Bowman Consulting Group Ltd.BWMN
Bowman Consulting Group Ltd. Income Taxes Disclosure
Income Taxes
The provision (benefit) for income taxes consisted of the following (in thousands):
| December 31, 2025 | December 31, 2024 | ||||||||||
| Current expense (benefit): | |||||||||||
| Federal | $ | (34,848) | $ | 4,418 | |||||||
| State | (3,252) | 3,242 | |||||||||
| Foreign | 33 | 24 | |||||||||
| Total | (38,067) | 7,684 | |||||||||
| Deferred expense (benefit): | |||||||||||
| Federal | 31,498 | (16,512) | |||||||||
| State | 4,878 | (3,152) | |||||||||
| Foreign | – | – | |||||||||
| Total | 36,376 | (19,664) | |||||||||
| Provision (benefit) for income taxes | $ | (1,691) | $ | (11,980) | |||||||
The Company measures deferred tax assets and liabilities based on the difference between the financial statement and tax bases of assets and liabilities at the applicable tax rates. Components of the Company’s deferred tax asset and liability are as follows (in thousands):
| December 31, 2025 | December 31, 2024 | ||||||||||
| Deferred tax assets: | |||||||||||
| Research and development credit carryover | $ | 14,481 | $ | – | |||||||
| Lease liabilities | 13,404 | 12,379 | |||||||||
| Bad debt reserve | 946 | 795 | |||||||||
| Accrued employee related expenses | 3,606 | 2,633 | |||||||||
| Capitalized research and development costs | 38,339 | 52,040 | |||||||||
| Restricted stock units | 1,207 | 2,965 | |||||||||
| PSU's | 2,383 | 1,878 | |||||||||
| Acquisition related transaction costs | 791 | 818 | |||||||||
| Total deferred tax assets | 75,157 | 73,508 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Fixed asset depreciation | (9,108) | (7,579) | |||||||||
| Lease assets | (11,768) | (10,833) | |||||||||
| Intangible asset amortization | (4,957) | (6,782) | |||||||||
| Prepaid expenses | (1,366) | (1,442) | |||||||||
| Section 481(a) adjustment | (37,822) | (1,580) | |||||||||
| Goodwill amortization | (4,334) | (3,137) | |||||||||
| Other | (259) | (115) | |||||||||
| Total deferred tax liabilities | (69,614) | (31,468) | |||||||||
| Net deferred tax assets (liabilities) | $ | 5,543 | $ | 42,040 | |||||||
The Company’s tax attributes, including research and development credits, are subject to any ownership changes as defined under the Internal Revenue Code Sections 382 and 383. A change in ownership could affect the Company’s ability to utilize its credits and certain other tax attributes. The Company has recognized the portion of research and development credits acquired that will not be limited and more likely than not to be realized. The Company has not completed a study under Internal Revenue Code Section 382. However, such study is not anticipated to limit the credit. As of December 31, 2025, the Company has R&D credits carryforward of $14.5 million which expire starting in 2042.
Based on the Company’s operating history and management’s expectation regarding future profitability, management believes the Company’s deferred tax assets are more likely than not to be realizable under ASC 740, Income Taxes. Accordingly, no valuation allowance exists as of December 31, 2025, and December 31, 2024.
Effective Tax Rate Reconciliation
The following table reconciles the U.S. federal statutory income tax rate of 21% to the Company’s effective income tax rate for the years ended December 31, 2025 and 2024. The Company's significant reconciling items are disaggregated and presented on both a percentage and dollar basis.
| December 31, 2025 | December 31, 2024 | ||||||||||||||||
| Income Tax Rate Reconciliation | Amount | Percent | Amount | Percent | |||||||||||||
| U.S. Federal Statutory Tax Rate | $ | 2,343 | 21.0 | % | $ | (1,871) | 20.9 | % | |||||||||
State and Local Income Taxes, Net of Federal Income Tax Effect 1 | 1,626 | 14.6 | % | (879) | 9.8 | % | |||||||||||
| Foreign Tax Effects | 6 | 0.1 | % | 24 | (0.3) | % | |||||||||||
| Tax Credits | |||||||||||||||||
| Research and Development Tax Credits | (4,818) | (43.2) | % | (7,067) | 79.0 | % | |||||||||||
| Nontaxable or Nondeductible Items | |||||||||||||||||
| Equity-based Compensation | (797) | (7.1) | % | (3,952) | 44.2 | % | |||||||||||
| Section 162(m) Compensation | 1,397 | 12.5 | % | 3,499 | (39.1) | % | |||||||||||
| Meals & Entertainment | 24 | 0.2 | % | 399 | (4.5) | % | |||||||||||
| Employee Stock Purchase Plans | 218 | 2.0 | % | 319 | (3.6) | % | |||||||||||
| Acquisition-related | 539 | 4.8 | % | – | |||||||||||||
| Other permanent differences | 16 | 0.1 | % | (25) | 0.3 | % | |||||||||||
| Changes in Unrecognized Tax Benefits | (2,279) | (20.4) | % | (2,414) | 27.0 | % | |||||||||||
| Other | 34 | 0.3 | % | (13) | 0.2 | % | |||||||||||
| Effective Tax Rate | $ | (1,691) | (15.1) | % | $ | (11,980) | 133.9 | % | |||||||||
1 State and local taxes in Illinois, Maryland, Pennsylvania, Tennessee, Michigan, Florida and Idaho and made up the majority (greater than 50%) of the tax effect in this category for the year ended December 31, 2025. For the year ended December 31, 2024, State and local taxes in Virginia made up the majority of the tax effect in this category.
