PIXELWORKS, INCPXLW
PIXELWORKS, INC Income Taxes Disclosure
INCOME TAXES
Current and Deferred Income Tax Expense
Domestic and foreign pre-tax loss is as follows:
| Year Ended December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Domestic | $ | (13,892) | $ | (14,835) | |||||||
| Foreign | (15,167) | (11,751) | |||||||||
| Domestic and foreign pre-tax loss | $ | (29,059) | $ | (26,586) | |||||||
Income tax expense (benefit) attributable to operations is comprised of the following:
| Year Ended December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Current: | |||||||||||
| Federal | $ | 61 | $ | (325) | |||||||
| State | 12 | 14 | |||||||||
| Foreign | 304 | 367 | |||||||||
| Total current | 377 | 56 | |||||||||
| Deferred: | |||||||||||
| Federal | 72 | 292 | |||||||||
| Foreign | 29 | 9 | |||||||||
| Total deferred | 101 | 301 | |||||||||
| Income tax expense (benefit) | $ | 478 | $ | 357 | |||||||
The reconciliation of the U.S. federal statutory income tax rate to our effective income tax rate is as follows:
| Year Ended December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Federal statutory rate | 21 | % | 21 | % | |||||||
| Impact of foreign earnings | 3 | (10) | |||||||||
| Change in valuation allowance | (30) | (43) | |||||||||
| Expiration of tax attributes | (7) | (5) | |||||||||
| Research and development credits and deductions | 14 | 20 | |||||||||
| Stock-based compensation | (1) | (3) | |||||||||
| Adjustment to deferred balances | (2) | 18 | |||||||||
| Other | — | 1 | |||||||||
| Effective income tax rate | (2) | % | (1) | % | |||||||
Deferred Tax Assets, Liabilities and Valuation Allowance
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts for income tax purposes. Significant components of our deferred tax assets and liabilities are as follows:
| December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Deferred tax assets: | |||||||||||
| Research and experimentation credit and deduction carryforwards | $ | 58,509 | $ | 59,450 | |||||||
| Net operating loss carryforwards | 67,592 | 56,196 | |||||||||
| Depreciation and amortization | 4,436 | 5,402 | |||||||||
| Reserves and accrued expenses | 940 | 1,458 | |||||||||
| Deferred stock-based compensation | 731 | 725 | |||||||||
| Foreign tax credit carryforwards | 82 | 81 | |||||||||
| Other | 448 | 454 | |||||||||
| Total gross deferred tax assets | 132,738 | 123,766 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Foreign earnings | (339) | (248) | |||||||||
| Other | (466) | (403) | |||||||||
| Total gross deferred tax liabilities | (805) | (651) | |||||||||
| Less valuation allowance | (131,921) | (122,975) | |||||||||
| Net deferred tax assets | $ | 12 | $ | 140 | |||||||
We continue to record a full valuation allowance against our U.S., Canada and China net deferred tax assets as of December 31, 2024 and 2023, as it is not more likely than not that we will realize a benefit from these assets in a future period. During the fourth quarter of 2024, we established a valuation allowance against the carryforwards of our California LLC in connection with closing this entity. We have not provided a valuation allowance against our other net deferred tax assets as we have concluded it is more likely than not that we will realize a benefit from these assets in a future period because our subsidiaries in these jurisdictions are cost-plus taxpayers. The net valuation allowance increased $8,946 and $11,034 for the years ended December 31, 2024 and December 31, 2023, respectively.
As of December 31, 2024, we had federal, state and foreign net operating loss carryforwards of $155,630, $17,402 and $133,215 respectively, which will begin to expire in 2025 with $31,705 of our federal net operating loss carryforward lasting indefinitely. As of December 31, 2024, we had available federal, state and foreign research and experimentation tax credit carryforwards of $4,707, $5,533, and $21,144 respectively. The federal tax credits will begin expiring in 2025 while the state and foreign credits have an indefinite life. In addition, our Canadian subsidiary has unclaimed scientific and experimental expenditures to be carried forward and applied against future income in Canada of approximately $121,313.
Our ability to utilize our federal net operating losses may be limited by Section 382 of the Internal Revenue Code of 1986, as amended, which imposes an annual limit on the ability of a corporation that undergoes an "ownership change" to use its net operating loss carryforwards to reduce its tax liability. An ownership change is generally defined as a greater than 50% increase in equity ownership by 5% shareholders in any three-year period.
We are not indefinitely reinvested in the earnings of our subsidiaries in China TrueCut, Japan and Taiwan and have accrued tax on the future repatriation of cash for jurisdictions where withholding taxes would apply.
Uncertain Tax Positions
We have recorded tax liabilities to address potential exposures involving positions that could be challenged by taxing authorities. As of December 31, 2024, the amount of our uncertain tax positions was a liability of $378 and a reduction to deferred tax assets of $1,385. As of December 31, 2023, the amount of our uncertain tax positions was a liability of $376 and a reduction to deferred tax assets of $1,370.
The following is a summary of the change in our liability for uncertain tax positions and interest and penalties:
| 2024 | 2023 | ||||||||||
| Uncertain tax positions: | |||||||||||
| Balance at beginning of year | $ | 1,648 | $ | 1,643 | |||||||
| Reversal of accrual for positions taken in a prior year | — | (23) | |||||||||
| Accrual for positions taken in current year | 86 | 112 | |||||||||
| Reversals due to lapse of statute of limitations | (79) | (84) | |||||||||
| Reversals due to positions taken in the current year | — | — | |||||||||
| Balance at end of year | $ | 1,655 | $ | 1,648 | |||||||
| Interest and penalties: | |||||||||||
| Balance at beginning of year | $ | 98 | $ | 88 | |||||||
| Accrual for positions taken in prior year | 11 | 11 | |||||||||
| Accrual for positions taken in current year | — | — | |||||||||
| Reversals due to lapse of statute of limitations | (2) | (1) | |||||||||
| Balance at end of year | $ | 107 | $ | 98 | |||||||
During both the years ended December 31, 2024 and 2023, we recognized $11 of interest and penalties in income tax expense in our consolidated statements of operations.
We file income tax returns in the U.S. and various foreign jurisdictions. A number of years may elapse before an uncertain tax position is resolved by settlement or statutes of limitations. Settlement of any particular position could require the use of cash. If the uncertain tax positions we have accrued for are sustained by the taxing authorities in our favor, the reduction of the liability will reduce our effective tax rate. We reasonably expect reductions in unrecognized tax benefits of approximately $260 within the next twelve months due to the expiration of statutes of limitation in federal, state, and foreign jurisdictions.
We are no longer subject to U.S. federal, state, and foreign examinations for years before 2021, 2020 and 2017, respectively. Our net operating loss and tax credit carryforwards from all years may be subject to adjustment for three years following the year in which utilized. We do not anticipate that any potential tax adjustments will have a significant impact on our financial position or results of operations.
In January 2024, we were notified that our 2019 and 2020 Canada income tax returns have been selected for audit by the Canadian tax authorities. Our 2022 US income tax returns were also selected for audit by the Internal Revenue Service. We have not received any proposed assessments associated with the audits and do not expect any material impacts to our financial statements as a result of the audits. We were not subject to, nor have we received any notice of, income tax examinations in any other jurisdiction as of December 31, 2024.Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2024 | Mar 13, 2025 | Showing above |
| 2019 | Mar 11, 2020 | |
| 2018 | Mar 13, 2019 | |
| 2017 | Mar 14, 2018 | |
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.