HENNESSY ADVISORS INC Income Taxes Disclosure

(12)	Income Taxes

 

As of the end of each of fiscal years 2025 and 2024, the Company’s gross liability for unrecognized tax benefits related to uncertain tax positions was $0.4 million and $0.4 million, respectively. If the tax benefits of such amounts were recognized, $0.3 million and $0.3 million of such amounts, respectively, would decrease the Company’s effective income tax rate. As of September 30, 2025, and September 30, 2024, the Company’s net liability for accrued interest and penalties was $0.4 million and $0.3 million, respectively. The Company has elected to recognize interest and penalties related to unrecognized tax benefits as a component of income tax expense. The Company recognized approximately $0.05 million in interest and penalties during each of the years ended September 30, 2025, and September 30, 2024.

 

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

 

		Fiscal Years Ended September 30,
		2025				2024
		(In thousands)
Beginning year balance		$	353			$	353
Changes related to prior year tax positions			-				-
Ending year balance		$	353			$	353

 

The total amount of unrecognized tax benefits can change due to final regulations, audit settlements, tax examinations activities, lapse of applicable statutes of limitations, and the recognition and measurement criteria under the guidance related to accounting for uncertainly in income taxes. The Company is unable to estimate what this change could be within the next 12 months, but does not believe it would be material to its financial statements.

 

On July 4, 2025, the “One Big Beautiful Bill Act” (OBBBA) was signed into law. The OBBBA contains a broad range of provisions affecting businesses, including provisions related to bonus depreciation, research and development expensing, a favorable change for calculating the business interest deduction limitation under Section 163(j), and modifications to certain international rules. The impacts of the OBBBA are not anticipated to be material to the Company based on current operations, however the Company will continue to evaluate any future impacts to the consolidated financial statements.

 

The Company’s income tax expense was as follows:

 

		Fiscal Years Ended September 30,
		2025				2024
		(In thousands)
Current
Federal		$	2,160			$	1,179
State			589				377
Total current			2,749				1,556
Deferred
Federal			814				828
State			97				223
Total deferred			911				1,051
Total		$	3,660			$	2,607

 

The principal reasons for the differences from the federal statutory income tax rate and the Company’s effective tax rate were as follows:

 

		Fiscal Years Ended September 30,
		2025				2024
Federal statutory income tax rate			21.0	%			21.0	%
State income taxes, net of federal benefit			4.0				4.1
Permanent and other differences			0.4				0.8
Difference due to executive compensation			2.2				1.5
Tax return to provision adjustments			(0.1	)			(0.1	)
Uncertain tax position			0.3				0.5
Stock-based compensation			(0.9	)			(0.9	)
Effective income tax rate			26.9	%			26.9	%

 

The tax effects of temporary differences that give rise to significant portions of deferred tax assets and liabilities were as follows:

 

		Fiscal Years Ended September 30,
		2025				2024
		(In thousands)
Deferred tax assets
Accrued compensation		$	52			$	-
Stock compensation			41				33
State taxes			282				224
Lease liability			174				258
Total deferred tax assets			549				515
Deferred tax liabilities
Property and equipment			(75	)			(28	)
Management contracts			(16,878	)			(15,895	)
ROU asset			(169	)			(254	)
Total deferred tax liabilities			(17,122	)			(16,177	)
Net deferred tax liabilities		$	(16,573	)		$	(15,662	)