Stran & Company, Inc. Income Taxes Disclosure

O.	INCOME TAX PROVISION:

 

Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due. Deferred taxes relate to differences between the basis of assets and liabilities for financial and income tax reporting which will be either taxable or deductible when the assets or liabilities are recovered or settled.

 

On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted in the U.S. The OBBBA includes significant provisions, such as the permanent extension of certain expiring provision of the Tax Cuts and Jobs Act, modification to the international tax framework and the restoration of favorable tax treatment for certain business provisions. The legislation has multiple effective dates, with certain provisions effective in 2025 and others implemented through 2027. Under OBBBA, the Company is permitted to claim 100% bonus depreciation. This provision accelerates tax deductions but does not create a permanent tax difference; therefore, the impact is timing-related only and does not materially affect the Company’s 2025 income tax provision.

For the years ended December 31, 2025 and 2024, the loss before income taxes was $627 and $4,135, respectively. The loss before income taxes was allocated between domestic and foreign sources as follows for the years ended December 31, 2025 and 2024:

 

		December 31, 2025				December 31, 2024
Domestic		$	(627	)		$	(4,135	)
Foreign			—				—
Loss before income taxes		$	(627	)		$	(4,135	)

 

The income tax provision for the years ended December 31, 2025 and 2024 was $120 and $5, respectively, and consisted of the following:

 

		December 31, 2025				December 31, 2024
Current provision
Federal		$	49			$	—
State			71				5
Total current provision			120				5
Deferred provision
Federal			—				—
State			—				—
Total deferred provision			—				—
Provision for income taxes		$	120			$	5

 

The company is subject to taxation in the United States at both the federal level and within various state jurisdictions. The company is not currently under any audit. The calendar years 2022 through 2024 are still open to IRS examination under the statute of limitations.

 

The Company had an effective tax rate of (19.16)% and (0.12)% for the years ended December 31, 2025 and 2024, respectively.

Beginning in 2025 annual reporting, we adopted ASU 2023-09 prospectively. See Note A - Organization and Summary of Significant Accounting Policies for additional details on the adoption of ASU 2023-09. A reconciliation of the U.S. federal statutory income tax rate to our effective tax rate pursuant to the disclosure requirements of ASU 2023-09 for the year ended December 31, 2025 is as follows:

 

		For the Year Ended
		December 31, 2025
U.S. statutory rate		$	(132	)			21.00	%
State and local income taxes1, net of federal income tax effect			54				(8.57	)%
Change in valuation allowance			(279	)			44.44	%
Return to provision:
Change in pre-tax income			56				(8.97	)%
Other return to provision			1				(0.09	)%
Other deferred adjustments:
Fixed assets			(71	)			11.26	%
Intangibles			(79	)			12.63	%
481(a) adjustment			558				(88.91	)%
Net operating loss			(682	)			108.73	%
Stock compensation			90				(14.35	)%
Section 163(j)			29				(4.57	)%
Bad debt expense			(67	)			10.62	%
UNICAP			(50	)			7.99	%
Other deferred adjustments			(7	)			1.01	%
Uncertain tax position adjustment			660				(105.15	)%
Non-taxable/non-deductible items:
Meals and entertainment expenses			39				(6.23	)%
Effective tax rate		$	120				(19.16	)%

 

1

Massachusetts and New York account for greater than 50% of the tax effect in this category.

