Electromed, Inc. Income Taxes Disclosure

Note 9.

Income Taxes

 

Components of the provision for income taxes were as follows:

 

		Year Ended June 30,
		2025				2024
Current:
Current Federal		$	2,478,000			$	1,935,000
Current State			579,000				522,000
Total Current			3,057,000				2,457,000
Deferred:
Deferred Federal			(311,000	)			(516,000	)
Deferred State			1,000				(55,000	)
Total Deferred			(310,000	)			(571,000	)
Total Income Tax Expense		$	2,747,000			$	1,886,000

 

 

Actual income tax expense differs from the expected tax expense, computed by applying the statutory federal income tax rate to the Company’s earnings before income taxes, as follows:

 

		Year Ended June 30,
		2025				2024
Tax expense at statutory federal rate		$	2,160,000			$	1,477,000
State income tax expense, net of federal tax effect			459,000				369,000
Share based compensation			(1,016,000	)			(82,000	)
Disallowed meal expenses			207,000				169,000
Non-deductible officer compensation			897,000				—
Other permanent items			40,000				(47,000	)
Income tax expense		$	2,747,000			$	1,886,000

 

 

The effective tax rates for fiscal 2025 and 2024 were 26.7% and 26.8%, respectively.

 

The significant components of deferred income taxes were as follows:

 

		As of June 30,
		2025				2024
Deferred tax assets:
Revenue recognition and accounts receivable reserves		$	1,247,000			$	1,298,000
Warranty reserve			405,000				392,000
Stock based compensation			901,000				733,000
Tax credits			205,000				204,000
Capitalized research and development			428,000				289,000
Other			189,000				171,000
Subtotal			3,375,000				3,087,000
Less: Valuation allowance			(205,000	)			(204,000	)
Net deferred tax assets			3,170,000				2,883,000
Deferred tax liabilities:
Property and equipment			(556,000	)			(662,000	)
Other			(152,000	)			(69,000	)
Total deferred tax liabilities			(708,000	)			(731,000	)
Net deferred tax assets		$	2,462,000			$	2,152,000

 

 

The Company has research and development state tax credit carryforwards, net of federal tax impacts, of $205,000 and $204,000 as of June 30, 2025, and June 30, 2024, respectively. Based on the historical use of the credits, management believes it is more likely than not these credits will begin to expire unused between fiscal years 2026 and 2038. As of June 30, 2025, and June 30, 2024, the Company had a valuation allowance of $205,000 and $204,000, respectively, related to its research and development state tax carryforwards.

 

The Company’s effective tax rates for the fiscal years ended June 30, 2025, and 2024 differ from its 21% U.S. statutory corporate tax rate due to the impact of state income taxes, permanent tax differences, the tax impact of the vesting of restricted stock units, and changes in the Company’s deferred tax asset valuation allowance. The effective tax rate in any year or quarter can be affected positively or negatively by adjustments that are required to be reported in the specific quarter of resolution. The effective income tax rate for the fiscal years ended June 30, 2025, and 2024 were 26.7% and 26.8%, respectively.

 

The Company applies the accounting standard for uncertain tax positions pursuant to which a more-likely-than-not threshold is utilized to determine the recognition and derecognition of uncertain tax positions. Once the more-likely-than-not threshold is met, the amount of benefit to be recognized is the largest amount of tax benefit that is greater than 50 percent likely of being ultimately realized upon settlement. It further requires that a change in judgment related to the expected ultimate resolution of uncertain tax positions be recognized in earnings in the period of such a change. The Company does not believe that it has any material uncertain tax positions as of June 30, 2025, and June 30, 2024.

 

The Company is subject to U.S. federal income tax as well as income tax of multiple state jurisdictions. With limited exceptions, the Company is no longer subject to federal and state income tax examinations by tax authorities for fiscal year ended prior to June 30, 2022. The Internal Revenue Service has completed its examination of the Company’s U.S. federal income tax return for the fiscal year ended June 30, 2022, without proposing any adjustments. The Company is not under any current income tax examinations by any other state or local taxing authority. If any issues addressed in the Company’s tax audits are resolved in a manner not consistent with management’s expectations, the Company could be required to adjust its provision for income taxes in the period such resolution occurs.

 

The One, Big, Beautiful Bill Act (the “Act”) was signed into law on July 4, 2025. The Act contains tax law changes with various effective dates affecting business taxpayers. Among the tax law changes were provisions that would impact the Company related to the timing of certain tax deductions including depreciation expense, research and development expenditures, and interest expense. The Company will implement the tax law changes in the first quarter of fiscal 2026. The Company does not anticipate any material impacts to its overall tax expense; however, we do expect a reclassification between current and deferred tax expense.