SIEBERT FINANCIAL CORP Income Taxes Disclosure

17. Income Taxes

 

The Company’s provision for (benefit from) income taxes is comprised of the following:

 

		Year Ended December 31,
		2024				2023
Current
Federal		$	2,607,000			$	3,023,000
State and local			472,000				499,000
Total Current			3,079,000				3,522,000
Deferred
Federal		$	520,000			$	(366,000	)
State and local			566,000				259,000
Total Deferred			1,086,000				(107,000	)
Total Provision for (benefit from) income taxes		$	4,165,000			$	3,415,000

The Company’s effective tax rate differs from the U.S. federal statutory income tax rate of 21% for the periods indicated are as follows:

 

		Year Ended December 31,
		2024				2023
Federal statutory income tax rate			21.0	%			21.0	%
Goodwill amortization			(1.6	)%			(2.5	)%
Permanent differences			0.4	%			2.7	%
State and local taxes, net of federal benefit			5.4	%			5.7	%
Change in valuation allowance			(0.8	)%			2.4	%
Other			(0.5	)%			1.1	%
Effective tax rate			23.9	%			30.4	%

 

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities are as follows:

 

		As of December 31,
		2024				2023
Deferred tax assets:
Net operating losses		$	2,971,000			$	3,393,000
Lease liabilities			676,000				840,000
Share-based compensation			31,000				—
Intangible assets			25,000				—
Investment in RISE			122,000				123,000
Investment in Trading Technology Provider			215,000				239,000
R&D costs capitalization			187,000				142,000
Settlement liability related to Kakaopay termination			649,000				1,253,000
Capital loss carryover			719,000				803,000
Other			113,000				79,000
Subtotal			5,708,000				6,872,000
Less: valuation allowance			(1,104,000	)			(1,243,000	)
Total Deferred tax assets		$	4,604,000			$	5,629,000
Deferred tax liabilities:
Fixed assets		$	(1,186,000	)		$	(1,125,000	)
Total Deferred tax liabilities			(1,186,000	)			(1,125,000	)
Net Deferred tax assets		$	3,418,000			$	4,504,000

 

In assessing the Company’s ability to recover its deferred tax assets, the Company evaluated whether it is more likely than not that some portion or the entire deferred tax asset will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in those periods in which temporary differences become deductible and/or net operating losses can be utilized. The Company considered all positive and negative evidence when determining the amount of the net deferred tax assets that are more likely than not to be realized. This evidence includes, but is not limited to, historical earnings, scheduled reversal of taxable temporary differences, tax planning strategies and projected future taxable income.

 

Based on historical operating profitability, positive trend of earnings and projected future taxable income, the Company concluded as of December 31, 2024 that its U.S. deferred tax assets are realizable on a more-likely-than-not basis with the exception of capital loss carryforward and certain investments that will result in future capital losses. The amount of the Company’s valuation allowance decreased by $139,000 during 2024. The Company will continue to evaluate its deferred tax assets to determine whether any changes in circumstances could affect the realization of their future benefit. If it is determined in future periods that portions of the Company’s deferred income tax assets satisfy the realization standards, the valuation allowance will be reduced accordingly.

As of December 31, 2024, the Company had U.S. federal net operating loss carryforwards of approximately $3.7 million which expire in varying amounts starting in 2035 to 2036 if not utilized. These net operating losses are available to offset 100% of future taxable income. However, these U.S. federal net operating loss carryforwards are subject to annual limitation under Section 382.

 

A reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding interest and penalties, is as follows:

 

		Amount
Balance as of December 31, 2022		$	1,596,000
Additions for tax positions taken during current year			15,000
Additions for tax positions taken during prior year			—
Reductions for tax positions taken during prior years			(2,000	)
Settlements			—
Expirations of statutes of limitations			(204,000	)
Balance as of December 31, 2023		$	1,405,000
Additions for tax positions taken during current year			19,000
Additions for tax positions taken during prior year			—
Reductions for tax positions taken during prior years			—
Settlements			—
Expirations of statutes of limitations			(70,000	)
Balance as of December 31, 2024		$	1,354,000

 

The unrecognized tax benefit of $1,354,000 and $1,405,000 as of December 31, 2024 and 2023, respectively, are recorded in the line item “Taxes payable” in the consolidated statements of financial condition. Of the amounts reflected above as of December 31, 2024 and 2023, the entire amount would reduce the Company’s effective tax rate if recognized. The Company records accrued interest and penalties related to income tax matters as part of the provision for income taxes. For the years ended December 31, 2024 and 2023, the Company recognized expense related to interest and penalties on unrecognized tax benefits of $153,000 and $118,000, respectively. For the years ended December 31, 2024 and 2023, the accrued balance of interest and penalties on unrecognized tax benefits was $397,000 and $245,000, respectively. In the next 12 months, the amount of unrecognized tax benefits is expected to decrease by $1,292,000 due to lapse in statute of limitations in 2025.

 

The Company files a federal income tax return and income tax returns in various state tax jurisdictions. The Company is not currently under examination by the IRS or any state or local taxing authority for any tax year. The open tax years for the federal and state income tax filings are generally 2021 through 2024.

 

On October 8, 2021, the Organization for Economic Co-operation and Development (OECD) announced the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting which agreed to a two-pillar solution to address tax challenges arising from digitalization of the economy. On December 20, 2021, the OECD released Pillar Two Model Rules defining the global minimum tax, which calls for the taxation of a minimum rate of 15% for multinational companies with consolidated revenue above €750 million. The Company continues to evaluate the Pillar Two Framework and its potential impact on future periods, however based on the fact that the Company’s operations are all located within the United States and is below current revenue thresholds contained in the Pillar Two Model Rules, the Company expects to be outside the scope of the implementation of the reporting requirements.