LANTRONIX INC Income Taxes Disclosure

 

8.

Income Taxes

 

The provision (benefit) for income taxes consists of the following components: 

 

The following table presents U.S. and foreign income (loss) before income taxes:

Schedule of components of income tax expense
		Years Ended June 30,
		2025				2024
		(In thousands)
Current:
Federal		$	–			$	–
State			28				380
Foreign			(260	)			332
Total Current taxes		$	(232	)		$	712
Deferred:
Federal			(7	)			33
State			–				–
Foreign			–				–
Provision for (benefit from) income taxes		$	(239	)		$	745

 

Schedule of income before income taxes
		Years Ended June 30,
		2025				2024
		(In thousands)
United States		$	(12,786	)		$	(4,655	)
Foreign			1,174				884
Loss before income taxes		$	(11,612	)		$	(3,771	)

 

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

Schedule of deferred tax assets and liabilities
		Years Ended June 30,
		2025				2024
		(In thousands)
Deferred tax assets:
Tax losses and credits		$	9,492			$	8,984
Reserves not currently deductible			2,673				2,738
Capitalized research and development expenses			8,987				7,511
State taxes			33				–
Deferred compensation			356				1,509
Inventory capitalization			2,235				2,570
Lease liabilities			2,060				2,299
Depreciation and amortization			108				172
Identified intangibles			1,572				1,172
Other			120				98
Gross deferred tax assets			27,636				27,053
Valuation allowance			(26,002	)			(24,731	)
Deferred tax assets, net			1,634				2,322
Deferred tax liabilities:
State taxes			–				(395	)
Right-of-use assets			(1,806	)			(2,106	)
Deferred tax liabilities			(1,806	)			(2,501	)
Net deferred tax assets (liabilities)		$	(172	)		$	(179	)

 

Our net deferred tax liability of $172,000 and $179,000 at June 30, 2025 and 2024, respectively, represents the excess of our indefinite-lived deferred tax liabilities over our indefinite-lived deferred tax assets, and are recorded in other non-current liabilities on the accompanying consolidated balance sheets at June 30, 2025 and 2024. Realization of deferred tax assets is dependent upon the generation of future taxable income. As required by ASC 740, we have evaluated the positive and negative evidence bearing upon our ability to realize the deferred tax assets as of June 30, 2025 and 2024. We have determined that it was more likely than not that Lantronix would not realize the deferred tax assets due to our cumulative losses and uncertainty of generating future taxable income.

 

The following table presents a reconciliation of the provision (benefit) for income taxes to taxes computed at the U.S. federal statutory rate:

Schedule of effective income tax reconciliation
		Years Ended June 30,
		2025				2024
		(In thousands)
Statutory federal provision (benefit) for income taxes		$	(2,439	)		$	(792	)
Increase (decrease) resulting from:
State taxes			28				176
Stock options			568				431
Other permanent differences			218				–
Expiration of R&D Credits			839				673
Uncertain tax position			(1,211	)			(523	)
Change in valuation allowance			1,271				349
Change in state tax rate			308				261
Global intangible low-tax income inclusion			143				–
Foreign tax rate variances			(72	)			120
Other			108				50
Provision for (benefit from) income taxes		$	(239	)		$	745

 

We continue to assert that our foreign earnings are indefinitely reinvested in our overseas operations and as such, deferred income taxes were not provided on undistributed earnings of certain foreign subsidiaries. The 2017 Act created a requirement that certain income earned by foreign subsidiaries, known as global intangible low-tax income (“GILTI”), must be included in the gross income of their U.S. shareholder. The FASB allows an accounting policy election of either recognizing deferred taxes for temporary differences expected to reverse as GILTI in future years or recognizing such taxes as a current-period expense when incurred. During the fiscal years ended June 30, 2025 and 2024, we elected to treat the tax effect of GILTI as a current-period expense when incurred.

 

Unrecognized Tax Benefits

 

The following table summarizes our liability for uncertain tax positions for the fiscal year ended June 30, 2025:

Schedule of uncertain tax position
		Year Ended
		June 30, 2025
		(In thousands)
Balance as of June 30, 2024		$	4,289
Change in balances related to uncertain tax positions			(1,211	)
Balance as of June 30, 2025		$	3,078

 

At June 30, 2025, we had $3,078,000 of gross unrecognized tax benefits which was recorded as a reduction to deferred tax assets, and a corresponding reduction in our valuation allowance of $3,078,000. The balance decreased from the prior year due to the expiration of certain federal research and development tax credit carryforwards as well as the reversal of liabilities in connection with the dissolution of one of our foreign subsidiaries by a gross amount of $1,280,000. To the extent such portion of unrecognized tax benefits is recognized at a time such valuation allowance no longer exists, the recognition would reduce the effective tax rate. Our continuing practice is to recognize interest and penalties related to income tax matters in income tax expense. During the fiscal years ended June 30, 2025 and 2024, we recorded an immaterial expense for interest and penalties related to income tax matters in the provision for income taxes. At June 30, 2025, we had approximately $39,000 of accrued interest and penalties related to uncertain tax positions.

  

At June 30, 2025, our fiscal years ended June 30, 2022 through 2025 remain open to examination by the federal taxing jurisdiction and our fiscal years ended June 30, 2021 through 2025 remain open to examination by the state taxing jurisdictions. However, we have NOLs beginning in the fiscal year ended June 30, 2005 which would cause the statute of limitations to remain open for the year in which the NOL was incurred. Our fiscal years ended June 30, 2017 through 2025 remain open to examination by foreign taxing authorities. We currently do not anticipate that the amount of unrecognized tax benefits as of June 30, 2025 will significantly increase or decrease within the next 12 months.

 

New Tax Legislation

 

In July 2025, the U.S. government enacted comprehensive legislation commonly referred to as the One Big Beautiful Bill Act of 2025 (the “OBBB Act”). The OBBB Act, which includes a broad range of tax reform provisions, including extending and modifying certain key Tax Cuts and Jobs Act provisions (both domestic and international). It includes reinstating the option to claim 100% accelerated deprecations deductions on qualified property and immediate expensing of domestic research and development costs. Income tax accounting guidance requires the effects of tax law changes to be recognized in the period of enactment. Since the legislation was signed into law after June 30, 2025, it had no impact on our operating results for the fiscal year ended June 30, 2025. We are currently assessing the impact on our financial statements in future periods.