The adjustment to the statutory rate from state income taxes for the year ended December 31, 2025, and December 31, 2024, respectively, are the result of state and local income tax expense, including tax rate and apportionment factor changes.
The adjustment to the statutory rate from Internal Revenue Code Section 162(m) for the year ended December 31, 2025, and December 31, 2024, are the result of permanent differences created by the annual disallowance of certain executive compensation exceeding $1.0 million.
The adjustment to the statutory rate from stock compensation for the year ended December 31, 2025, and 2024, are the result of permanent differences recognized for the tax deduction in excess of book amortization on the exercise and vesting of stock-based compensation.
The adjustment to the statutory rate from research and development credits for the year ended December 31, 2025, and 2024 are the result of application of research and development tax credits generated by the Company in connection with certain at-risk work performed on behalf of our customers.
The Company has elected to record tax-related penalties and interest as current income tax expense. The Company recorded net benefits of $2.2 million and $2.8 million related to reversal of penalties and interest for some uncertain tax positions for the years ended December 31, 2025 and December 31, 2024, respectively.
A reconciliation of the beginning and ending balances of unrecognized tax benefits (excluding interest and penalties) is as follows for the year ended December 31, 2025, and 2024 (in thousands):
| December 31, 2025 | December 31, 2024 | ||||||||||
| Balances at January 1 | $ | 53,261 | $ | 38,899 | |||||||
| Additions based on tax positions related to the prior year | – | 99 | |||||||||
| Decreases based on tax positions related to prior year | (52,051) | (5,354) | |||||||||
| Additions based on tax positions related to the current year | 250 | 19,617 | |||||||||
| Settlements | – | – | |||||||||
| Reductions for tax positions due to lapse of statute | (364) | – | |||||||||
| Other changes | – | – | |||||||||
| Balances at December 31 | $ | 1,096 | $ | 53,261 | |||||||
The amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate at December 31, 2025 and 2024, is $1.1 million and $1.2 million, respectively.
On July 4, 2025, the One Big Beautiful Bill Act (OBBBA) was signed into law in the U.S. The OBBBA contains a broad range of tax reform provisions affecting businesses including the allowance of immediate expensing of qualifying research and development expenses. As a result, the Company has adopted full expensing for domestic research and experimental expenses incurred in 2025. Further, the Company changed its method of accounting during the quarter ended September 30, 2025, to treat research and development expenses for tax years ended December 31, 2022, 2023, and 2024, as specified research or experimental (SRE) expenses under Section 174. Accordingly, the Company decreased the uncertain tax positions for Section 174.
Cash paid for income taxes, net of refunds received, during the years ended December 31, 2025 and December 31, 2024 consisted of the following (in thousands):
| December 31, 2025 | December 31, 2024 | ||||||||||
| Federal | $ | 34 | $ | 4,907 | |||||||
| States | |||||||||||
| Florida | – | 429 | |||||||||
| Virginia | (523) | 902 | |||||||||
Other States1 | 1,134 | 2,216 | |||||||||
| Foreign | 57 | – | |||||||||
| $ | 702 | $ | 8,454 | ||||||||
1 Other states for 2025 are mainly California, Maryland, New Jersey, Texas, Michigan, Arizona, Illinois, North Dakota, Pennsylvania, Vermont, New York, District of Columbia and Massachusetts.
The Company files income tax returns in the U.S. federal jurisdiction and certain states in which it operates. The Company’s federal income tax returns for tax years 2022 and thereafter remain subject to examination by the U.S. Internal Revenue Service. The statute of limitations on the Company’s state income tax returns generally conforms to the federal three-year statute of limitations.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 5, 2026 | Showing above |
| 2024 | Mar 12, 2025 | |
| 2023 | Mar 12, 2024 | |
| 2022 | Mar 15, 2023 | |
| 2021 | Mar 23, 2022 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.