Lovesac CoLOVE
Lovesac Co Income Taxes Disclosure
Income Taxes
The Company is subject to federal, state and local corporate income taxes. The components of the provision for income taxes reflected on the statements of operations for fiscal 2026, 2025, and 2024 are set forth below (in thousands):
| 2026 | 2025 | 2024 | ||||||||||||||||||
| Current taxes: | ||||||||||||||||||||
| U.S. federal | $ | (212) | $ | 6,767 | $ | 6,898 | ||||||||||||||
| State and local | 922 | 2,600 | 3,190 | |||||||||||||||||
| Total current tax expense | $ | 710 | $ | 9,367 | $ | 10,088 | ||||||||||||||
| Deferred taxes: | ||||||||||||||||||||
| U.S. federal | $ | 2,106 | $ | (3,498) | $ | (1,238) | ||||||||||||||
| State and local | (216) | (976) | (888) | |||||||||||||||||
| Total deferred tax (benefit) expense | 1,890 | (4,474) | (2,126) | |||||||||||||||||
| Total income tax expense | $ | 2,600 | $ | 4,893 | $ | 7,962 | ||||||||||||||
A reconciliation of income taxes at the federal statutory corporate rate to the effective rate for fiscal 2026, 2025, and 2024 after the adoption of ASU 2023-09 is as follows (dollar amounts in thousands):
| 2026 | 2025 | 2024 | ||||||||||||||||||||||||||||||||||||
| U.S. Federal tax at statutory rate | $ | 1,399 | 21.0 | % | $ | 3,454 | 21.0 | % | $ | 6,683 | 21.0 | % | ||||||||||||||||||||||||||
State and local income taxes, net of federal effect(1) | 512 | 7.7 | % | 1,078 | 6.6 | % | 1,632 | 5.1 | % | |||||||||||||||||||||||||||||
| Tax Credits: | ||||||||||||||||||||||||||||||||||||||
| R&D Tax Credit | (233) | (3.5) | % | (353) | (2.2) | % | (1,131) | (3.6) | % | |||||||||||||||||||||||||||||
| Non-taxable or non-deductible items: | ||||||||||||||||||||||||||||||||||||||
| Section 162(m) Limit on Compensation | 262 | 3.9 | % | — | — | % | 149 | 0.5 | % | |||||||||||||||||||||||||||||
| Share-based compensation | 577 | 8.7 | % | 442 | 2.7 | % | 81 | 0.3 | % | |||||||||||||||||||||||||||||
| Penalties | 10 | 0.1 | % | 316 | 1.9 | % | 8 | — | % | |||||||||||||||||||||||||||||
| Meals and Entertainment | 21 | 0.3 | % | 30 | 0.2 | % | 24 | 0.1 | % | |||||||||||||||||||||||||||||
| Changes in unrecognized tax benefits | 75 | 1.1 | % | (38) | (0.2) | % | 452 | 1.4 | % | |||||||||||||||||||||||||||||
| Other | (23) | (0.3) | % | (36) | (0.2) | % | 64 | 0.2 | % | |||||||||||||||||||||||||||||
| Total income tax expense | $ | 2,600 | 39.0 | % | $ | 4,893 | 29.7 | % | $ | 7,962 | 25.0 | % | ||||||||||||||||||||||||||
(1) The following states make up the majority of the tax effect in this category: Fiscal 2026—California, Florida, Maryland, Virginia, Illinois, Pennsylvania, New Jersey, and New York; Fiscal 2025—California, New Jersey, Pennsylvania, Illinois, Florida, New York, and Maryland; Fiscal 2024—California, New Jersey, Illinois, Pennsylvania, Florida, Maryland, and New York.
