Note 14 - Income Taxes

Consolidated income (loss) before income taxes, continuing operations, for domestic and foreign operations consisted of the following:

	Year ended December 31,
	2025			2024
Domestic	$	(4,541	)	$	(1,752	)
Foreign		—			—
Total	$	(4,541	)	$	(1,752	)

The Company’s provision for income taxes, continuing operations, consisted of the following:

	Year ended December 31,
	2025			2024
Current:
Federal	$	(79	)	$	(76	)
State		(4	)		(22	)
Foreign		—			—
Total current		(83	)		(98	)
Deferred:
Federal		7,287			1,745
State		1,273			275
Foreign		—			—
Total		8,560			2,020
Change in valuation allowance		(8,560	)		(2,020	)
Total deferred		—			—
Tax provision	$	(83	)	$	(98	)

In accordance with the retrospective adoption of ASU 2023-09, the following table provides a tabular reconciliation of the income tax provision for continuing operations compared to the federal statutory rate for the years ended December 31, 2025 and 2024:

	Year ended December 31,
	2025					2024
U.S. federal statutory income tax rate at 21.0 %	$	(955	)	21.0	%	$	(368	)	21.0	%
1. State and local income tax, net of federal (national) income tax effect		4		(0.1	)%		22		(1.3	)%
2. Foreign tax effects		—		0.0	%		—		0.0	%
3. Effect of changes in tax laws or rates enacted in the current period		—		0.0	%		—		0.0	%
4. Effect of cross-border tax laws		—		0.0	%		—		0.0	%
5. Tax credits - R&D		—		0.0	%		(49	)	2.8	%
6. Changes in valuation allowances		876		(19.3	)%		327		(18.6	)%
7. Nontaxable or nondeductible items		97		(2.1	)%		112		(6.4	)%
Intercompany Loan Interest		80		(1.8	)%		88		(5.0	)%
Stock-based Compensation		16		(0.3	)%		18		(1.0	)%
Nontaxable or nondeductible items - Other		1		0.0	%		6		(0.3	)%
8. Changes in unrecognized tax benefits		61		(1.4	)%		54		(3.1	)%
Tax Provision (Benefit) - Continuing Ops:	$	83		(1.9	)%	$	98		(5.6	)%

In connection with the retrospective adoption of ASU 2023-09, the following table presents the tax effects of significant temporary differences that give rise to the Company’s net deferred tax assets and liabilities as of December 31, 2025 and 2024::

	2025				2024
Inventory of deferreds:		Current	Long-term			Current	Long-term
Deferred revenue	$	—	—		$	—	1
Basis difference in intangible assets		—	1,656			—	5,473
Inventory reserve and UNICAP		—	1			—	1,040
Net operating loss carryforwards		—	22,378			—	7,025
Accumulated research and development credits		—	126			—	125
Accrued liabilities		—	33			—	99
Non-deductible ASC 718 compensation expense		—	91			—	167
Allowance for sales returns and doubtful accounts		—	75			—	101
Difference in property and equipment basis		—	(20	)		—	(94	)
Convertible Debt		—	(71	)		—	(110	)
Business Interest Expense		—	7			—	—
Capitalized research expenditures		—	375			—	1,839
Other		—	295			—	309
Total net deferred income tax asset		—	24,946			—	15,975
Less: Valuation allowance		—	(24,946	)		—	(15,975	)
Net deferred income tax asset (liability)	$	—	—		$	—	—

Taxes Paid by Jurisdiction (ASU 2023-09) (in thousands):

	2025		2024
U.S. Federal	$	81	$	76
U.S. State		4		22
Foreign (India)		18		0
Total taxes paid	$	103	$	98

The Company has not provided for foreign withholding taxes on undistributed earnings of its non-U.S. subsidiaries since these earnings are intended to be reinvested indefinitely, in accordance with guidelines contained in ASC Topic 740, Accounting for Income Taxes. It is not practical to estimate the amount of additional taxes that might be payable on such undistributed earnings.

