CUMBERLAND PHARMACEUTICALS INCCPIX

CUMBERLAND PHARMACEUTICALS INC Income Taxes Disclosure

10-KFiled Mar 9, 20264 min read
Income Taxes
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures ("Update 2023-09"), which expands income tax disclosure requirements to include additional information related to the rate reconciliation of our effective tax rates to statutory rates as well as additional disaggregation of taxes paid. The amendments in Update 2023-09 also remove disclosures related to certain unrecognized tax benefits and deferred taxes. Update 2023-09 is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. We adopted Update 2023-09 effective for this annual report for the year ended December 31, 2025
The components of the Company's net deferred tax assets at December 31 are as follows (in millions):
20252024
Deferred Tax Assets
Net operating loss and tax credits$14.60 $14.31 
Property and equipment and intangibles0.08 0.08 
Right-of-use liability1.03 1.21 
Intangible assets1.87 1.74 
Contingent royalty liabilities0.95 1.02 
Section 174 expenses2.89 2.59 
Allowance for accounts receivable0.31 0.31 
Reserve for expired product0.68 0.65 
Inventory0.34 0.27 
Business interest expense limitation— 0.05 
Deferred charges1.06 1.03 
Cumulative compensation costs incurred on deductible equity awards0.10 0.08 
Total deferred tax assets$23.91 $23.33 
Deferred Tax Liabilities
Right-of-use asset$(1.83)$(1.39)
Net deferred tax assets, before valuation allowance22.08 21.95 
Less: deferred tax asset valuation allowance(22.08)(21.95)
Net deferred taxes$— $— 
The following table summarizes the amount and year of expiration of the Company's federal and state net operating loss carryforwards as of December 31, 2025 (in millions):
Years of expirationFederalState
2025$— $0.30 
2026-204245.53 29.25 
Indefinite Period8.99 0.90 
Total federal and state net operating loss carryforwards$54.52 $30.45 
Income tax expense (benefit) includes the following components for the years ended December 31 (in millions):
20252024
Current:
Federal$— $— 
State and other0.04 (0.02)
Total current income tax expense (benefit)0.04 (0.02)
Deferred:
Federal— — 
State— — 
Total deferred income tax expense— — 
Total income tax expense (benefit)$0.04 $(0.02)
As noted above, we adopted ASU 2023-09 on a prospective basis effective January 1, 2025. The following table presents required disclosure pursuant to ASU 2023-09 and reconciles the U.S. federal statutory tax amount and rate to our actual global effective amount and rate for the year ended December 31, 2025 (in millions, except percentages):
AmountPercent
U.S. federal statutory tax rate$(0.59)21.00 %
State and local income taxes, net of federal income tax effect (a)0.03 (1.13)%
Tax Credits


Research and development tax credit(0.05)1.73 %
Expiring tax credits0.03 (0.90)%
Other adjustments


Change in valuation allowance0.59 (20.95)%
Permanent differences0.03 (1.18)%
Net loss tax expense0.04 (1.43)%
(a) State and local taxes in Pennsylvania and Texas made up the majority (greater than 50%) of the tax effect in this category.
The Company’s effective income tax rate for 2024 reconciles with the federal statutory tax rate as follows:
2024
Income tax expense computed at federal statutory tax rate21.00 %
State taxes net of federal benefit0.11 %
Tax credits generated3.31 %
Change in valuation allowance(23.61)%
Permanent differences(1.86)%
Expiring tax credits(0.28)%
Deferred True-ups1.67 %
Net loss tax benefit0.34 %
The Company believes that it is not more likely than not that its net deferred tax assets will be realized. As such, the net deferred tax assets are fully offset with a valuation allowance as of the periods ended December 31, 2025 and 2024.
As of December 31, 2025, the Company has general business credit carryforwards of $1.6 million. These credit carryforwards will expire in years 2027 through 2044 (in millions).
Years of expirationFederal
20260.06 
2027-20441.51 
Total federal and state credit carryforwards1.57 
The Company expects it will continue to pay minimal taxes in future periods through the continued utilization of net operating loss carryforwards, as it is able to achieve taxable income through its operations. The Company is no longer subject to U.S. federal tax examinations for tax years before 2021, and with few exceptions, the Company is not subject to examination by state tax authorities for tax years which ended before 2021. Loss carryforwards and credit carryforwards generated or utilized in years earlier than 2021 remain subject to examination and adjustment. During 2012, the 2009 federal tax return was examined by the Internal Revenue Service with no significant findings or adjustments. During 2025, the 2022 federal tax return was selected for examination, again with no significant findings or adjustments. The Company has no unrecognized tax benefits in 2025 and 2024.
We adopted ASU 2023-09 on a prospective basis for the year ended December 31, 2025 and have included the following table as a result of our adoption, which presents income taxes paid (net of refunds received) for the year ended December 31, 2025 (in millions):
2025
Federal$— 
Pennsylvania0.01 
Texas0.02 
Other States0.01 
Foreign— 
Income taxes, net of amounts refunded$0.04 
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Historical Timeline

Fiscal YearFiled
2025Mar 9, 2026Showing above
2024Mar 7, 2025
2023Mar 13, 2024
2022Mar 13, 2023
2021Mar 11, 2022
2020Mar 12, 2021
2019Mar 20, 2020
2018Mar 12, 2019
2017Mar 9, 2018
2016Mar 13, 2017
2015Mar 14, 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.

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