EASTERN CO Income Taxes Disclosure

8. INCOME TAXES

Deferred income taxes are provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and those for income tax reporting purposes. Deferred income tax (assets) liabilities relate to:

Income before income taxes consists of:

The provision for income taxes follows:

The Company adopted ASU 2023-09 "Income Taxes (Topic 740): Improvements To Income Tax Disclosures" on a prospective basis beginning with the year ended January 3, 2026.  The following table presents required disclosure pursuant to ASU 2023-09 and reconciles the U.S. federal statutory tax amount and rate to our actual global effective amount and rate for the year ended January 3, 2026. 

The following table presents required disclosure pursuant to ASU 2023-09 and reconciles the U.S. federal statutory tax amount and rate to our actual global effective amount and rate for continuing operations for the year ended January 3, 2026:

The following table presents required disclosure pursuant to ASU 2023-09 and reconciles the U.S. federal statutory tax amount and rate to our actual global effective amount and rate for discontinued operations for the year ended January 3, 2026:

The following table presents the required disclosures prior to the 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 28, 2024:

The following table presents the required disclosures prior to the adoption of ASU 2023-09 and reconciles the U.S. federal statutory income tax rate to the actual global effective income tax rate for continuing operations for the year ended December 28, 2024:

The following table presents the required disclosures prior to the adoption of ASU 2023-09 and reconciles the U.S. federal statutory income tax rate to the actual global effective income tax rate for discontinued operations for the year ended December 28, 2024:

The Company adopted ASU 2023-09 on a prospective basis for the year ended January 3, 2026 and has included the following table as a result of adoption, which presents income taxes paid (net of refunds received) for the year ended January 3, 2026:

The Company had income taxes paid of $5,166,195 for the year ended December 28, 2024, prior to the adoption of ASU 2023-09.

Under accounting standards (ASC 740), a deferred tax liability is not recorded for the excess of the financial reporting (book) basis over the tax basis of an investment in a foreign subsidiary if the indefinite reinvestment criteria are met. Effective for foreign earnings after December 30, 2017, if such earnings are distributed in the form of cash dividends, the Company would not be subject to additional U.S. income taxes but could be subject to foreign income and withholding taxes. A provision has not been made for additional U.S. federal and foreign taxes on January 3, 2026 of undistributed earnings of foreign subsidiaries because the Company intends to reinvest these funds indefinitely. It is not practicable to estimate the unrecognized deferred tax liability for withholding taxes on these undistributed earnings.

On December 14, 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures which applies to all entities subject to income taxes. The standard requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as information on income taxes paid. The standard is intended to benefit investors by providing more detailed income tax disclosures that would be useful in making capital allocation decisions. For public business entities (PBEs), the new requirements will be effective for annual periods beginning after December 15, 2024. The guidance will be applied on a prospective basis with the option to apply the standard retrospectively. The Company adopted ASU 2023-09 on a prospective basis for the year ending January 3, 2026.

A reconciliation of the beginning and ending amount of unrecognized tax benefits are as follows:

The Company files income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state, and local income tax examinations by tax authorities for years before 2021 and non-U.S. income tax examinations by tax authorities prior to 2019.

Included in the balance as of January 3, 2026, are $315,916 of unrecognized tax benefits that would affect the annual effective tax rate. In 2025, the Company recognized accrued interest related to unrecognized tax benefits in income tax expense. The Company had approximately $65,008 and $52,039 of accrued interest as of January 3, 2026 and December 28, 2024, respectively. The amount of interest reflected in the statement of operations was an expense of $12,969 and a benefit of $17,791 for the years ending January 3, 2026 and December 28, 2024, respectively.

The total amount of unrecognized tax benefits could increase or decrease within the next twelve months for several reasons, including the closure of federal, state, and foreign tax years by expiration of the statute of limitations and the recognition and measurement considerations under ASC 740.