The Company routinely evaluates the likelihood of realizing the benefit of its deferred tax assets and may record a valuation allowance if, based on all available evidence, it determines that it is more likely than not some portion of the tax benefit will not be realized. As of December 31, 2025, the Company had an aggregate of approximately $24,947 in deferred tax assets primarily related to intangible assets, net operating losses, tax credit carryforwards, and inventory basis differences. On a quarterly basis, the Company tests the value of deferred tax assets for impairment at the taxpaying-component level within each tax jurisdiction. Significant judgment and estimates are required in determining whether valuation allowances should be established as well as the amount of such allowances. When making such determination, consideration is given to, among other things, the following:

●	sufficient taxable income within the allowed carryback or carryforward periods;
●	future reversals of existing taxable temporary differences, including any tax planning strategies that could be utilized;
●	nature or character (e.g., ordinary vs. capital) of the deferred tax assets and liabilities; and
●	future taxable income exclusive of reversing temporary differences and carryforwards.

Based on the foregoing criteria, the Company determined that it does not meet the “more likely than not” threshold that net operating losses, tax credits and other deferred tax assets will be realized. Accordingly, the Company recorded a full valuation allowance at December 31, 2025.

As of December 31, 2025 the Company has federal net operating loss (“NOL”) carryforwards of approximately $74,344 (pre-tax), state NOL carryforwards of approximately $76,036 (pre-tax) and Spain NOL carryforwards of approximately $15,034 (pre-tax). The federal NOL carryforward expires in 2030. The Spain NOL carryforward does not expire. The state NOL carryforwards expire over various periods.

Effective July 1, 2007, the Company adopted the accounting standards related to uncertain tax positions. This standard requires that tax positions be assessed using a two-step process. A tax position is recognized if it meets a “more likely than not” threshold, and is measured at the largest amount of benefit that is greater than 50 percent likely of being realized. Uncertain tax positions must be reviewed at each balance sheet date. Liabilities recorded as a result of this analysis must generally be recorded separately from any current or deferred income tax accounts.

The total amount of unrecognized tax benefits for continuing operations at December 31, 2025 and 2024, that would favorably impact our effective tax rate if recognized was $1,162 and $1,101, respectively. As of December 31, 2025 and 2024, we accrued $279 and $198, respectively, in interest and penalties related to unrecognized tax benefits. We account for interest expense and penalties for unrecognized tax benefits as part of our income tax provision.

Although we believe our estimates are reasonable, we can make no assurance that the final tax outcome of these matters will not be different from that which we have reflected in our historical income tax provisions and accruals. Such difference could have a material impact on our income tax provision and operating results in the period in which we make such determination.

A reconciliation of the beginning and ending amount of liabilities associated with uncertain tax positions is as follows:

	Year ended December 31,
	2025		2024
Balance - beginning of year	$	969	$	968
Additions based on tax positions related to the current year		61		17
Reductions for tax positions of prior years		—		(8	)
Lapse in statutes of limitations		—		(8	)
Uncertain tax positions, ending balance	$	1,030	$	969

The Company’s U.S. federal income tax returns for 2018 through 2025 are subject to examination. The Company's U.S. 2018 federal income tax return is currently under examination. The Company also files in various state and foreign jurisdictions. With few exceptions, the Company is no longer subject to federal, state, or non-U.S. income tax examinations by tax authorities for years prior to 2017.

Historical Timeline

Fiscal Year	Filed
2025	Mar 31, 2026	Showing above
2024	Mar 28, 2025

2023	Apr 1, 2024

2022	Mar 31, 2023

2021	Apr 15, 2022

2020	Mar 31, 2021

2019	Mar 30, 2020

2018	Apr 15, 2019

2017	Apr 20, 2018

2016	Mar 16, 2017

2015	Mar 15, 2016

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.

CLEARONE INC Income Taxes Disclosure

Historical Timeline

About Income Taxes Disclosures

Other Available Disclosures