GENERAL DYNAMICS CORPGD

GENERAL DYNAMICS CORP Income Taxes Disclosure

10-KFiled Jan 30, 20265 min read
INCOME TAXES
Income Tax Provision. We calculate our provision for federal, state and foreign income taxes based on current tax law. The following is a summary of our net provision for income taxes for continuing operations:
Year Ended December 31202520242023
Current:
U.S. federal$357 $622 $619 
State3 32 27 
Foreign277 190 200 
Total current637 844 846 
Deferred:
U.S. federal282 (90)(131)
State16 (4)7 
Foreign(42)8 (53)
Total deferred256 (86)(177)
Provision for income taxes, net:
U.S. federal639 532 488 
State19 28 34 
Foreign235 198 147 
Provision for income taxes, net$893 $758 $669 
Net income tax payments$568 $560 $1,100 
The reported tax provision differs from the amounts paid because some income and expense items are recognized in different time periods for financial reporting than for income tax purposes. This includes the impact of the requirement, effective January 1, 2022, through December 31, 2024, to capitalize and amortize over five years certain R&D expenditures that were previously deductible immediately for tax purposes. Among other changes, the Budget Reconciliation Act of 2025 (Act) allows for the immediate deduction of domestic research and development expenditures beginning January 1, 2025, and permits the accelerated deduction of amounts capitalized under prior law. We otherwise do not expect the Act to have a material effect on our tax provision.
State and local income taxes allocable to U.S. government contracts are included in operating costs and expenses in the Consolidated Statement of Earnings and, therefore, are not included in the provision above.
The reconciliation from the statutory federal income tax rate to our effective income tax rate, applying ASU 2023-09 prospectively, follows:
Year Ended December 312025
U.S. federal statutory income tax$1,072 21.0%
Tax credits
Research and development tax credit(180)(3.5)
Effects of cross-border tax laws
Foreign-derived intangible income(36)(0.7)
State tax on commercial operations, net of federal benefits15 0.3 
Foreign tax effects38 0.7 
Nontaxable or nondeductible items37 0.7 
Other reconciling items
Equity-based compensation(43)(0.8)
Other, net(10)(0.2)
Effective income tax rate$893 17.5%
The reconciliation from the statutory federal income tax rate to our effective income tax rate, applying ASC 740 prior to the adoption of ASU 2023-09, follows:
Year Ended December 3120242023
U.S. federal statutory income tax rate21.0%21.0%
Domestic tax credits(3.3)(3.3)
Equity-based compensation(1.0)(0.4)
Foreign-derived intangible income(1.7)(1.6)
State tax on commercial operations, net of federal benefits0.5 0.7 
Global impact of international operations1.0 0.5 
Other, net0.2 (0.1)
Effective income tax rate16.7%16.8%
Cash paid for income taxes (net of refunds) consisted of the following:
Year Ended December 312025
Federal$331 
State4 
Foreign
Canada98 
Saudi Arabia59 
Other76 
Total Foreign233 
Cash paid for income taxes (net of refunds)$568 
Earnings from continuing operations before taxes by foreign and domestic operations follows:
Year Ended December 312025
Domestic$4,199 
Foreign904 
Total$5,103 
Net Deferred Tax Liability. The tax effects of temporary differences between reported earnings and taxable income consisted of the following:
December 3120252024
Research and development expenditures$500 $968 
Lease liabilities412 441 
Tax loss and credit carryforwards384 185 
Salaries and wages215 223 
Workers’ compensation160 153 
Retirement benefits115 251 
Other385 383 
Deferred assets2,171 2,604 
Valuation allowances(158)(169)
Net deferred assets$2,013 $2,435 
Intangible assets$(1,057)$(1,063)
Contract accounting methods(670)(682)
Property, plant and equipment(450)(447)
Lease right-of-use assets(401)(425)
Capital Construction Fund qualified ships(57)(57)
Other(315)(315)
Deferred liabilities$(2,950)$(2,989)
Net deferred tax liability$(937)$(554)
Our deferred tax assets and liabilities are included in other noncurrent assets and liabilities on the Consolidated Balance Sheet. Our net deferred tax liability consisted of the following:
December 3120252024
Deferred tax asset$19 $19 
Deferred tax liability(956)(573)
Net deferred tax liability$(937)$(554)
We believe it is more likely than not that we will generate sufficient taxable income in future periods to realize our deferred tax assets, subject to the valuation allowances recognized.
Our deferred tax balance associated with our retirement benefits includes a deferred tax asset of $359 on December 31, 2025, and $446 on December 31, 2024, related to the amounts recorded in accumulated other comprehensive loss (AOCL) to recognize the funded status of our retirement plans. For a reconciliation of the change in funded status of our defined benefit plans in 2025, see Note S.
One of our deferred tax liabilities results from our participation in the Capital Construction Fund (CCF), a program established by the U.S. government and administered by the Maritime Administration that supports the acquisition, construction, reconstruction or operation of U.S. flag merchant marine vessels. The program allows us to defer federal and state income taxes on earnings derived from eligible programs as long as the proceeds are deposited in the fund and withdrawals are used for qualified activities. We had U.S. government accounts receivable pledged (and thereby deposited) to the CCF of $348 and $333 on December 31, 2025 and 2024, respectively.
On December 31, 2025, we had net operating loss carryforwards of $663, substantially all of which are associated with jurisdictions that have an indefinite carryforward period.
Tax Uncertainties. We participate in the Internal Revenue Service (IRS) Compliance Assurance Process (CAP), a real-time review of our consolidated federal corporate income tax return. The IRS has examined our consolidated federal income tax returns through 2024. We are currently in a CAP phase (Bridge Plus) in which the IRS considers certain tax return information in advance to expedite their risk assessment and review of our return.
For all periods open to examination by tax authorities, we periodically assess our liabilities and contingencies based on the latest available information. Where we believe there is more than a 50% chance that our tax position will not be sustained, we record our best estimate of the resulting tax liability, including interest, in the Consolidated Financial Statements. We include any interest or penalties incurred in connection with income taxes as part of income tax expense.
Based on all known facts and circumstances and applicable tax law, we believe the total amount of any unrecognized tax benefits on December 31, 2025, was not material to our results of operations, financial condition or cash flows. In addition, there are no tax positions for which it is reasonably possible that the unrecognized tax benefits will vary significantly over the next 12 months, producing, individually or in the aggregate, a material effect on our results of operations, financial condition or cash flows.
The Organization for Economic Co-operation and Development has issued “Pillar Two” model rules introducing a new global minimum tax of 15% on a country-by-country basis, with certain aspects intended to be effective on January 1, 2024, and other aspects on January 1, 2025. Because we generally do not have material operations in jurisdictions with tax rates lower than the proposed Pillar Two
minimum, any legislation enacted consistent with the Pillar Two model rules is not expected to have a material effect on our results of operations, financial condition or cash flows.
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Historical Timeline

Fiscal YearFiled
2025Jan 30, 2026Showing above
2024Feb 7, 2025
2023Feb 8, 2024
2022Feb 7, 2023
2021Feb 9, 2022
2020Feb 9, 2021
2019Feb 10, 2020
2018Feb 13, 2019
2017Feb 12, 2018
2016Feb 6, 2017
2015Feb 8, 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.

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