ESPEY MFG & ELECTRONICS CORP Income Taxes Disclosure

Note 8. Provision for Income Taxes

 

A summary of the components of the provision for income taxes for the years ended June 30, 2025 and 2024 is as follows:

 

		2025				2024
Current tax expense - federal		$	1,882,969			$	2,515,865
Current tax (benefit) expense - state			9,606				(3,010	)
Deferred tax benefit			(306,865	)			(1,032,981	)
Provision for income taxes		$	1,585,710			$	1,479,874

 

Deferred income taxes reflect the impact of "temporary differences" between the amount of assets and liabilities for financial reporting purposes and such amounts measured by tax laws and regulations. These "temporary differences" are determined in accordance with FASB ASC 740-10.

 

The combined U.S. federal and state effective income tax rates of 16.3% and 20.3%, for 2025 and 2024 respectively, differed from the statutory U.S. federal income tax rate for the following reasons:

 

		2025				2024
U.S. federal statutory income tax rate			21.0%				21.0%
Increase (reduction) in rate resulting from:
State franchise tax, net of federal income tax benefit			0.1				—
ESOP cost versus Fair Market Value			0.5				0.1
Dividend on allocated ESOP shares			(0.6	)			(0.3	)
Stock-based compensation			(3.8	)			0.2
Foreign derived intangible income			(0.9	)			(0.8	)
Other			(0.0	)			0.1
Effective tax rate			16.3%				20.3%

For the years ended June 30, 2025 and 2024 deferred income tax benefit of $306,865 and $1,032,981, respectively, results from the changes in temporary differences for each year. The tax effects of temporary differences that give rise to deferred tax assets and deferred tax liabilities as of June 30, 2025 and 2024 are presented as follows:

 

		2025				2024
Deferred tax assets:
Accrued expenses		$	171,491			$	138,158
ESOP			39,113				32,698
Property, plant and equipment - principally due to differences in depreciation methods			1,023,074				601,358
Pension Withdrawal			—				162,153
Stock-based compensation			38,568				39,724
Total deferred tax assets		$	1,272,246			$	974,091
Deferred tax liability:
Inventory - effect of uniform capitalization			25,477				33,817
Prepaid expenses			44,750				45,120
Total deferred tax liability		$	70,227			$	78,937
Net deferred tax asset (liability)		$	1,202,019			$	895,154

 

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projection for future taxable income over the period in which the deferred tax assets are deductible, management believes it is more likely than not that the Company will realize the benefits of these temporary differences without consideration of a valuation allowance.

 

As the result of the implementation of the FASB interpretation No. 48 (“FIN 48”), Accounting for Uncertainty in Income Taxes – An Interpretation of FASB Statement No. 109, the Company recognized no material adjustments to unrecognized tax benefits. As of June 30, 2025 and 2024, the Company has no unrecognized tax benefits.

 

The Company recognizes interest and penalties in general and administrative expense. As of June 30, 2025 and 2024, the Company has not recorded any provision for accrued interest and penalties.

 

The Company is subject to taxation in the United States and various state jurisdictions. The federal tax returns are subject to audit for three years from date of filing unless the return was audited within that period. In general, the majority of state statutes follow similar guidelines. As such, the Company’s tax returns for tax years ending June 30, 2025, 2024, and 2023 remain open to examination by the respective taxing authorities.