KINGSWAY Corp Income Taxes Disclosure

NOTE 14 INCOME TAXES

 

The Company and all of its eligible U.S. subsidiaries file a U.S. consolidated federal income tax return ("KFSI Tax Group"). The method of allocating federal income taxes among the companies in the KFSI Tax Group is subject to written agreement, approved by each company's Board of Directors. The allocation is made primarily on a separate return basis, with current credit for any net operating losses or other items utilized in the consolidated federal income tax return. The Company’s non-U.S. subsidiaries file separate foreign income tax returns.   

 

The following table presents the components of consolidated loss from continuing operations before income tax benefit:

 

(in thousands)			Years ended December 31,
		2025				2024
Domestic		$	(13,744	)		$	(8,256	)
Foreign			(260	)			(4	)
Loss from continuing operations before income tax benefit		$	(14,004	)		$	(8,260	)

 

The following table presents the components of income tax benefit:

 

(in thousands)		Years ended December 31,
		2025				2024
Current income tax expense
Federal		$	—			$	1
State and local			321				389
Total current income tax expense			321				390
Deferred income tax benefit
Federal			(3,866	)			(352	)
State and local			(207	)			(185	)
Total deferred income tax benefit			(4,073	)			(537	)
Income tax benefit		$	(3,752	)		$	(147	)

 

Income tax benefit varies from the amount that would result by applying the applicable U.S. corporate income tax rate of 21% to loss from continuing operations before income tax benefit. The following table summarizes the differences:

 

(in thousands)		Years Ended December 31,
		2025								2024
		Amount				Percent				Amount				Percent
U.S Federal Statutory tax rate		$	(2,941	)			21.0	%		$	(1,735	)			21.0	%
State and local income taxes, net of federal income tax effects (a)			90				(0.6	)%			161				(1.9	)%
Foreign tax effects			55				(0.4	)%			1				0.0	%
Changes in valuation allowances			(1,204	)			8.6	%			1,364				(16.5	)%
Nontaxable or non deductible items:
Shared-based payments awards			(56	)			0.4	%			(823	)			10.0	%
Non-deductible compensation			217				(1.5	)%			966				(11.7	)%
Non-deductible transactions costs			151				(1.1	)%			3				0.0	%
Earnings of noncontrolling interests			(93	)			0.7	%			(166	)			2.0	%
Other			29				(0.2	)%			82				(1.0	)%
Effective tax rate		$	(3,752	)			26.8	%		$	(147	)			1.8	%

 

(a)

State taxes in California, Florida and Texas for 2025 made up the majority (greater than 50%) of the tax effect in this category.

 

The tax effects of temporary differences that give rise to significant portions of the deferred income tax assets and liabilities are presented as follows:

 

(in thousands)		December 31,
		2025				2024
Deferred income tax assets:
Losses carried forward		$	134,226			$	132,150
Unpaid loss and loss adjustment expenses and unearned premiums			4,002				3,790
Intangible assets			649				860
Investments			25				109
Deferred revenue			247				247
Compensation			279				219
Other			510				465
Valuation allowance			(129,412	)			(130,707	)
Deferred income tax assets		$	10,526			$	7,133
Deferred income tax liabilities:
Indefinite life intangibles		$	(4,178	)		$	(3,899	)
Depreciation and amortization			(1,016	)			(140	)
Fair value of debt			(273	)			(334	)
Intangible assets			(2,875	)			(1,892	)
Deferred revenue			(1,762	)			(1,605	)
Deferred acquisition costs			(3,130	)			(2,913	)
Other			(517	)			(721	)
Deferred income tax liabilities		$	(13,751	)		$	(11,504	)
Net deferred income tax liabilities		$	(3,225	)		$	(4,371	)

 

The Company maintains a valuation allowance for its gross deferred income tax assets of $129.4 million (U.S. operations - $129.4 million; Other - less than $0.1 million) and $130.7 million (U.S. operations - $130.7 million; Other - less than $0.1 million) at December 31, 2025 and December 31, 2024, respectively. The Company's businesses have generated substantial operating losses in prior years. These losses can be available to reduce income taxes that might otherwise be incurred on future taxable income; however, it is uncertain whether the Company will generate the taxable income necessary to utilize these losses or other reversing temporary differences. This uncertainty has caused management to place a full valuation allowance on its December 31, 2025 and December 31, 2024 net deferred income tax assets, excluding the deferred income tax asset and liability amounts set forth in the paragraph below.

 

The Company carries net deferred income tax liabilities of $3.2 million and $4.4 million at December 31, 2025 and December 31, 2024, respectively, that consists of:

 

•

$4.1 million and $3.9 million of deferred income tax liabilities related to indefinite life intangible assets; and

	•	$1.4 million and $0.2 million of deferred income tax assets related to indefinite life tax attribute carryforwards; and
	•	$0.5 million and $0.7 million of deferred state income tax liabilities.

 

In 2025, the Company decreased its valuation allowance by $1.3 million primarily due to deferred tax liabilities assumed from corporate acquisitions.

 

In 2024, the Company increased its valuation allowance by $1.3 million primarily due to an increase in deferred tax assets created as a result of its net operating loss.

 

Amounts, originating dates and expiration dates of the KFSI Tax Group's consolidated U.S. net operating loss carryforwards, totaling $628.0 million, are as follows:

 

				Net operating loss
Year of net operating loss		Expiration date		(in thousands)
2009		2029		$	384,280
2010		2030			92,058
2011		2031			39,866
2012		2032			30,884
2013		2033			30,779
2014		2034			7,245
2016		2036			16,006
2017		2037			20,848
2025		Indefinite			4,941
2025		2040			1,127

 

In addition, not reflected in the table above, are net operating loss carryforwards of (i) $4.0 million relating to losses generated in separate U.S. tax return years, which losses will expire over various years through 2037 and (ii) $0.3 million relating to non-U.S. operations, which losses will expire over various years through 2045.

 

At  December 31, 2025 and December 31, 2024, the Company had no unrecognized tax benefits.  The Company classifies interest and penalty accruals, if any, related to unrecognized tax benefits as income tax benefit. 

 

On July 4, 2025, the “One Big Beautiful Bill” P.L. 119-21 was signed into law. This legislation includes changes to U.S. federal tax law, which may be subject to further clarification and the issuance of interpretive guidance. We are assessing the legislation and its effect on our consolidated financial statements, which we have started reflecting in 2025.

 

The federal income tax returns of the Company's U.S. operations for the years through 2021 are closed for Internal Revenue Service ("IRS") examination. The Company's federal income tax returns are not currently under examination by the IRS for any open tax years. The federal income tax returns of the Company's Canadian operations for the years through 2020 are closed for Canada Revenue Agency ("CRA") examination. The Company's Canadian federal income tax returns are not currently under examination by the CRA for any open tax years.