Donnelley Financial Solutions, Inc. Income Taxes Disclosure
Note 9. Income Taxes
Income taxes have been based on the following components of earnings before income taxes for the years ended December 31, 2025, 2024 and 2023:
|
|
Year Ended December 31, |
|
|||||||||
|
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
U.S. |
|
$ |
23.4 |
|
|
$ |
115.4 |
|
|
$ |
95.7 |
|
Foreign |
|
|
19.7 |
|
|
|
9.7 |
|
|
|
6.3 |
|
Earnings before income taxes |
|
$ |
43.1 |
|
|
$ |
125.1 |
|
|
$ |
102.0 |
|
The components of income tax expense for the years ended December 31, 2025, 2024 and 2023 were as follows:
|
|
Year Ended December 31, |
|
|||||||||
|
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
Current: |
|
|
|
|
|
|
|
|
|
|||
U.S. Federal |
|
$ |
12.1 |
|
|
$ |
28.0 |
|
|
$ |
22.7 |
|
U.S. State and Local |
|
|
4.8 |
|
|
|
11.5 |
|
|
|
9.4 |
|
Foreign |
|
|
3.8 |
|
|
|
2.6 |
|
|
|
2.3 |
|
Current income tax expense |
|
|
20.7 |
|
|
|
42.1 |
|
|
|
34.4 |
|
|
|
|
|
|
|
|
|
|
|
|||
Deferred: |
|
|
|
|
|
|
|
|
|
|||
U.S. Federal |
|
|
(6.5 |
) |
|
|
(8.8 |
) |
|
|
(11.5 |
) |
U.S. State and Local |
|
|
(2.4 |
) |
|
|
(1.5 |
) |
|
|
(2.5 |
) |
Foreign |
|
|
(1.1 |
) |
|
|
0.9 |
|
|
|
(0.6 |
) |
Deferred income tax (benefit) expense |
|
|
(10.0 |
) |
|
|
(9.4 |
) |
|
|
(14.6 |
) |
|
|
|
|
|
|
|
|
|
|
|||
Total income tax expense |
|
$ |
10.7 |
|
|
$ |
32.7 |
|
|
$ |
19.8 |
|
The following table outlines the reconciliation of differences between the U.S. Federal statutory tax rate and the Company’s worldwide effective income tax rate for the year ended December 31, 2025:
|
|
Year Ended December 31, |
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|||||
|
|
2025 |
|
|||||
|
|
Amount |
|
|
Percent |
|
||
Federal statutory tax rate |
|
$ |
9.0 |
|
|
|
21.0 |
% |
State and local income taxes, net of U.S. federal income tax benefit (a) |
|
|
1.9 |
|
|
|
4.3 |
|
Foreign tax effects: |
|
|
|
|
|
|
||
United Kingdom: |
|
|
|
|
|
|
||
Changes in valuation allowances |
|
|
(1.4 |
) |
|
|
(3.2 |
) |
GloBE Model Rules top-up tax |
|
|
0.5 |
|
|
|
1.3 |
|
Other |
|
|
0.2 |
|
|
|
0.4 |
|
Luxembourg: |
|
|
|
|
|
|
||
Changes in valuation allowances |
|
|
(1.1 |
) |
|
|
(2.6 |
) |
France: |
|
|
|
|
|
|
||
Changes in valuation allowances |
|
|
(0.9 |
) |
|
|
(2.2 |
) |
Hong Kong: |
|
|
|
|
|
|
||
Changes in valuation allowances |
|
|
0.7 |
|
|
|
1.6 |
|
Other |
|
|
(0.2 |
) |
|
|
(0.4 |
) |
Canada |
|
|
0.5 |
|
|
|
1.1 |
|
Other foreign jurisdictions |
|
|
0.3 |
|
|
|
0.7 |
|
Effect of cross-border tax laws: |
|
|
|
|
|
|
||
Foreign-derived intangible income |
|
|
(1.8 |
) |
|
|
(4.1 |
) |
Other |
|
|
0.8 |
|
|
|
1.7 |
|
Tax credits: |
|
|
|
|
|
|
||
Research and development credits |
|
|
(2.1 |
) |
|
|
(4.8 |
) |
Non-taxable or non-deductible items: |
|
|
|
|
|
|
||
Non-deductible compensation |
|
|
4.4 |
|
|
|
10.3 |
|
Non-deductible meals and entertainment |
|
|
0.6 |
|
|
|
1.4 |
|
Other |
|
|
(0.4 |
) |
|
|
(1.0 |
) |
Changes in unrecognized tax benefits |
|
|
(0.3 |
) |
|
|
(0.7 |
) |
Effective income tax rate |
|
$ |
10.7 |
|
|
|
24.8 |
% |
The effective income tax rate was 24.8% for the year ended December 31, 2025 compared to 26.1% for the year ended December 31, 2024. The 2025 effective tax rate was impacted by non-deductible expenses, partially offset by a net decrease in valuation allowances and the benefit of research and development credits.
