DATA I/O CORP Income Taxes Disclosure

NOTE 12 – INCOME TAXES

Components of income (loss) before taxes:

Income tax expense (benefit) consists of:

For the year ended December 31, 2025, income tax expense includes $250,000 of deferred tax expense resulting from  the recognition of deferred tax liabilities associated with outside basis differences in foreign subsidiaries.

Effective Rate Reconciliation:

The following table presents the required disclosures prior to our adoption of ASU 2023-09 and reconciles the U.S. federal statutory income tax rate to the actual global effective income tax rate for the year ended December 31, 2024:

On July 4, 2025, the One Big Beautiful Bill Act (Act) was signed into law. The Act makes permanent key elements of the Tax Cuts and Jobs Act, including 100 percent bonus depreciation, domestic research cost expensing, increases the AMIC to 35 percent from 25 percent and makes modifications to the international tax framework. The Act includes multiple effective dates, with certain provisions effective in 2025 and others phased in through 2027.  We continue to evaluate the impact of the Act's provisions that will take effect in future years. As a result of this legislation, the Company is deducting its domestic Section 174A expenditures beginning in the 2025 taxable year.

As noted in the 2025 rate reconciliation above, we derive the effective tax rate benefit, or detriment, attributed to non-U.S. income taxed at different rates primarily from our operations in China, among others.

Deferred Taxes

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts for income tax purposes. Significant components of our deferred tax assets and liabilities at the end of each period were as follows:

Changes in the valuation allowance for deferred tax assets were as follows:

The change in valuation allowance is substantially attributable to the uncertainty regarding the realizability of our U.S. deferred tax assets. As of December 31, 2025, our federal and non-U.S. net operating loss carryforwards for income tax purposes were $19,345,000 and $1,690,000 respectively. The majority of the federal and non-U.S. net operating loss carryforwards have multiple expiration dates. The remaining federal U.S. net operating loss carryforwards expire at various dates through 2034.The Company has determined that certain undistributed earnings of its foreign subsidiaries are indefinitely reinvested. Accordingly, no deferred income taxes have been recorded on those earnings. The deferred tax liability related to these indefinitely reinvested earnings that has not been recognized was approximately $294,000 as of December 31, 2025. Deferred income taxes have been recorded for undistributed foreign earnings that are expected to be repatriated.

Uncertain Tax Positions

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 2022, 2023, 2024 and 2025 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.

Income Tax Paid

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: