DATA I/O CORP Income Taxes Disclosure

NOTE 12 – INCOME TAXES

Components of income (loss) before taxes:

Income tax expense (benefit) consists of:

Income tax (expense) increased by $192,000 for the year ended December 31, 2024, compared to 2023.  The increase was primarily a result of the withholding tax of $337,000 on the repatriation of cash from China subsidiary in 2024.  Income tax (expense) in 2024 and 2023 is primarily the result of foreign subsidiary income tax and minimal U.S. state income tax.

A reconciliation of our effective income tax and the U.S. federal tax rate is as follows:

The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets are presented below:

The valuation allowance for deferred tax assets increased $584,000 and decreased $639,000 during the years ended December 31, 2024 and 2023, respectively.  The net deferred tax assets have a full valuation allowance provided due to uncertainty regarding our ability to utilize such assets in future years.  This full valuation allowance evaluation is based upon our volatile history of losses and the cyclical nature of our industry and capital spending.  Credit carryforwards consist primarily of research and experimental and foreign tax credits.  We intend to continue to reinvest foreign earnings of our operating subsidiaries.

U.S. net operating loss carryforwards are $14.2 million on December 31, 2024 with expiration years from 2024 to 2035.  Utilization of net operating loss and credit carryforwards is subject to certain limitations under Section 382 of the Internal Revenue Code of 1986, as amended. We have not had a Section 382 ownership change, but if we did the usage of these tax assets would have an income usage limitation based on the value of the Company at the time of the change times the federal long-term tax-exempt rate.

The gross changes in uncertain tax positions resulting in unrecognized tax benefits are presented below:

Historically, we have incurred minimal interest expense, and no penalties associated with tax matters.  We have adopted a policy whereby amounts related to penalties associated with tax matters are classified as general and administrative expense when incurred and amounts related to interest associated with tax matters are classified as interest income or interest expense.

Tax years that remain open for examination include 2021, 2022, 2023 and 2024 in the United States of America.  In addition, various tax years from 2004 to 2014 may be subject to examination if we utilize the net operating losses and credit carryforwards from those years in our current or future year tax returns.