Turtle Beach Corp Income Taxes Disclosure

Note 8. Income Taxes

As required by the authoritative guidance on accounting for income taxes, the Company assesses the realizability of its net deferred tax assets by evaluating all available evidence, both positive and negative, including (1) cumulative results of operations in recent years, (2) sources of recent losses, (3) estimates of future taxable income and (4) the length of net operating loss carryforward periods. The Company believes that based on the history of its U.S. losses and other factors, the weight of available evidence indicates that it is more likely than not that it will not be able to realize its U.S. net deferred tax assets. Accordingly, the U.S. net deferred tax assets have been offset by a full valuation allowance. The valuation allowance changed by $(2.4) million for the tax year ended December 31, 2025 and changed by $(9.0) million for the tax year ended December 31, 2024. As of December 31, 2025, the Company had domestic federal net operating loss carryforwards of $25.6 million. As of December 31, 2025, the Company had state federal net operating loss carryforwards of $42.7 million that can reduce future taxable income. The domestic federal net operating losses have indefinite carryforward lives. Certain domestic states have indefinite carryforward lives while others will begin to expire in 2029. As of December 31, 2025, the Company had credit carryforwards of $1.0 million that can reduce future taxable income. The credits will begin to expire in 2026 and 2027, respectively.

The Company recognizes only those tax positions that meet the more-likely-than-not recognition threshold and establishes tax reserves for uncertain tax positions that do not meet this threshold. To the extent these unrecognized tax benefits are ultimately recognized, approximately $1.8 million will impact the Company's effective tax rate and $0.1 million will be offset by a valuation allowance in future periods. The Company is filing for relief provisions in certain jurisdictions and based on such anticipated filings, it is reasonably possible that amounts of unrecognized tax benefits could decrease by $0.1 million within the next twelve months. Interest and penalties associated with income tax matters are included in the provision for income taxes. As of December 31, 2025, the Company had uncertain tax positions of $1.8 million, inclusive of $0.4 million of interest and penalties.

The amount of cash income taxes paid, net of refunds, during the years ended December 31, 2024 and 2023 was $0.2 million and $0.1 million, respectively.

The Company is not currently under examination by federal, state or foreign taxing jurisdictions. Further, at any given time, multiple tax years may be subject to examination by various taxing authorities. The recorded amounts of income tax are subject to adjustment upon examination, changes in interpretation and changes in judgment utilized in determining estimates.

The Company considers the earnings of its foreign entities to be permanently reinvested outside the United States based on estimates that future cash generation will be sufficient to meet future domestic cash needs. Accordingly, deferred taxes have not been recorded for the undistributed earnings of the Company's foreign subsidiaries. As a result of the Tax Cuts and Jobs Act ("TCJA") and the current U.S. taxation of deemed repatriated earnings, the additional taxes that might be payable upon repatriation of foreign earnings are not significant.

The TCJA introduced a provision to tax global intangible low-taxed income (“GILTI”) of foreign subsidiaries and a measure to tax certain intercompany payments under the base erosion anti-abuse tax “BEAT” regime. For the years ended December 31, 2024 and 2023, the Company did not generate intercompany transactions that met the BEAT threshold but does have to include GILTI relating to the Company's foreign subsidiaries. The Company elected to account for GILTI as a current period cost.

The Company is subject to income taxes domestically and in various foreign jurisdictions. The Company files U.S., state and foreign income tax returns in jurisdictions with various statutes of limitations. The federal tax years open under the statute of limitations are 2021 through 2023, the state tax years open under the statute of limitations are 2021 through 2023, and the foreign tax years open under the statute of limitations are 2021-2023.

On August 16, 2022, the Inflation Reduction Act was signed into law. The Inflation Reduction Act includes various tax provisions, which are effective for tax years beginning on or after January 1, 2023. For tax years beginning after December 31, 2021, the Tax Cuts & Jobs Act of 2017 eliminated the option to deduct research and development expenditures as incurred and instead required taxpayers to capitalize and amortize them over five or 15 years beginning in 2022. The Company included the impact of the research and development expenditures in its December 31, 2024 and 2023 tax expense. The Inflation Reduction Act includes a 1% excise tax on publicly traded US corporations for the value of its stock repurchased after December 31, 2022. The Company did not incur excise tax on stock repurchased for the year ended December 31, 2024 and 2023. The Company will continue to monitor possible future impact of changes in tax legislation.

In July 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted, restoring immediate expensing for domestic research and development (“R&D”) expenditures and providing transition rules for amounts previously capitalized under Internal Revenue Code Section 174. For the year ended December 31, 2025, the Company has elected, as permitted under OBBBA, to deduct in the current year all remaining unamortized domestic R&D costs that were capitalized in prior years, as well as to immediately expense all qualifying current‑year domestic R&D expenditures. This election resulted in a significant increase in deductible expenses for income tax purposes in 2025, reducing the Company’s current federal taxable income and impacting the measurement of related deferred tax assets and liabilities. Foreign R&D expenditures continue to be capitalized and amortized over 15 years in accordance with applicable tax law. The Company will continue to monitor the impact of OBBBA on its effective tax rate and cash tax position in future periods.