The following table presents income taxes paid, net of refunds received, disaggregated by jurisdiction (in thousands):
| Jurisdiction | 2026 | 2025 | 2024 | |||||||||||||||||
| U.S. Federal | $ | 7,343 | $ | 6,000 | $ | 1,108 | ||||||||||||||
| States | 2,630 | 2,447 | 702 | |||||||||||||||||
| Total | $ | 9,973 | $ | 8,447 | $ | 1,810 | ||||||||||||||
Significant components of the Company's deferred tax assets are as follows (in thousands):
| February 1, 2026 | February 2, 2025 | |||||||||||||
| Deferred Income Tax Assets | ||||||||||||||
| Federal net operating loss carryforward | $ | 2,252 | $ | — | ||||||||||
| State net operating loss carryforward | 334 | 286 | ||||||||||||
| Research and development credit carryforward | 181 | — | ||||||||||||
| Intangible assets | 433 | 467 | ||||||||||||
| Accrued liabilities | 3,457 | 4,043 | ||||||||||||
| Equity-based compensation | 2,863 | 3,122 | ||||||||||||
| Merchandise inventories | 5,621 | 4,534 | ||||||||||||
| Charitable contributions | 13 | — | ||||||||||||
| Research and development capitalization | 2,091 | 4,183 | ||||||||||||
| Operating lease liabilities | 49,573 | 46,994 | ||||||||||||
| Total Deferred Income Tax Assets | 66,818 | 63,629 | ||||||||||||
| Deferred Income Tax Liabilities | ||||||||||||||
| Operating lease right of use asset | (42,057) | (40,505) | ||||||||||||
| Property and equipment | (11,374) | (7,847) | ||||||||||||
| Total Deferred Tax Liabilities | (53,431) | (48,352) | ||||||||||||
| Net Deferred Income Tax Asset | $ | 13,387 | $ | 15,277 | ||||||||||
At February 1, 2026, the Company had $10.7 million of net operating loss carryforwards available for federal income tax purposes. At February 2, 2025, the Company did not have any net operating loss carryforwards available for federal income tax purposes. The Company has approximately $6.4 million and $4.8 million of state net operating loss carryforwards as of February 1, 2026 and February 2, 2025, respectively. The state net operating losses expire at various times between 2032 and 2040. The statute of limitations has expired for all tax years prior to 2022 for federal and state tax purposes. However, the net operating losses generated on the Company's federal and state tax returns in prior years may be subject to adjustments by the federal and state tax authorities.
As of February 1, 2026 and February 2, 2025, the Company did not record a valuation allowance against its net deferred tax assets, due to its assessment and conclusion that it is more likely than not that it would realize its net deferred tax assets.
A reconciliation of beginning and ending amounts of unrecognized tax benefits for fiscal 2026, 2025, and 2024 is as follows:
| 2026 | 2025 | 2024 | ||||||||||||||||||
| Gross unrecognized tax benefit, beginning of period | $ | 375 | $ | 452 | $ | — | ||||||||||||||
| Additions based on tax positions related to the current year | 45 | 65 | 177 | |||||||||||||||||
| Additions related to tax positions in prior year | 1 | — | 275 | |||||||||||||||||
| Settlements related to tax positions in a prior period | — | — | — | |||||||||||||||||
| Decreases based on tax positions in a prior period | — | (142) | — | |||||||||||||||||
| Gross unrecognized tax benefit, end of period | $ | 421 | $ | 375 | $ | 452 | ||||||||||||||
The Company recognizes only those tax positions that meet the more-likely-than-not recognition threshold and establishes tax reserves for uncertain tax positions that do not meet this threshold. As of February 1, 2026 and February 2, 2025, the Company had unrecognized tax benefits of $0.4 million at each reporting date. The Company does not anticipate any material adjustments relating to unrecognized tax benefits within the next twelve months; however, the ultimate outcome of tax matters is uncertain and unforeseen results can occur. We had no material interest or penalties during fiscal 2026, 2025, and 2024. To the extent these unrecognized tax benefits are ultimately recognized, approximately $0.4 million will impact the Company’s effective tax rate. Our policy is to record interest and penalties directly related to uncertain tax positions as income tax expense in the statements of operations.
The Internal Revenue Service (IRS) has concluded the audit of the Company's fiscal 2019 federal income tax return as of February 4, 2024. During fiscal 2025, the Company filed amended federal and state income tax returns for fiscal 2022 and 2023 as a result of the IRS audit settlement. The amended returns did not have a material impact to the financial statements.
For tax years beginning after December 31, 2021, the Tax Cuts & Jobs Act of 2017 eliminated the option to deduct research and development expenditures as incurred and instead required taxpayers to capitalize and amortize them over five or 15 years beginning in 2022. For fiscal 2025 and 2024, due to the capitalization of research and development expenditures, the Company’s current federal taxable income increased by approximately $7.5 million and $9.0 million, respectively, with a corresponding increase in the Company’s deferred tax assets.
On July 4, 2025, the One Big Beautiful Bill Act (the “OBBBA”) was signed into law. The OBBBA includes various changes to U.S. federal income tax law, including extensions of several expiring provisions from the Tax Cuts and Jobs Act of 2017. The OBBBA has multiple effective dates, with certain provisions effective in 2025. The OBBBA did not have a material impact on the Company’s effective tax rate for year ended February 1, 2026. The Company will continue to evaluate the impact of the new legislation on its consolidated financial statements as additional guidance is issued.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2026 | Apr 2, 2026 | Showing above |
| 2025 | Apr 10, 2025 | |
| 2024 | Apr 11, 2024 | |
| 2023 | Mar 29, 2023 | |
| 2022 | Mar 30, 2022 | |
| 2021 | Apr 14, 2021 | |
| 2020 | Apr 29, 2020 | |
| 2019 | May 3, 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.