PIONEER POWER SOLUTIONS, INC. Income Taxes Disclosure

10. INCOME TAXES

 

The components of loss before income taxes related to continuing operations are summarized below:

 SCHEDULE OF LOSS BEFORE INCOME TAXES

		For the Year Ended
		December 31,
		2025				2024
Loss before income taxes
U.S. operations		$	(6,374	)		$	(4,767	)
Loss from continuing operations		$	(6,374	)		$	(4,767	)

 

The components of the income tax expense (benefit) related to continuing operations were as follows:

 SCHEDULE OF INCOME TAX PROVISION

		For the Year Ended
		December 31,
		2025				2024
Current
Federal		$	69			$	(1,128	)
State			5				(290	)
Income tax expense (benefit)		$	74			$	(1,418	)

 

 

A reconciliation from the statutory U.S. income tax rate and the Company’s effective income tax rate for continuing operations, as computed on loss before taxes, is as follows:

 SCHEDULE OF INCOME TAX RATE RECONCILIATION

		For the Year Ended
		December 31,
		2025								2024
Federal income tax at statutory rate			(1,338	)			21.0	%			(1,001	)			21.0	%
State and local income tax, net			172				(2.8	)%			(214	)			4.5	%
Non-deductible executive compensation			-				-				85				(1.8	)%
Other permanent items			72				(1.1	)%			36				(0.8	)%
Expired foreign tax credits			135				(2.1	)%			652				(13.7	)%
Valuation Allowance			878				(13.8	)%			(1,025	)			21.5	%
True-up			153				(2.4	)%			49				(1.0	)%
Other			2				-				-				-
Total			74				(1.2	)%			(1,418	)			29.7	%

 

The Company’s provision for income taxes reflects an effective tax rate on loss before income taxes of (1.2)% in 2025, as compared to 29.7% in 2024. The decrease in the Company’s effective tax rate during 2025 primarily reflects the increase in valuation allowance and net operating losses.

 

On July 4, 2025, the President signed into law the One Big Beautiful Bill Act (“OBBBA”), which makes several significant changes to U.S. federal income tax law. Key provisions include:

 

	●	Extension of 100% bonus depreciation under Internal Revenue Code (“IRC”) Section 168(k) for qualified property acquired after January 19, 2025.
	●	Expensing of domestic research and experimental expenditures under new IRC Section 174A, applicable for tax years beginning after December 31, 2024, with acceleration options for expenditures incurred between January 1, 2022, and December 31, 2024.
	●	Modification to the business interest expense limitation under IRC Section 163(j), reinstating EBITDA-based adjustable taxable income (ATI) for tax years beginning after December 31, 2024.

 

The Company has recognized the effects of the OBBBA provisions in its financial results to the extent they are applicable to the year ended December 31, 2025.

 

The net deferred income tax asset (liability) was comprised of the following:

 SCHEDULE OF DEFERRED INCOME TAX ASSETS LIABILITY

		For the Year Ended
		December 31,
		2025				2024
Noncurrent deferred income taxes
Total assets		$	786			$	749
Total liabilities			(786	)			(749	)
Net noncurrent deferred income tax asset			-				-
Net deferred income tax asset		$	-			$	-

 

 

The tax effect of temporary differences between GAAP accounting and federal income tax accounting creating deferred income tax assets and liabilities were as follows:

 SCHEDULE OF ACCOUNTING CREATING DEFERRED INCOME TAX

		For the Year Ended
		December 31,
		2025				2024
Deferred tax assets
U.S. net operating loss carry forward		$	3,304			$	1,051
Non-deductible reserves			798				830
Tax credits			3,446				3,581
Intangibles			690				1,294
Total deferred tax assets			8,238				6,756
Valuation allowance			(7,452	)			(6,007	)
Net deferred tax assets			786				749
Deferred tax liabilities
Fixed assets			(468	)			(749	)
Installment sales			(318	)			-
Total deferred tax liabilities			(786	)			(749	)
Deferred asset, net		$	-			$	-

 

As of December 31, 2025, The Company had $8,238 of deferred tax assets on which it is taking a $7,452 valuation allowance. The total valuation allowance of $7,452 as of December 31, 2025, represents an increase of $1,445 from December 31, 2024.

