Horizon Technology Finance Corp Income Taxes Disclosure
Note 8. Federal income tax
The Company has elected to be treated as a RIC under Subchapter M of the Code and to distribute substantially all of its taxable income. Accordingly, no provision for federal, state or local income tax has been recorded in the financial statements. Taxable income differs from net increase in net assets resulting from operations primarily due to unrealized appreciation on investments as investment gains and losses are not included in taxable income until they are realized.
The following table reconciles net decrease in net assets resulting from operations to taxable income:
| Years Ended December 31, | ||||||||||||
| 2025 | 2024 | 2023 | ||||||||||
| (In thousands) | ||||||||||||
| Net decrease in net assets resulting from operations | $ | (2,661 | ) | $ | (5,633 | ) | $ | (17,185 | ) | |||
| Net unrealized (appreciation) depreciation on investments | (10,859 | ) | 18,785 | 48,780 | ||||||||
| Other book-tax differences | 815 | 1,455 | 931 | |||||||||
| Change in capital loss carry forward | 57,933 | 34,631 | 29,853 | |||||||||
| Taxable income before deductions for distributions | $ | 45,228 | $ | 49,238 | $ | 62,379 | ||||||
The tax characters of distributions paid are as follows:
| Years Ended December 31, | ||||||||||||
| 2025 | 2024 | 2023 | ||||||||||
| (In thousands) | ||||||||||||
| Ordinary income | $ | 55,984 | $ | 49,467 | $ | 42,576 | ||||||
| Total | $ | 55,984 | $ | 49,467 | $ | 42,576 | ||||||
The components of undistributed ordinary income earnings on a tax basis were as follows:
| As of December 31, | ||||||||||||
| 2025 | 2024 | 2023 | ||||||||||
| (In thousands) | ||||||||||||
| Undistributed ordinary income | $ | 27,631 | $ | 38,387 | $ | 38,616 | ||||||
| Long term capital loss carry forward | (195,472 | ) | (137,539 | ) | (102,908 | ) | ||||||
| Unrealized appreciation | 26,579 | 14,819 | 14,935 | |||||||||
| Unrealized depreciation | (84,602 | ) | (83,701 | ) | (65,032 | ) | ||||||
| Other temporary differences | 14,971 | 13,957 | 12,547 | |||||||||
| Total | $ | (210,893 | ) | $ | (154,077 | ) | $ | (101,842 | ) | |||
Depending on the level of taxable income earned in a tax year, the Company may choose to carry forward taxable income in excess of current year distributions into the next tax year and incur a 4% excise tax on such income, as required. For the years ended December 31, 2025 and 2024, the Company elected to carry forward taxable income in excess of current year distributions of $27.6 million and $38.4 million, respectively. At December 31, 2025 and 2024, a provision for excise tax of $1.1 million and $1.5 million was recorded, respectively.
Capital losses in excess of capital gains earned in a tax year may generally be carried forward, without expiration, and used to offset capital gains, subject to certain limitations. During the years ended December 31, 2025, 2024 and 2023, the Company did not use any material capital loss carry forwards to offset capital gains.
For federal income tax purposes, the tax cost of investments at December 31, 2025 and 2024 was $705.3 million and $766.8 million, respectively. The gross unrealized appreciation on investments at December 31, 2025 and 2024 was $26.6 million and $14.8 million, respectively. The gross unrealized depreciation on investments at December 31, 2025 and 2024 was $84.6 million and $83.7 million, respectively.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 3, 2026 | Showing above |
| 2024 | Mar 4, 2025 | |
| 2023 | Feb 27, 2024 | |
| 2022 | Feb 28, 2023 | |
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.