Star Equity Holdings, Inc.STRR

Star Equity Holdings, Inc. Income Taxes Disclosure

10-KFiled Mar 20, 20267 min read
INCOME TAXES
Income Tax Provision

The domestic and foreign components of net income before provision for income taxes is as follows:
Year ended December 31,
20252024
Domestic$(3,725)$(31,531)
Foreign(131)28,061 
(Loss) income before provision for income taxes$(3,856)$(3,470)

The components of the provision for (benefit from) income taxes are as follows:
Year ended December 31,
20252024
Current tax provision (benefit):
U.S. Federal$— $— 
State and local31 (15)
Foreign1,088 783 
Total current provision for (benefit from) income taxes1,119 768 
Deferred tax provision (benefit):
U.S. Federal— — 
State and local— — 
Foreign942 532 
Total deferred provision (benefit) from income taxes942 532 
Total provision for income taxes$2,061 $1,300 

Year ended December 31,
2025
Income taxes paid:
U.S. Federal$95 
State and local163 
Foreign
Australia1,233 
U.K.233 
India134 
Other37 
Total Foreign1,637 
Total income taxes paid$1,895 
Tax Rate Reconciliation

The effective tax rate (“ETR”) for the year ended December 31, 2025 was negative 53.4%, compared to negative 37.5% for 2024. For the year ended December 31, 2025, the effective tax rates differed from the U.S. federal statutory rate of 21% primarily due to pre-tax losses for which no tax benefit can be recognized, changes in valuation allowances in the U.S. and certain foreign jurisdictions that reduce or eliminate the ETR on current year profits or losses, foreign tax rate differences, and non-deductible expenses. For the year ended December 31, 2024, the effective tax rates differed from the U.S. federal statutory rate of 21% primarily due to pre-tax losses for which no tax benefit can be recognized, changes in valuation allowances in the U.S., China, and certain foreign jurisdictions that reduce or eliminate the ETR on current year profits or losses, foreign tax rate differences, and non-deductible expenses. The current year ETR differs significantly from the prior year ETR primarily due to the interaction of similar rate reconciliation items, including change in valuation allowance, combined with a shift in the geographic mix of earnings toward higher‑tax jurisdictions, including Australia.

The following is a reconciliation of the effective tax rate for the year ended December 31, 2025 to the U.S. federal statutory rate of 21%:
Year ended December 31, 2025
AmountPercent
US federal statutory income tax rate$(810)21.0 %
Domestic federal
Nontaxable and nondeductible items
Nondeductible employee compensation151 (3.9)%
Nondeductible professional fees471 (12.2)%
Nondeductible share based compensation376 (9.7)%
Other149 (3.9)%
Changes in valuation allowance(9,188)238.2 %
Operating losses expired8,833 (229.0)%
Domestic state and local income taxes, net of federal effect1
32 (0.8)%
Foreign tax effects
United Arab Emirates
Changes in valuation allowance329 (8.5)%
Australia
Statutory income tax rate differential385 (10.0)%
Noncreditable withholding tax41 (1.1)%
United Kingdom
Deferred investment impairment true‑up and NOL carryback1,111 (28.8)%
Other13 (0.3)%
Other foreign jurisdictions162 (4.2)%
Worldwide changes in unrecognized tax benefits6 (0.2)%
Provision for income taxes$2,061 (53.4)%
1.State and local income taxes in Pennsylvania and Texas comprise the majority of the domestic state and local income taxes, net of federal effect category
The following is a reconciliation of the effective tax rate for the year ended December 31, 2024 to the U.S. federal statutory rate of 21%:
Year ended December 31,
2024
Provision at federal statutory rates$(729)
State income taxes, net of federal benefit1,133 
Change in valuation allowance6,817 
Taxes related to foreign income(1,506)
Non-deductible expenses(4,943)
Uncertain tax positions6 
Prior period adjustments395 
Permanent differences and other127 
Provision for income taxes$1,300 
    
Deferred Taxes Assets (Liabilities)

Deferred income taxes are provided for the tax effect of temporary differences between the financial reporting basis and the tax basis of assets and liabilities. Net deferred tax assets have been reported as non-current in the accompanying Consolidated Balance Sheets. Significant temporary differences at December 31, 2025 and 2024 are as follows:
As of December 31,
20252024
Deferred tax assets (liabilities):
Allowance for expected credit losses$89 $108 
Property and equipment(7,383)(170)
Goodwill and intangibles4,863 714 
Accrued compensation1,417 1,786 
Accrued liabilities and other4,607 29 
Loss carryforwards65,855 73,672 
Deferred tax assets before valuation allowance69,448 76,139 
Valuation allowance(67,537)(73,491)
Deferred tax assets, net of valuation allowance$1,911 $2,648 

As a result of the enactment of the Tax Act, the Company has provided tax on GILTI, and therefore, future repatriations of previously unremitted foreign earnings are expected to either be exempt from U.S. taxation or offset by net operating losses (“NOLs”). The Company has not provided any withholding tax with respect to unremitted foreign earnings at December 31, 2025 and December 31, 2024.

