CSP INC /MA/ Income Taxes Disclosure
6. Income Taxes
The components of income (loss) before income tax benefit and income tax benefit are comprised of the following:
For the Years Ended | ||||||
September 30, | ||||||
| 2025 | | 2024 | |||
(Amounts in thousands) | ||||||
Income (loss) before income tax benefit | ||||||
U.S. | $ | (1,620) | | $ | 74 | |
Foreign |
| (41) | |
| (493) | |
$ | (1,661) | | $ | (419) | ||
Income tax expense: | | |||||
Current: | | |||||
Federal | $ | — | | $ | 123 | |
State |
| 173 | |
| 172 | |
$ | 173 | | $ | 295 | ||
Deferred: | | |||||
Federal | $ | (1,173) | | $ | (372) | |
State |
| (570) | |
| (15) | |
$ | (1,743) | | $ | (387) | ||
Total income tax benefit | $ | (1,570) | | $ | (93) | |
The effective income tax rate differed from the statutory federal income tax rate due to the following:
For the Years Ended September 30, |
| ||||||||||
2025 | 2024 |
| |||||||||
(Dollar amounts in thousands) |
| ||||||||||
Tax benefit at the statutory rate | | $ | (349) | | 21.0 | % | $ | (88) | | 21.0 | % |
Increases (reductions) in taxes resulting from: |
| |
| |
| |
| | |||
State income taxes, net of federal benefit |
| 16 |
| (1.0) | % |
| (87) |
| 20.8 | % | |
Impact of non-U.S. earnings |
| 2 |
| (0.1) | % |
| — |
| - | % | |
Change in valuation allowance | (293) | 17.6 | % | 180 | (43.0) | % | |||||
Excess stock compensation deductions | (748) | 45.0 | % | (189) | 45.1 | % | |||||
Permanent differences |
| 31 |
| (1.9) | % |
| 19 |
| (4.5) | % | |
Non-deductible executive compensation |
| 240 |
| (14.4) | % |
| — |
| - | % | |
Change in uncertain tax positions |
| (94) |
| 5.7 | % |
| 89 |
| (21.2) | % | |
Tax credits | (148) | 8.9 | % | (90) | 21.5 | % | |||||
Return to provision and prior period assessments | (226) | 13.6 | % | 43 | (10.3) | % | |||||
Other items | (1) | 0.1 | % | 30 | (7.2) | % | |||||
Income tax benefit | $ | (1,570) |
| 94.5 | % | $ | (93) |
| 22.2 | % | |
Significant components of the Company's net deferred tax assets and liabilities as of September 30, 2025 and 2024 are as follows:
September 30, | September 30, | |||||
| 2025 | | 2024 | |||
(Amounts in thousands) | ||||||
Deferred tax assets: | | | ||||
Net operating loss carryforward | $ | 2,689 | $ | 2,558 | ||
Tax credits |
| 669 |
| 829 | ||
Capitalized research and development expenses | 1,681 | 1,155 | ||||
Other reserves and accruals |
| 881 |
| 975 | ||
Lease liability | 423 | 121 | ||||
Accrued expenses |
| 1,165 |
| — | ||
Inventory reserve |
| 327 |
| 303 | ||
Pension |
| 422 |
| 331 | ||
Other temporary differences | 2 | — | ||||
Gross deferred tax assets | 8,259 | 6,272 | ||||
Less: valuation allowance |
| (3,167) |
| (2,800) | ||
Net deferred tax asset | 5,092 | 3,472 | ||||
Deferred tax liabilities: | ||||||
Fixed assets | (96) | (69) | ||||
Pension | (21) | (119) | ||||
ROU asset | (416) | (550) | ||||
Realizable deferred tax liabilities | (533) | (738) | ||||
Net deferred tax assets | $ | 4,559 | $ | 2,734 | ||
The Company undertakes a review of its valuation allowance at each financial statement period, reviewing the positive and negative evidence to help determine whether it is more likely than not that the Company will realize the future tax benefits from its deferred tax balances. The Company has determined that it is more likely than not that substantially all of its net deferred tax assets in the U.S., except for certain state tax credits, will be realized for the fiscal years ended September 30, 2024 and 2025. The Company separately analyzed the realizability of its federal and state credits and determined $495 thousand (net of federal benefit) of state credits are expected to expire unutilized and maintained a
valuation allowance against these credits. The Company continued to maintain a full valuation allowance against the net U.K. deferred tax assets.
As of September 30, 2025 and 2024, the Company had no U.S. net operating loss or tax credit carryforwards for federal tax purposes.
As of September 30, 2025 and 2024, the Company had U.S. net operating loss carryforwards for state purposes of approximately $60 thousand and $60 thousand, respectively, which begin to expire in FY 2031. As of September 30, 2025, the Company had state tax credit carryforwards of $1.0 million available to reduce future state tax expense, of which $50 thousand has unlimited carryover status and the remainder of the credits begin to expire in FY 2029. As of September 30, 2024, the Company had state tax credit carryforwards of $1.1 million available to reduce future state tax expense, of which $55 thousand has unlimited carryover status and the remainder of the credits begin to expire in FY 2025.
As of September 30, 2025 and 2024, the Company had U.K. net operating loss carryforwards of approximately $10.8 million and $10.6 million, respectively, that have an indefinite life with no expiration.
Undistributed earnings of the Company's foreign subsidiaries amounted to approximately $10.3 million and $10.3 million as of September 30, 2025 and 2024, respectively. The Company is considering cash distributions of undistributed foreign earnings in the future and will continue to assess the potential impact of any future distributions on U.S. taxes. The state tax impact of a distribution of foreign earnings and profits would not be material.
In addition, the calculation of the Company's tax liabilities involves dealing with uncertainties in the application of complex tax regulations in a multitude of jurisdictions. The Company records liabilities for estimated tax obligations in the U.S. and other tax jurisdictions. These estimated tax liabilities include the provision for taxes that may become payable in the future.
As of September 30, 2025, uncertain tax benefits were primarily related to federal and state tax credits and were partially recorded net in deferred taxes and as a long term tax payable.
A reconciliation of the beginning and ending balances of the total amounts of gross unrecognized tax benefits is as follows:
| For the Year Ended | |||||
September 30, 2025 | September 30, 2024 | |||||
(Amounts in thousands) | ||||||
Balance, beginning of year | $ | 351 | $ | 323 | ||
Additions for tax positions of current year |
| 23 | 11 | |||
Additions for tax positions of prior years | 3 | 8 | ||||
Reduction for lapse of the applicable statute of limitations | (77) | (13) | ||||
Accrued penalties and interest |
| 6 | 22 | |||
Balance, end of period | $ | 306 | $ | 351 | ||
The unrecognized tax benefits of $306 thousand as of September 30, 2025, if recognized, would reduce our annual effective tax rate, subject to the valuation allowance maintained against certain state tax credits. The Company does not expect our unrecognized tax benefits to change significantly over the next 12 months.
We file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The Company has reviewed the tax positions taken on returns filed domestically and in its foreign jurisdictions for all open years, generally fiscal 2022 through 2025, and believes that any tax adjustments not currently reserved in any audited year would not be material.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Dec 16, 2025 | Showing above |
| 2024 | Dec 20, 2024 | |
| 2023 | Dec 13, 2023 | |
| 2022 | Dec 8, 2022 | |
| 2021 | Dec 8, 2021 | |
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.