Income Taxes
We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. We recognize deferred tax assets to the extent that we believe these assets are more likely than not to be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If we determine that we would be able to realize our deferred tax assets in the future in excess of their net recorded amount, we would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes. We record uncertain tax positions on the basis of a two-step process whereby (1) we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.
The expense for income taxes consists of:
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| Year Ended December 31, |
| 2025 | | 2024 | | 2023 |
| Current | $ | 5,773 | | | $ | 1,930 | | | $ | 1,939 | |
| Deferred | 1,291 | | | — | | | — | |
| $ | 7,064 | | | $ | 1,930 | | | $ | 1,939 | |
The reconciliation between our effective tax rate on income from operations and the statutory rate is as follows:
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| Year Ended December 31, |
| 2025 | | 2024 | | 2023 |
| Income tax expense at federal statutory rate | $ | 4,484 | | | $ | 1,776 | | | $ | 1,768 | |
| State and local income taxes net of federal tax benefit | 1,053 | | | 154 | | | 171 | |
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| Timing differences | | | | | |
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| Generation (use) of net operating loss carryforwards | (488) | | | — | | | — | |
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Other basis/timing differences | 830 | | | — | | | — | |
| Change in valuation allowance | 1,185 | | | — | | | — | |
| Calculated income tax expense | $ | 7,064 | | | $ | 1,930 | | | $ | 1,939 | |
| Effective tax rate | 33.1 | % | | 22.8 | % | | 22.9 | % |
We are subject to taxation in the United States and various states. As of December 31, 2025, our tax years for 2022 through 2025 are subject to examination by the tax authorities. With few exceptions, as of December 31, 2025, we are no longer subject to U.S federal, state and local examinations by tax authorities for the years before 2022.
Components of the net deferred tax asset:
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| December 31, |
| 2025 | | 2024 |
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| Basis difference in fixed assets | $ | — | | | $ | 2,333 | |
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| Deferred gain and net operating loss carryforward | — | | | 122 | |
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| $ | — | | | $ | 2,455 | |
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.