On July 4, 2025, the One Big Beautiful Bill (OBBB) Act, which includes a broad range of tax reform provisions, was signed into law in the United States. The OBBB Act did not have a material impact on our annual effective tax rate in 2025 and we do not expect it to have a material impact in 2026.

Net Operating Losses (“NOLs”), Capital Losses, and Valuation Allowance

At December 31, 2025, the Company had losses for U.S. federal and state tax purposes of approximately $239,961 consisting of U.S. federal and state NOLs incurred through December 31, 2025 of $215,405 and U.S. federal and state capital losses of $24,556 as a result of the HEBV liquidation. U.S. federal NOLs incurred through December 31, 2017 expire at various dates through 2037 with $22,867 scheduled to expire during 2025. U.S. federal and State NOLs incurred in or after 2018 have an indefinite carryforward period, which can be offset by 80% of future taxable income in any given year. U.S. federal and state capital losses incurred in 2024 will expire after five years during 2029.
The Company’s utilization of U.S. NOLs is subject to an annual limitation imposed by Section 382 of the Internal Revenue Code (“IRC”), which may limit our ability to utilize all the existing NOLs before the expiration dates.

Based upon IRC Section 382 studies prepared by the Company, Section 382 ownership changes have occurred that will result in $224,124 of the Company’s federal and state NOLs generated through December 2006 and recognized built-in losses during the five-year period after December 2006 being subject to IRC Section 382 limitations. As a result of IRC Section 382 limitations, $22,131 of the $224,124 NOLs that are limited are expected to expire prior to utilization specifically as a result of the IRC Section 382 cumulative annual limitations.

In addition, based upon an IRC Section 382 study prepared by Star Operating Companies Inc (SOC), a Section 382 ownership change occurred due to the merger which will result in $82,338 of SOC’s federal and State NOLs generated through August 2025 and recognized built-in losses during the five-year period after August 2025 being subject to IRC Section 382 limitations. As a result of IRC Section 382 limitations, $68,350 of the $82,338 that are limited are expected to expire prior to utilization specifically as a result of the IRC Section 382 cumulative annual limitations.

Accordingly, the U.S. federal and state NOLs of $239,961, as indicated above, excluded the $90,481 of tax losses expected to expire prior to utilization due to IRC Section 382 cumulative annual limitations and the deferred tax asset for loss carryforwards of $61,759 also excluded $23,428 of related tax benefits.

As of December 31, 2025, certain international subsidiaries had NOLs for local tax purposes of $19,588. With the exception of $14,504 of NOLs with an indefinite carry forward period as of December 31, 2025, these losses will expire at various dates through 2026 to 2045, with $4 scheduled to expire during 2026. The deferred tax recognized for NOLs are presented net of unrecognized tax benefits, where applicable.

ASC 740-10-30-5 requires that a valuation allowance be established when it is more likely than not that all or a portion of a deferred tax asset will not be realized. In making this assessment, management considers the level of historical taxable income, scheduled reversals of deferred tax liabilities, tax planning strategies, and projected future taxable income. As of December 31, 2025, $63,090 of the valuation allowance relates to the deferred tax asset was comprised of NOLs for U.S. capital losses of $5,984, U.S. federal and state NOLs of $55,775, and foreign NOLs of $1,331, that management has determined will more likely than not expire prior to realization. The remaining valuation allowance of $4,447 relates to deferred tax assets on U.S. and foreign temporary differences that management estimates will not be realized due to the Company’s U.S. and foreign tax losses.

Uncertain Tax Positions

A reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding interest and penalties is as follows:
20252024
Balance, beginning of year$60 $60 
Additions for tax positions of current years— — 
Additions for tax positions of prior years— — 
Reductions for tax positions of prior years— — 
Expiration of applicable statutes of limitations— — 
Balance, end of year$60 $60 
The total amount of state and local and foreign unrecognized tax benefits that, if recognized, would affect the effective tax rate was $60 as of both December 31, 2025 and December 31, 2024, exclusive of interest and penalties.

The Company recognizes accrued interest and penalties related to unrecognized tax benefits as part of the provision for income taxes. As of December 31, 2025 and December 31, 2024, the Company had $39 and $33, respectively, of accrued interest and penalties associated with unrecognized tax benefits.

In many cases, the Company’s unrecognized tax benefits are related to tax years that remain subject to examination by the relevant tax authorities. Tax years with NOLs remain open until such losses expire or the statutes of limitations for those
years when the NOLs are used or expire. As of December 31, 2025, the Company’s open tax years which remain subject to examination by the relevant tax authorities, are between 2015 and 2025, depending on the jurisdiction.
Year
The Company believes that its unrecognized tax benefits as of December 31, 2025 are appropriately recorded for all years subject to examination above.
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Historical Timeline

Fiscal YearFiled
2025Mar 20, 2026Showing above
2024Mar 14, 2025
2022Apr 14, 2023
2020Mar 11, 2021
2019Mar 31, 2020
2018Mar 8, 2019
2016Mar 3, 2017

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.

Other Available Disclosures

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