M-tron Industries, Inc. Income Taxes Disclosure

6. Income Taxes

 

Effective Tax Rate

 

The following table presents Income before income taxes by U.S. and foreign location in which such pre-tax income was earned or incurred:

		Year Ended December 31,
		2025				2024
United States		$	10,502			$	9,411
Foreign			452				364
Total		$	10,954			$	9,775

 

Income tax expense for the years ended December 31, 2025 and 2024 is as follows:

		Year Ended December 31,
		2025				2024
Current tax expense:
Federal		$	427			$	1,416
State and local			477				349
Foreign			129				228
Total current tax expense			1,033				1,993
Deferred tax expense (benefit):
Federal			1,331				101
State and local			4				38
Foreign			139				7
Total before change in valuation allowance			1,474				146
Change in valuation allowance			—				—
Net deferred tax expense			1,474				146
Total income tax expense		$	2,507			$	2,139

 

 

 

A reconciliation of the provision for income taxes and the amount computed by applying the statutory federal income tax rate to Income before income taxes is detailed below:

		Year Ended December 31,
		2025								2024
		Amount				%				Amount				%
Income before income taxes		$	10,954							$	9,775
U.S federal statutory tax rate			2,300				21.0	%			2,053				21.0	%
State and local income taxes, net of federal benefit (a)			381				3.5	%			306				3.1	%
Foreign tax effects			96				0.9	%			159				1.6	%
Effect of changes in tax laws or rates enacted in the current period			—				0.0	%			—				0.0	%
Effect of cross-border tax laws
Global intangible low-tax income			55				0.5	%			26				0.3	%
Tax credits
Research and development tax credit			(173	)			(1.6	%)			(195	)			(2.0	%)
Foreign tax credits			(37	)			(0.3	%)			(32	)			(0.3	%)
Changes in valuation allowances			—				0.0	%			—				0.0	%
Nontaxable or nondeductible items
Stock-based compensation			(126	)			(1.2	%)			(201	)			(2.1	%)
Other			(49	)			(0.4	%)			—				0.0	%
Changes in unrecognized tax benefits			63				0.6	%			62				0.6	%
Other adjustments			(3	)			0.0	%			(39	)			(0.4	%)
Effective tax rate		$	2,507				23.0	%		$	2,139				21.8	%

(a)	For the year ended December 31, 2025 , Florida and Massachusetts made up the majority (greater than 50%) of the tax effect in this category. For the year ended December 31, 2024, Florida and Massachusetts made up the majority (greater than 50%) of the tax effect in this category.

 

Deferred Tax Assets

 

Deferred income taxes for 2025 and 2024 were provided for the temporary differences between the financial reporting basis and the income tax basis of the Company's assets and liabilities. Tax effects of temporary differences and carryforwards as of  December 31, 2025 and 2024 were as follows:

		December 31,
		2025				2024
Deferred tax assets:
Inventory reserve		$	378			$	343
Other reserves and accruals			35				277
Capitalized Sec. 174 R&E			180				1,261
Intangible assets			27				35
Stock-based compensation			192				154
Tax credit carryforwards			—				—
Other			243				195
Total deferred tax assets		$	1,055			$	2,265
Deferred tax liabilities
Fixed assets			859				640
Other			53				2
Total deferred tax liabilities			912				642
Net deferred tax assets before valuation allowance			143				1,623
Valuation allowance			—				—
Net deferred tax assets (a)		$	143			$	1,623

(a)

Of the total $143 net deferred tax assets as of December 31, 2025, $272 was included in Deferred income tax asset and ($129) was included in Deferred income tax liability on the Consolidated Balance Sheets. Of the total $1,623 net deferred tax asset as of December 31, 2024, $1,695 was included in Deferred income tax asset and ($72) was included in Deferred income tax liability on the Consolidated Balance Sheets.

