INTRUSION INC Income Taxes Disclosure
13. Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets (liabilities) as of December 31, 2024, and 2023 are as follows (in thousands):
| December 31, | ||||||||
| 2024 | 2023 | |||||||
| Net operating loss carryforwards | $ | 16,493 | $ | 15,998 | ||||
| Net operating loss carryforwards of foreign subsidiaries | 56 | 56 | ||||||
| Depreciation expense | (341 | ) | (182 | ) | ||||
| Stock-based compensation expense | 608 | 528 | ||||||
| Other | 550 | 546 | ||||||
| Net deferred tax assets | 17,366 | 16,946 | ||||||
| Valuation allowance for net deferred tax assets | (17,366 | ) | (16,946 | ) | ||||
| Net deferred tax assets, net of valuation allowance | $ | – | $ | – | ||||
Deferred tax assets are required to be reduced by a valuation allowance if it is more likely than not that some portion or all the deferred tax assets will not be realized. Realization of the future benefits related to the deferred tax assets is dependent on many factors, including the Company’s ability to generate taxable income within the near to medium term. Management has considered these factors in determining the valuation allowance for 2024 and 2023.
The differences between the provision for income taxes and income taxes computed using the federal statutory rate for the years ended December 31, 2024, and 2023 are as follows (in thousands):
| 2024 | 2023 | |||||||
| Reconciliation of income tax benefit to statutory rate: | ||||||||
| Income benefit at statutory rate | $ | (1,636 | ) | $ | (2,917 | ) | ||
| State income taxes (benefit), net of federal income tax benefit | (61 | ) | (109 | ) | ||||
| Permanent differences | 1 | (427 | ) | |||||
| Change in valuation allowance | 420 | (211 | ) | |||||
| Expiring federal net operating losses | 1,079 | 3,341 | ||||||
| Other | 197 | 323 | ||||||
| Income tax provision | $ | – | $ | – | ||||
On December 31, 2024, the Company had federal net operating loss carryforwards of approximately $78.5 million for income tax purposes that begin to expire in 2025 and are subject to the ownership change limitations under Internal Revenue Code Section 382.
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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.