ELECTRO SENSORS INC Income Taxes Disclosure
Note 10. Income Taxes
The components of the income tax provision are as follows:
|
| Years Ended December 31, | ||||
|
| 2025 |
| 2024 | ||
|
|
|
|
| ||
Current: |
|
|
|
|
|
|
Federal |
| $ | 3 |
| $ | 144 |
State |
|
| 1 |
|
| 1 |
Deferred: |
|
|
|
|
|
|
Federal |
|
| 37 |
|
| (155) |
State |
|
| 0 |
|
| 0 |
Total Federal and State Income Taxes |
| $ | 41 |
| $ | (10) |
The provision for income taxes differs from the amount obtained by applying the U.S. federal income tax rate to pretax income due to the following:
|
| Years Ended December 31, | ||||||||||
|
| 2025 |
| 2024 | ||||||||
|
| Dollars |
|
| Percentages |
| Dollars |
|
| Percentages | ||
Computed “Expected” Federal Tax Expense |
| $ | 73 |
|
| 21.0 |
| $ | 92 |
|
| 21.1 |
Increase (Decrease) in Taxes Resulting From: |
|
|
|
|
|
|
|
|
|
|
|
|
State Income Taxes, net of Federal Benefit |
|
| 1 |
|
| 0.2 |
|
| 1 |
|
| 0.2 |
R&D Credits |
|
| (4) |
|
| (1.1) |
|
| (88) |
|
| (20.2) |
Effect of tax law changes |
|
| (193) |
|
| (55.6) |
|
| 0 |
|
| 0.0 |
Tax net operating loss |
|
| 130 |
|
| 37.5 |
|
| 0 |
|
| 0.0 |
Permanent Differences |
|
| 5 |
|
| 1.4 |
|
| 4 |
|
| 0.9 |
Other |
|
| 29 |
|
| 8.4 |
|
| (19) |
|
| (4.3) |
Total Federal and State Income Taxes |
| $ | 41 |
|
| 11.8 |
| $ | (10) |
|
| (2.3) |
On July 4, 2025, President Trump signed into law the One Big Beautiful Bill Act ("OBBBA"). The OBBBA codifies certain key elements of the Tax Cuts and Jobs Act, including making permanent the 100% bonus depreciation on qualified fixed assets, making permanent the immediate deduction for domestic research and experimentation expenses, and permanently changing the limitation on the deduction of business interest expense. ASC 740 "Income Taxes," requires that the effect of changes in tax rates and laws on deferred taxes be recognized in the period in which the applicable legislation is enacted. Consequently, the Company evaluated all deferred tax balances under the newly enacted tax law and identified any other changes required to the financial statements as a result of the OBBBA.
The components of the net deferred tax asset consist of:
|
| December 31, | ||||
|
| 2025 |
| 2024 | ||
Deferred Tax Assets: |
|
|
|
|
|
|
Vacation accrual |
| $ | 26 |
| $ | 27 |
Allowance for credit losses |
|
| 2 |
|
| 2 |
Stock compensation |
|
| 41 |
|
| 52 |
Bonus |
|
| 8 |
|
| 4 |
Depreciation and amortization |
|
| 31 |
|
| 53 |
Inventory obsolescence |
|
| 4 |
|
| 2 |
R&D expenses |
|
| 196 |
|
| 392 |
Net loss carryforward |
|
| 129 |
|
| 0 |
R&D credit carryforward |
|
| 397 |
|
| 311 |
Valuation allowance |
|
| (340) |
|
| (311) |
Total Deferred Tax Assets |
|
| 494 |
|
| 532 |
|
|
|
|
|
|
|
Deferred Tax Liabilities: |
|
|
|
|
|
|
Prepaid expenses |
|
| 30 |
|
| 31 |
Total Deferred Tax Liabilities |
|
| 30 |
|
| 31 |
|
|
|
|
|
|
|
Net Deferred Tax Asset |
| $ | 464 |
| $ | 501 |
R&D credits can be carried forward for twenty years for federal purposes and fifteen years in Minnesota.
The Company is materially subject to the following taxing jurisdictions: U.S. and Minnesota. The tax years 2022 through 2024 remain open to examination by the Internal Revenue Service and state jurisdictions. We have no accrued interest or penalties related to uncertain tax positions as of December 31, 2025 or December 31, 2024 and uncertain tax positions are not significant.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 30, 2026 | Showing above |
| 2024 | Mar 19, 2025 | |
| 2023 | Mar 20, 2024 | |
| 2022 | Mar 17, 2023 | |
| 2021 | Mar 31, 2022 | |
| 2020 | Mar 25, 2021 | |
| 2019 | Mar 25, 2020 | |
| 2018 | Mar 20, 2019 | |
| 2017 | Mar 20, 2018 | |
| 2016 | Mar 29, 2017 | |
| 2015 | Mar 14, 2016 | |
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.