 

The evaluation of the recoverability of our deferred tax asset and the need for a valuation allowance requires us to weigh all positive and negative evidence to reach a conclusion that is more likely than not that all or some of the deferred tax asset will not be realized. The weight given to the evidence is commensurate with the extent to which it can be objectively verified. The more negative evidence that exists, the more positive evidence is necessary and the more difficult it is to support a conclusion that a valuation allowance is not needed. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become realizable.

 

As of December 31, 2025 and 2024, the Company did not record a valuation allowance against its deferred tax assets.

 

 

 

Income Taxes Paid

 

Income taxes paid for the years ended December 31, 2025 and 2024 are as follows:

		Year Ended December 31,
		2025				2024
Federal
United States		$	560			$	1,860
Total federal			560				1,860
State and local
Massachusetts			194				—
Florida			158				167
New York			—				114
Other			5				120
Total state and local			357				401
Foreign
India			81				87
Hong Kong			22				40
Total foreign			103				127
Income taxes paid		$	1,020			$	2,388

 

Uncertain Tax Benefits

 

Significant judgment is required in determining our provision for income taxes. In the ordinary course of business, there are many transactions for which the ultimate tax outcome is uncertain. We review our tax contingencies on a regular basis and make appropriate accruals as necessary.

 

As of December 31, 2025, our unrecognized tax benefits totaled $236, and are included within Accrued expenses on the Consolidated Balance Sheets. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

		Year Ended December 31,
		2025				2024
Balance, beginning of year		$	173			$	111
Additions for tax positions related to prior years			20				13
Additions for tax positions related to the current year			43				49
Balance, end of year		$	236			$	173

 

The Company will recognize any interest and penalties related to unrecognized tax positions in Income tax expense on the Consolidated Statements of Operations. Our total accrued interest and penalties associated with uncertain tax positions were immaterial as of December 31, 2025. The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate is $236. We do not expect a significant change to the amount of unrecognized tax benefits over the next 12 months. The Company believes that the taxes accrued in our Consolidated Balance Sheets fairly represent the amount of income taxes to be settled or realized in the future.

 

Tax Regulatory Matters

 

The Company files a consolidated U.S. federal income tax return with our eligible subsidiaries. The Company also files income tax returns in various state and local and non-U.S. jurisdictions.

 

The Company filed its initial consolidated U.S. federal income tax return in October 2023 and has made timely filings of required tax returns since. The statute of limitations for assessment by the Internal Revenue Service ("IRS") and state tax authorities is open for tax returns for years ended  December 31, 2022, 2023, and 2024; although carryforward attributes that were generated prior to tax year 2022, including NOL carryforwards and tax credits,  may still be adjusted upon examination by the IRS or state tax authorities, if they either have been or will be used in a future period.

 

One Big Beautiful Bill Act

 

On  July 4, 2025, the One Big Beautiful Bill Act ("OBBBA") was enacted. This legislation introduced significant and wide-ranging changes to the U.S. federal tax system. Significant components include restoration of 100% accelerated tax depreciation on qualifying property including expansion to cover qualified production property. Another major aspect includes the return to immediate expensing of domestic research and experimental expenditures ("R&E") which in some cases  may include retroactive application back to 2021 for businesses with gross receipts of less than $31 million or accelerated tax deductions of R&E that was previously capitalized for larger businesses. The legislation also reinstates EBITDA-based interest deductions for tax purposes and makes several business tax incentives permanent. Less favorable business provisions include limitations on tax deductions for charitable contributions.

 

OBBBA modified the U.S. International Tax provisions for Global Intangible Low-Taxed Income ("GILTI"), Foreign-Derived Intangible Income ("FDII"), and the Base-erosion Anti-abuse Tax ("BEAT") effective for tax years starting after  December 31, 2025. The tax rate on GILTI, renamed Net CFC Tested Income ("NCTI"), is now 12.6%. The FDII rules, renamed Foreign Derived Deduction Eligible Income ("FDDEI"), now carry a 14% tax rate on FDDEI eligible income. OBBBA increases the BEAT rate from 10% to 10.5%