The following table outlines the reconciliation of differences between the U.S. Federal statutory tax rate and the Company’s worldwide effective income tax rate for the years ended December 31, 2024 and 2023:
|
|
Year Ended December 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Federal statutory tax rate |
|
|
21.0 |
% |
|
|
21.0 |
% |
State and local income taxes, net of U.S. federal income tax benefit |
|
|
6.0 |
|
|
|
5.7 |
|
Non-deductible expenses |
|
|
1.3 |
|
|
|
0.7 |
|
Adjustment of uncertain tax positions and interest |
|
|
0.9 |
|
|
|
0.7 |
|
Changes in valuation allowances |
|
|
0.4 |
|
|
|
0.2 |
|
Foreign tax rate differential |
|
|
0.4 |
|
|
|
0.5 |
|
Provision to return |
|
|
0.1 |
|
|
|
(2.0 |
) |
Credits and incentives |
|
|
(2.9 |
) |
|
|
(2.3 |
) |
Foreign-derived intangible income |
|
|
(1.4 |
) |
|
|
(1.6 |
) |
Tax impact of loss on sale of a business |
|
|
— |
|
|
|
(3.6 |
) |
Other |
|
|
0.3 |
|
|
|
0.1 |
|
Effective income tax rate |
|
|
26.1 |
% |
|
|
19.4 |
% |
The effective income tax rate was 26.1% for the year ended December 31, 2024 compared to 19.4% for the year ended December 31, 2023. The 2024 effective tax rate was impacted by income tax credits, partially offset by non-deductible expenses.
The components of income taxes paid (net of refunds) for the year ended December 31, 2025 were as follows:
|
|
Year Ended December 31, |
|
|
|
|
2025 |
|
|
U.S Federal |
|
$ |
12.4 |
|
State: |
|
|
|
|
New York |
|
|
3.5 |
|
Massachusetts |
|
|
1.4 |
|
Other |
|
|
5.5 |
|
State income taxes paid (net of refunds) |
|
|
10.4 |
|
Foreign |
|
|
1.8 |
|
Total cash paid for income taxes (net of refunds) |
|
$ |
24.6 |
|
Total cash paid for income taxes (net of refunds) for the years ended December 31, 2024 and 2023 were $40.8 million and $38.3 million, respectively.
Deferred Income Taxes
The deferred tax assets and liabilities at December 31, 2025 and 2024 were as follows:
|
|
December 31, |
|
|||||
|
|
2025 |
|
|
2024 |
|
||
Deferred tax assets: |
|
|
|
|
|
|
||
Capitalized research costs |
|
$ |
22.2 |
|
|
$ |
26.4 |
|
Accrued liabilities and other reserves |
|
|
12.9 |
|
|
|
14.8 |
|
Allowance for doubtful accounts |
|
|
7.7 |
|
|
|
9.7 |
|
Pension and other postretirement benefits plans liabilities |
|
|
6.8 |
|
|
|
9.9 |
|
Share-based compensation |
|
|
5.5 |
|
|
|
5.7 |
|
Net operating losses and other tax carryforwards |
|
|
5.1 |
|
|
|
6.8 |
|
Lease liabilities |
|
|
1.7 |
|
|
|
3.8 |
|
Other |
|
|
0.3 |
|
|
|
0.2 |
|
Total deferred tax assets |
|
|
62.2 |
|
|
|
77.3 |
|
Valuation allowances |
|
|
(3.0 |
) |
|
|
(5.5 |
) |
Total deferred tax assets |
|
$ |
59.2 |
|
|
$ |
71.8 |
|
|
|
|
|
|
|
|
||
Deferred tax liabilities: |
|
|
|
|
|
|
||
Goodwill and other intangible assets |
|
$ |
(7.8 |
) |
|
$ |
(8.0 |
) |
Prepaid assets |
|
|
(2.9 |
) |
|
|
(2.3 |
) |
Capitalized contract costs |
|
|
(2.1 |
) |
|
|
(1.9 |
) |
Accelerated depreciation |
|
|
(1.4 |
) |
|
|
(0.9 |
) |
Right-of-use assets |
|
|
(1.0 |
) |
|
|
(1.9 |
) |
Other |
|
|
(0.3 |
) |
|
|
(0.4 |
) |
Total deferred tax liabilities |
|
|
(15.5 |
) |
|
|
(15.4 |
) |
Net deferred tax assets |
|
$ |
43.7 |
|
|
$ |
56.4 |
|
Changes in the valuation allowances on deferred tax assets during the years ended December 31, 2025, 2024 and 2023 were as follows:
|
|
December 31, |
|
|||||||||
|
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
Balance, beginning of year |
|
$ |
5.5 |
|
|
$ |
5.8 |
|
|
$ |
5.4 |
|
(Benefit) expense, net |
|
|
(2.8 |
) |
|
|
0.2 |
|
|
|
0.4 |
|
Write-offs and other |
|
|
0.3 |
|
|
|
(0.5 |
) |
|
|
— |
|
Balance, end of year |
|
$ |
3.0 |
|
|
$ |
5.5 |
|
|
$ |
5.8 |
|
As of December 31, 2025, the Company had domestic and foreign net operating loss and other tax carryforward deferred tax assets of approximately $5.1 million, of which $2.4 million expires between 2026 and 2045. Limitations on the utilization of these deferred tax assets may apply. The Company has provided valuation allowances to reduce the carrying value of certain deferred tax assets as management has concluded that, based on the weight of available evidence, it is more likely than not that the deferred tax assets will not be fully realized. In 2025, valuation allowances decreased as sustained profitability in specific jurisdictions provided sufficient positive evidence to outweigh historical cumulative losses.
