only - Stock based compensation			240				1.49	%
Deferred only - Section 174			(183	)			-1.13	%
Other			16				-0.24	%
Effective tax rate			2,581				15.67	%

 

¹ California and Florida account for greater than 50% of the tax effect in this category.

 

A reconciliation of the U.S. federal statutory income tax rates to our effective tax rate for the year ended December 31, 2024 is as follows:

 

		Year Ended December 31,
		2024
Statutory U.S. income tax rate			21.00	%
State taxes, net of federal benefit			9.42	%
Permanent differences			0.84	%
Change in valuation allowance			(48.79	)%
Change in tax credits			(4.59	)%
Uncertain tax position			19.25	%
Impact from rate changes			(10.48	)%
Effective income tax rate			(13.35	)%

 

Cash paid for income taxes, net of refunds received, by jurisdiction pursuant to the disclosure requirements of ASU 2023-09 for the year ended December 31, 2025 is as follows:

 

		Year Ended December 31,
		2025
Federal		972
State
California		1,190
Florida		302
New Mexico		122
Oregon		108
Idaho		111
Other states		313
Cash paid for income taxes, net of refunds received		3,118

 

 

The components of the deferred income tax assets (liabilities) are as follows:

 

		Years Ended December 31,
		2025				2024
Deferred tax assets:
R&D Tax Credits		$	1,877			$	300
Capitalized software and systems integration costs			-				3,378
Lease Liability			434				343
Capital loss Carryforward			851				802
Inventory allowance			312				454
Nonqualified Stock Options			341				463
Deferred warranty revenue			2,738				2,638
Net operating losses			633				-
Other			199				194
Deferred Tax Assets			7,385				8,572
Less: Valuation allowance			(826	)			(802	)
Total Deferred Tax Assets			6,559				7,770
Deferred Tax Liabilities:
ROU Asset			(414	)			(301	)
Capitalized software and systems integration costs			(275	)			-
Depreciation			(640	)			(681	)
Total deferred tax liabilities			(1,329	)			(982	)
Total Deferred Tax Assets/(Liabilities)		$	5,230			$	6,788

 

           As of December 31, 2025, the Company had deferred tax assets of approximately $6,559 offset by deferred tax liabilities of $1,329. This asset is primarily composed of capitalization of research and development expenses, stock compensation, and deferred revenue. The liability is composed of the effect of differences in amortization and depreciation utilized for tax purposes. 

 

During 2025 and 2024, the Company utilized $0 and $7,915 of federal NOLs, respectively. 

 

The deferred tax asset amounts are based upon management’s conclusions regarding, among other considerations, the Company’s current and anticipated customer base, contracts, and product introductions, certain tax planning strategies, and management’s estimates of future earnings based on information currently available, as well as recent operating results during 2025, 2024, and 2023. GAAP requires that all positive and negative evidence be analyzed to determine if, based on the weight of available evidence, the Company is more likely than not to realize the benefit of the deferred tax asset.

 

          Based on the analysis of all available evidence, both positive and negative, the Company has concluded that, except for the capital loss carryforward of approximately $851, it currently does have the ability to generate sufficient taxable income in the necessary period to utilize the benefits for the deferred tax assets. Accordingly, the Company recorded an increase in the valuation allowance of $24 as of December 31, 2025. The Company cannot presently estimate what, if any, changes to the valuation of its deferred tax assets may be deemed appropriate in the future. If the Company incurs future losses, it may be necessary to record additional valuation allowance amounts related to the deferred tax assets recognized as of December 31, 2025.

 

Should the factors underlying management’s analysis change, future valuation adjustments to the Company’s net deferred tax asset may be necessary. If future losses are incurred, it may be necessary to record an additional valuation allowance related to the Company’s net deferred tax asset recorded as of December 31, 2025. The Company cannot presently estimate what, if any, changes to the valuation of its deferred tax asset may be deemed appropriate in the future.  

 

The Company performed a comprehensive review of its portfolio of uncertain tax positions in accordance with recognition standards established by GAAP. In this regard, an uncertain tax position represents the Company’s expected treatment of a tax position taken in a filed tax return or planned to be taken in a future tax return that has not been reflected in measuring income tax expense for financial reporting purposes. 

 

A reconciliation of the beginning and ending amount of our unrecognized tax benefits is as follows:

 

		Years Ended December 31,
		2025				2024
Unrecognized tax benefits as of January 1		$	1,419			$	-
(Decreases) increases related to prior year tax positions			(1,419	)			1,265
Increases related to current year tax positions			-				154
Decreases related to settlements of prior year tax positions			-				-
Decreases related to lapses of statute of limitations			-				-
Balance at December 31,			-				1,419

 

As of December 31, 2025, the Company recorded approximately $0 of unrecognized tax benefits, a net decrease of $1,419 from $1,419 as of December 31, 2024. The Company completed an updated R&D credit study, which provided sufficient support for the underlying R&D credit positions. As a result, the prior‑year unrecognized tax benefit is no longer required, and the ending balance as of 12/31/2025 is $0. As of December 31, 2024, the Company recorded approximately $1,419 of unrecognized tax benefits, a net increase of $1,419 from $0 as of December 31, 2023. If the Company recognized its tax positions, approximately $1,419 would favorably impact the tax rate in 2024.

 

Penalties and tax-related interest expense, of which there were no material amounts for the years ended  December 31, 2025, and 2024, are reported as a component of income tax expense (benefit).

 

The Company files federal income tax returns, as well as multiple state and local jurisdiction tax returns. A number of years may elapse before an uncertain tax position is audited and finally resolved. While it is often difficult to predict the final outcome or the timing of resolution on any particular uncertain tax position, the Company believes that its allowances for income taxes reflect the most probable outcome. The Company adjusts these allowances, as well as the related interest, in light of changing facts and circumstances. The resolution of a matter would be recognized as an adjustment to the provision for income taxes and the effective tax rate in the period of resolution. The calendar years 2022 through 2024 are still open to IRS examination under the statute of limitations. 

 

On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted in the U.S. The OBBBA includes significant provisions, such as the permanent extension of certain expiring provisions of the Tax Cuts and Jobs Act, modifications to the international tax framework, and the restoration of favorable tax treatment for certain business provisions. The legislation has multiple effective dates, with certain provisions effective in 2025 and others implemented through 2027. The Company does not anticipate the bill will have a material impact on the financial statements. Under OBBBA, the Company is permitted to claim 100% bonus depreciation and fully deduct domestic research expenditures under Section 174A. These provisions accelerate tax deductions but do not create permanent tax differences; therefore, the impact is timing‑related only and does not materially affect the Company’s 2025 income tax provision.

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