Omega Flex, Inc. Income Taxes Disclosure

9. INCOME TAXES

 

The Company’s earnings were primarily domestic, and its effective tax rate on earnings from operations for the years ended December 31, 2025 and 2024 was 24.2%. The Company’s effective tax rate differed from the statutory federal corporate income tax rate primarily because of state income taxes, net of federal income tax benefits, and a valuation allowance upon foreign deferred tax assets of one of its foreign subsidiaries, where it was considered more likely than not that these deferred tax assets would not be realized.

 

As of December 31, 2025, the Company’s foreign subsidiaries were in a cumulative loss position. Accordingly, there were no undistributed foreign earnings for which deferred income taxes would be required.

 

 

Income (loss) before income tax expense (benefit) consisted of the following:

 

SCHEDULE OF INCOME BEFORE INCOME TAX

		2025				2024
		December 31,
		2025				2024
		(in thousands)
Income (loss) before income tax expense (benefit)
U.S. Federal		$	21,099			$	25,852
Foreign			(1,848	)			(2,230	)
Total		$	19,251			$	23,622

 

Income tax expense (benefit) consisted of the following:

 SCHEDULE OF COMPONENTS OF INCOME TAX EXPENSE (BENEFIT)

		December 31,
		2025				2024
		(in thousands)
Income tax expense (benefit)
Current tax expense (benefit)
Federal		$	4,028			$	5,024
State and local			590				707
Foreign			-				(29	)
Total current tax expense (benefit)			4,618				5,702
Deferred tax expense (benefit)
Federal			196				205
State and local			31				28
Foreign			(178	)			(228	)
Total deferred tax expense (benefit)			49				5
Total income tax expense (benefit)
Federal			4,224				5,229
State and local			621				735
Foreign			(178	)			(257	)
Total income tax expense (benefit)		$	4,667			$	5,707

 

 

The following table reconciles the Company’s actual income tax expense based on the statutory federal corporate income tax rate:

 

SCHEDULE OF INCOME TAX EXPENSE AND FEDERAL CORPORATE INCOME TAX RATE

		December 31,
		2025								2024
		Dollars				Percent				Dollars				Percent
		(in thousands)
Income before income taxes		$	19,251							$	23,622
U.S. federal statutory rate			4,043				21.0	%			4,961				21.0	%
Federal
State income taxes, net of federal tax benefit (1)			491				2.5	%			581				2.5	%
Foreign tax effects
France
Change in valuation allowance			282				1.5	%			277				1.2	%
Other			(45	)			(0.2)	%			(44	)			(0.2	)%
Other foreign jurisdictions			(28	)			(0.2)	%			(21	)			(0.1	)%
Nontaxable or Nondeductible Items			(76	)			(0.4)	%			(47	)			(0.2	)%
Effective Tax Rate		$	4,667				24.2	%		$	5,707				24.2	%

 

(1)

State taxes in Pennsylvania and California make up the majority (greater than 50 percent) of the tax effect in this category

 

Income taxes paid, net of refunds, are as follows:

SCHEDULE OF INCOME TAX PAID

		December 31,
		2025				2024
		(in thousands)
U.S. Federal		$	5,168			$	4,774
Pennsylvania			325				293
Other (1)			390				468
Total U.S. State and Local			715				761
Foreign			-				-
Total income taxes paid		$	5,883			$	5,535
Less:income tax refunds			58				-
Total income taxes paid, net of refunds		$	5,825			$	5,535

 

(1)

Income taxes paid to individual states and local jurisdictions that are not material have been aggregated and presented in the ‘Other’ category. No other individual jurisdiction accounted for 5% or more of total income taxes paid during the period.

 

 

A deferred income tax (expense) benefit results from temporary timing differences in the recognition of income and expense for income tax and financial reporting purposes. The components of and changes in the net deferred tax assets (liabilities) which give rise to this deferred income tax (expense) benefit for the years ended December 31, 2025 and 2024 are as follows:

SCHEDULE OF DEFERRED TAX ASSETS AND LIABILITIES 

		2025				2024
		December 31,
		2025				2024
		(in thousands)
Deferred Tax Assets:
Compensation Assets		$	194			$	197
Inventory Valuation			731				682
Accounts Receivable Valuation			198				202
Deferred Litigation Costs			-				12
Capitalized Research Costs			-				423
Accrued Product Liability			163				165
Foreign Net Operating Losses			1,344				808
Other			90				93
Compensation Liabilities			142				156
Total Deferred Assets, Before Valuation Allowance		$	2,862			$	2,738
Less: Valuation Allowance			762				443
Total Deferred Assets		$	2,100			$	2,295
Deferred Tax Liabilities:
Prepaid Expenses			(452	)			(616	)
Depreciation and Amortization			(1,475	)			(1,495	)
Total Deferred Liabilities		$	(1,927	)		$	(2,111	)
Total Deferred Tax Asset		$	173			$	184

 

Management believes it is more likely than not that the Company will have sufficient taxable income when these timing differences reverse and that the deferred tax assets will be realized except for a carryover of foreign operating losses of $3,046,000 incurred by one of its foreign subsidiaries. Due to the uncertainty of future income in the foreign subsidiary, the Company has recognized a valuation allowance of $762,000, an increase of $319,000 from the previous year, related to the foreign operating losses carrying forward. These foreign operating losses may be carried forward indefinitely.

 

The Company is currently subject to audit by the Internal Revenue Service for the calendar years after 2021. The Company’s state income tax returns are subject to audit for the calendar years after 2020.