Earnings generated by a foreign subsidiary are presumed to ultimately be transferred to the parent company. Therefore, the establishment of deferred taxes may be required with respect to the excess of the investment value for financial reporting over the tax basis of investments in those foreign subsidiaries (also referred to as book-over-tax outside basis differences). A company may overcome this presumption and forgo recording a deferred tax liability in its financial statements if it can assert that management has the intent and ability to indefinitely reinvest the earnings of its foreign subsidiaries. As a result of the transition tax incurred pursuant to the Tax Cuts and Jobs Act (H.R. 1) (the “Tax Act”), the Company has the ability to repatriate any previously taxed foreign cash associated with the foreign earnings subjected to U.S. tax to the U.S. parent with minimal additional tax consequences. Due to the changes under the Tax Act, the Company updated its assertion in 2018 related to indefinite reinvestment on all foreign earnings and other outside basis differences to indicate that the Company remains indefinitely reinvested in operations outside of the U.S. with the exception of the previously taxed foreign earnings already subject to U.S. tax. The Company repatriated $14.0 million and $30.0 million of previously taxed earnings during 2025 and 2024, respectively. The Company did not make any repatriations in 2023.
Uncertain Tax Positions
Changes in the Company’s unrecognized tax benefits at December 31, 2025, 2024 and 2023 were as follows:
|
|
December 31, |
|
|||||||||
|
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
Balance, beginning of year |
|
$ |
4.1 |
|
|
$ |
3.1 |
|
|
$ |
2.5 |
|
Additions for tax positions of the current year |
|
|
0.7 |
|
|
|
0.9 |
|
|
|
0.7 |
|
Settlements during the year |
|
|
(0.6 |
) |
|
|
— |
|
|
|
(0.1 |
) |
Releases |
|
|
(0.5 |
) |
|
|
(0.2 |
) |
|
|
(0.4 |
) |
Additions for tax positions of prior years |
|
|
— |
|
|
|
0.3 |
|
|
|
0.4 |
|
Balance, end of year |
|
$ |
3.7 |
|
|
$ |
4.1 |
|
|
$ |
3.1 |
|
As of December 31, 2025, 2024 and 2023, the Company had unrecognized tax benefits of $3.7 million, $4.1 million and $3.1 million, respectively. Unrecognized tax benefits of $3.7 million as of December 31, 2025, if recognized, would have decreased income taxes and the corresponding effective income tax rate and increased net earnings. This potential impact on net earnings reflects the reduction of these unrecognized tax benefits, net of certain deferred tax assets and the federal tax benefit of state income tax items.
The Company classifies interest expense and any penalties related to income tax uncertainties as a component of income tax expense. The total interest expense, net of tax benefits, related to tax uncertainties recognized on the audited Consolidated Statements of Operations was de minimis for the years ended December 31, 2025 and 2023 and $0.2 million for the year ended December 31, 2024. As of December 31, 2025 and 2024, the Company accrued $0.5 million and $0.6 million, respectively, of interest expense related to income tax uncertainties.
As of December 31, 2025, the Company has tax years from 2019 and thereafter that remain open and subject to examination by certain U.S. state taxing authorities and/or certain foreign tax jurisdictions. There are no U.S. federal income tax years prior to the period ending December 31, 2022 subject to IRS examination. All U.S. federal income tax years including and subsequent to the period ending December 31, 2022 remain open and subject to IRS examination.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 17, 2026 | Showing above |
| 2024 | Feb 18, 2025 | |
| 2023 | Feb 20, 2024 | |
| 2022 | Feb 21, 2023 | |
| 2021 | Feb 22, 2022 | |
| 2020 | Feb 25, 2021 | |
| 2019 | Feb 26, 2020 | |
| 2018 | Feb 27, 2019 | |
| 2017 | Feb 28, 2018 | |
| 2016 | Feb 28, 2017 | |
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.