GENCOR INDUSTRIES INCGENC
GENCOR INDUSTRIES INC Income Taxes Disclosure
NOTE 6 - INCOME TAXES
The provision for income tax expense as of September 30, 2025 and 2024 consisted of the following:
| Year Ended September 30, | ||||||||
| 2025 | 2024 | |||||||
| Current: |
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| Federal |
$ | 4,645,000 | $ | 4,718,000 | ||||
| State |
446,000 | 335,000 | ||||||
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| Total current |
5,091,000 | 5,053,000 | ||||||
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| Deferred: |
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| Federal |
(442,000 | ) |
609,000 | |||||
| State |
(111,000 | ) |
510,000 | |||||
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| Total deferred |
(553,000 | ) |
1,119,000 | |||||
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| Income tax expense |
$ | 4,538,000 | $ | 6,172,000 | ||||
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A reconciliation of the federal statutory tax rate to the total tax provision is as follows:
Year Ended September 30, |
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2025 |
2024 |
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| Federal income taxes computed at the statutory rate |
21.0 | % | 21.0 | % | ||||
| State income taxes, net of federal benefit |
1.2 | % | 1.2 | % | ||||
| Unrecognized tax benefits |
3.0 | % | 5.8 | % | ||||
| Research and development tax credit |
(1.8 |
%) | — | |||||
| Foreign-derived intangible income deduction |
(1.0 | %) | (0.3 | %) | ||||
| Other, net |
0.1 | % | 2.1 | % | ||||
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| Effective income tax rate |
22.5 | % | 29.8 | % | ||||
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Deferred income tax assets and liabilities as of September 30, 2025 and 2024 consisted of the following:
| September 30, | ||||||||
| 2025 | 2024 | |||||||
| Deferred Tax Assets: |
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| Accrued liabilities and reserves |
$ | 1,347,000 | $ | 494,000 | ||||
| Allowance for credit losses |
97,000 | 86,000 | ||||||
| Inventory |
4,942,000 | 4,700,000 | ||||||
| Net operating losses carryforwards |
23,000 | 20,000 | ||||||
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| Gross Deferred Income Tax Assets |
6,409,000 | 5,300,000 | ||||||
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| Deferred and Other Tax Liabilities: |
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| Unrealized gain on investments |
(534,000 | ) |
(233,000 | ) | ||||
| Property and equipment |
(1,291,000 | ) |
(1,643,000 | ) | ||||
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| Gross Deferred and Other Income Tax Liabilities |
(1,825,000 | ) |
(1,876,000 | ) | ||||
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| Net Deferred and Other Income Tax Assets |
$ | 4,584,000 | $ | 3,424,000 | ||||
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Total income taxes paid in fiscal 2025 and 2024 were $4,076,000 and $7,860,000, respectively.
GAAP prescribes a comprehensive model for the financial recognition, measurement, classification, and disclosure of uncertain tax positions. GAAP contains a
two-step
approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, based on the technical merits of the position. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement. Significant judgment is required in evaluating the Company’s uncertain tax position and determining the Company’s provision for taxes. Although the Company believes the reserves of unrecognized tax benefits (“UTBs”) are reasonable, no assurance can be given that the final outcome of these matters will not be different from that which is reflected in the Company’s historical income tax provision and accruals. The Company adjusts these reserves in light of changing facts and circumstances. As of September 30, 2025 and 2024, the Company had UTBs of $1,983,000 and $1,376,000, respectively. The Company accrued $607,000 of UTB’s in the year ended September 30, 2025. The Company accrued $1,200,000 of UTB’s in the year ended September 30, 2024.
A reconciliation of the beginning and ending amount of our unrecognized tax benefits for the years ended September 30, 2025 and 2024 is as follows:
| 2025 | 2024 | |||||||
Balance, beginning of year |
$ | 1,376,000 | $ | 176,000 | ||||
Additions based on tax positions related to the current year |
612,000 | 454,000 | ||||||
Additions (reductions) based on tax positions of prior years |
(5,000 | ) |
746,000 | |||||
Balance, end of year |
$ | 1,983,000 | $ | 1,376,000 | ||||
The Company recognizes interest and penalties accrued related to UTBs as a component of income tax expense. There were no additional accruals of interest expense nor penalties of significance during fiscal years ended September 30, 2025 and 2024. It is reasonably possible that the amount of the UTBs with respect to certain unrecognized tax positions will increase or decrease during the next 12 months. The Company does not expect the change to have a material effect on its results of operations or its financial position. The only expected potential reason for change would be the ultimate results stemming from any examinations by taxing authorities. If recognized, the entire amount of UTBs would have an impact on the Company’s effective income tax rate.
The effective income tax rate for fiscal 2025 was 22.5% versus 29.8% in fiscal 2024.
In fiscal 2025, the Company generated $354,000 of federal research and development tax credits (“R&D Credits”), all of which were used in fiscal 2025. There were
no R&D Credits generated in fiscal 2024 and there were no carryforwards of R&D Credits as of September 30, 2025 or September 30, 2024. The Company files U.S. federal income tax returns, as well as income tax returns in multiple state jurisdictions. No income tax returns are currently under examination by taxing authorities The Company’s U.S. federal income tax returns filed for tax years prior to fiscal year ended September 30, 2022 are generally no longer subject to examination by taxing authorities due to the expiration of the statute of limitations. With a few exceptions, the Company is no longer subject to state and local income tax examinations for periods prior to fiscal 2021.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Dec 9, 2025 | Showing above |
| 2019 | Dec 11, 2019 | |
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.