 

A valuation allowance is established when it is determined that it is more likely than not that the deferred tax assets will not be realized. In evaluating the need for a valuation allowance, management assessed all available positive and negative evidence, including historical operating results, cumulative losses, projections of future taxable income, and sources of taxable income such as future reversals of existing taxable temporary differences and tax-planning strategies. Significant judgment is required in assessing the weight of both positive and negative evidence, particularly in determining the likelihood and timing of future taxable income.

 

Considering the significant judgment required in assessing the likelihood, timing, and magnitude of future taxable income, and given the relative weight and persuasiveness of the available evidence, management concluded that the negative evidence continues to outweigh the positive evidence. As a result, the Company has determined that the continuation of a full valuation allowance remains appropriate as of December 31, 2025. This includes a full valuation allowance for the Company’s foreign tax credits (“FTCs”) as the Company does not anticipate generating any foreign source income to realize this benefit. As of December 31, 2025, the remaining balance of the Company’s FTCs was $3,446. If not utilized, the FTCs will expire between 2026 and 2027.

 

The Company has federal and state net operating loss (“NOLs”) carryforwards of approximately $7,267 and $21,227, respectively, as of December 31, 2025. The federal NOLs were generated in taxable years ending after December 31, 2017, and therefore may be carried forward indefinitely. However, the utilization of such federal NOLs is generally limited to 80% of federal taxable income in any taxable year. Certain state NOLs are subject to annual limitations under applicable tax law. If not utilized, a portion of these losses will expire in varying amounts between 2028 and 2046.

 

Internal Revenue Code Section 382 imposes an annual limitation on the utilization of net operating loss (NOL) carryforwards and certain other tax attributes following a change in ownership. An ownership change generally occurs if the percentage of stock owned by 5-percent shareholders increases by more than 50 percentage points during a rolling three-year period. As of December 31, 2025, the Company determined that no ownership change occurred during the year under Section 382. Therefore, there is no annual limitation imposed on the utilization of the Company’s federal NOL carryforwards. The Company has also evaluated the implications of Section 382 limitations at the state level. Given that state conformity to federal Section 382 provisions varies significantly, additional state-specific considerations may apply. The Company will continue to monitor any future ownership changes, legislative updates, or interpretive guidance related to Section 382, as such changes could impact the Company’s ability to realize these deferred tax assets.

 

 

The following table summarizes the Company’s state losses by jurisdiction, as well as the expiration date:

 SCHEDULE OF STATE LOSSES BY JURISDICTION

						Oldest		Carry
						Remaining		Forward				Expiration				Expiration
		December 31, 2025				NOL		Years				Start Date				End Date
California		$	14,749			2015			23				2038				2046
Florida			1,869			2013			20				2035				Indefinitely
Illinois			354			2018			20				2038				2045
Iowa			723			2018			20				2038				Indefinitely
Maryland			7			2025			Indefinitely				Indefinitely				Indefinitely
Minnesota			2,358			2013			15				2028				2040
Montana			29			2025			10				2035				2035
Nebraska			242			2021			20				2041				2045
New Jersey			183			2025			20				2045				2045
New York			202			2020			20				2040				2045
North Carolina			130			2017			15				2032				2032
North Dakota			162			2015			20				2035				Indefinitely
Wisconsin			219			2021			20				2041				2045
Total		$	21,227

 

Cash paid for income taxes, net of refunds, were as follows:

 SCHEDULE OF INCOME TAXES, NET OF REFUNDS

		For the Year Ended
		December 31,
		2025				2024
Federal		$	3,010			$	-
California			1,697				-
Other states			215				7
Total cash paid for income taxes, net of refunds		$	4,922			$	7

 

The Company has determined there are no uncertain tax positions requiring recognition or disclosure, including positions related to the sale of PCEP. The Company regularly assesses the adequacy of its provisions for income tax contingencies in accordance with ASC 740-10. As a result, the Company may adjust the reserves for unrecognized tax benefits for the impact of new facts and developments, such as changes to interpretations of relevant tax law, assessments from taxing authorities, settlements with taxing authorities, and lapses of statutes of limitations. Management has concluded that the current reserves are appropriate. The Company continues to monitor and evaluate uncertain tax positions that may arise from future developments in tax law interpretations, regulations, or audit outcomes. The Company’s tax returns remain subject to examination by the U.S. Internal Revenue Service and most state jurisdictions include the years 2022 and forward.