 

The reconciliation of the U.S. statutory rate of 21.00% to the Company’s effective tax rate for the year ended December 31, 2024 in accordance with the guidance prior to the adoption of ASU 2023-09 is summarized as follows:

 

		December 31, 2024
U.S. Statutory rate			21.00	%
State taxes, net of federal			5.08	%
Change in valuation allowance			(24.77	)%
Other permanent differences			(1.43	)%
Effective tax rate			(0.12	)%

The table below presents the effects of temporary differences that gave rise to significant portions of deferred tax assets and liabilities as of December 31, 2025 and 2024:

 

		December 31, 2025				December 31, 2024
Deferred tax assets:
Net operating loss carryforwards		$	1,515			$	1,051
Charitable contributions			53				29
Lease liability			600				208
Stock compensation			114				219
Compensation expense			26				26
Unrealized gain/loss			—				3
Allowance for credit losses			360				167
UNICAP			67				30
Amortization			134				755
Total gross deferred tax assets			2,869				2,488
Less: Valuation allowance			(1,833	)			(2,234	)
Net deferred tax assets			1,036				254
Deferred tax liabilities:
Lease liability			(534	)			(208	)
Depreciation			(114	)			(46	)
Unrealized gains			(41	)			—
481a adjustment			(347	)			—
Total deferred tax liabilities			(1,036	)			(254	)
Total deferred tax assets (liabilities)		$	—			$	—

 

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all the deferred income tax assets will not be realized. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred income tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based on consideration of these items, management has determined that enough uncertainty exists relative to the realization of the deferred income tax asset balances to warrant the application of a full valuation allowance as of December 31, 2025 and 2024.

 

As of December 31, 2025, the Company maintained valuation allowances of $1,833 for deferred tax assets that are not more likely than not to be realized, which primarily included our U.S. and state net operating losses. The valuation allowance on our net deferred tax assets decreased by $401 and increased $1,000 during the years ended December 31, 2025 and 2024, respectively.

 

Cash paid for income taxes, net of refunds received, by jurisdiction pursuant to the disclosure requirements of ASU 2023-09 for the year ended December 31, 2025 is as follows:

 

		December 31, 2025
Federal		$	34
State
Massachusetts			69
New York			7
Texas			27
Other states			3
Cash paid for income taxes, net of refunds received		$	140

The Company has Federal and State net operating loss (“NOLs”) carryforwards of approximately $5,900 and $5,100, respectively, as of December 31, 2025. The Federal NOLs were generated after December 31, 2017 and have an infinite carryforward period but are subject to 80% deduction limitation based upon pre-NOL deduction taxable income. State NOLs generated have various expiration rules and dates with the first amount of NOLs expiring in 2028.

 

The utilization of the Company’s net operating loss carryforwards and research tax credit carryovers could be subject to annual limitations under Section 382 and 383 of the Internal Revenue Code of 1986, as amended (the “Code”), and similar state tax provisions, due to ownership change limitations that may have occurred previously or that could occur in the future. These ownership changes limit the amount of net operating loss carryforwards and other deferred tax assets that can be utilized to offset future taxable income and tax, respectively. In general, an ownership change, as defined by Section 382 and 383 of the Code, results from transactions increasing ownership of certain stockholders or public groups in the stock of the corporation by more than 50 percent points over a three-year period. The Company has not completed an analysis of an ownership change under Section 382 of the Code. To the extent that a study is completed and an ownership change is deemed to occur, the Company’s net operating losses and tax credits could be limited.

 

Uncertain Tax Positions

 

The Company adopted the standards for Accounting for Uncertainty in Income Taxes, which required the Company to report any uncertain tax positions and to adjust its financial statements for the impact thereof.  As of December 31, 2025 and 2024, the Company determined it had uncertain tax positions of $0 and $3,141, respectively. The Company believes the impact will not be material as it will be able to utilize net operating losses to offset a majority of the risk. The Company’s accounting policy regarding interest expense and penalties associated with uncertain tax positions is included as a part of income tax expense. The Company did not record interest expense for 2025 as the amount was nominal.

 

Unrecognized tax benefits as of December 31, 2023		$	2,448
Gross increase in unrecognized tax benefits for prior year			693
Decreases due to settlements			—
Unrecognized tax benefits as of December 31, 2024		$	3,141
Gross decrease in unrecognized tax benefits for prior year			(3,141	)
Decreases due to settlements			—
Unrecognized tax benefits as of December 31, 2025		$	—