TANDY LEATHER FACTORY INCTLF
TANDY LEATHER FACTORY INC Income Taxes Disclosure
7. INCOME TAXES
The provision for income taxes consists of the following:
|
(in thousands)
|
Year Ended December 31, | |||||||
|
Income Tax Provision (Benefits)
|
2025
|
2024
|
||||||
|
Current provision (benefit):
|
||||||||
|
Federal
|
$
|
2,014 |
$
|
261 |
||||
|
State
|
564 |
71 |
||||||
|
Foreign
|
29 |
(68 |
)
|
|||||
|
Related to UTP
|
(4 |
)
|
(31 |
)
|
||||
| 2,603 |
233 |
|||||||
|
Deferred provision (benefit):
|
||||||||
|
Federal
|
461 |
32 |
||||||
|
State
|
138 |
8 |
||||||
|
Foreign
|
(4 |
)
|
(9 |
)
|
||||
| 595 |
31 |
|||||||
|
Total tax provision
|
$
|
3,198 |
$
|
264 |
||||
Earnings occurring outside the U.S. are deemed to be indefinitely reinvested outside of the U.S. to support the Company’s foreign operations. As a result, if the Company accumulates earnings overseas, they will
be used for investment in the Company’s businesses outside the U.S. The Company will use cash generated from U.S. operations and short- and long-term borrowings to meet the Company’s U.S. cash needs.
Income before income taxes was earned in the following tax jurisdictions:
|
(in thousands)
|
Year Ended December 31,
|
|||||||
|
Income (Loss) Before Income Taxes
|
2025
|
2024
|
||||||
|
United States
|
$
|
12,285 |
$
|
1,382 |
||||
|
Canada
|
38 |
(32 |
)
|
|||||
|
Spain
|
(23 |
)
|
(259 |
)
|
||||
|
TOTAL
|
$
|
12,300 |
$
|
1,091 |
||||
The income tax effects of temporary differences that give rise to significant portions of deferred income tax assets and liabilities are as follows:
|
Deferred income tax assets:
|
2025
|
2024
|
||||||
|
(in thousands)
|
||||||||
|
Inventory
|
$
|
387 |
$
|
391 |
||||
|
Stock-based compensation
|
106 |
39 |
||||||
|
Accounts receivable
|
13 |
12 |
||||||
|
Sales returns
|
78 |
78 |
||||||
|
Foreign currency translation gain/loss in OCI
|
674 |
726 |
||||||
|
Goodwill and other intangible assets amortization
|
- |
1 |
||||||
|
Net operating loss (income)
|
192 |
184 |
||||||
|
Accrued expenses
|
340 |
41 |
||||||
|
Leases
|
660 |
111 |
||||||
|
Other
|
26 |
- |
||||||
|
Total deferred income tax assets
|
2,476 |
1,583 |
||||||
|
Less: valuation allowance
|
(181 |
)
|
(156 |
)
|
||||
|
Total deferred income tax assets, net of valuation allowance
|
$
|
2,295 |
$
|
1,427 |
||||
|
Property and equipment depreciation
|
$
|
(1,915 |
)
|
$
|
(214 |
)
|
||
|
Total deferred income tax liabilities
|
(1,915 |
)
|
(214 |
)
|
||||
|
Net deferred tax asset (liability)
|
$
|
380 |
$
|
1,213 |
||||
We are required to reduce deferred tax assets by a valuation allowance if, based on the weight of the available evidence, it is more likely than not that all or a portion of a deferred tax asset will not be
realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences are deductible.
As of each reporting date, the Company considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets. As of December 31, 2025, management determined that there is sufficient positive evidence to conclude that it is more likely than not that deferred taxes of $0.4 million are realizable.
Our effective tax rate differs from the federal statutory rate primarily due to U.S. state income tax expense, the difference in tax rates for loss carryback periods, foreign income positions, expenses that are nondeductible for tax purposes, the change in our valuation allowance associated with our deferred tax assets, and differences in tax rates. Below is a reconciliation of our effective tax rate from the statutory rate:
|
Year Ended December 31,
|
||||||||||||||||
|
(in thousands)
|
2025
|
2024
|
||||||||||||||
|
Statutory rate – Federal U.S. income tax
|
$
|
%
|
$
|
%
|
||||||||||||
|
State and local taxes
|
557 |
4.5 |
%
|
58 |
5.3 |
%
|
||||||||||
|
Permanent book/tax differences
|
28 |
0.2 |
%
|
24 |
2.3 |
%
|
||||||||||
|
Change in valuation allowance
|
24 |
0.2 |
%
|
2 |
0.2 |
%
|
||||||||||
|
Rate differential on UTP reversals
|
(4 |
)
|
(0.0 |
)%
|
(30 |
)
|
(2.8 |
)%
|
||||||||
|
Income tax credits
|
- |
0.0 |
%
|
- |
0.0 |
%
|
||||||||||
|
Other, net
|
1 |
0.1 |
%
|
(19 |
)
|
(1.8 |
)%
|
|||||||||
|
Effective rate
|
$
|
3,198 |
26.0 |
%
|
$
|
264 |
24.2 |
%
|
||||||||
|
(in thousands)
|
||||
| Income taxes paid by jurisdiction: |
2025
|
|||
|
US federal tax paid
|
1550 |
|||
|
US federal refunds received
|
- |
|||
|
US state tax paid
|
150 |
|||
|
US state tax refunds
|
- |
|||
|
Foreign (Canada) tax paid
|
151 |
|||
|
Foreign (Canada) tax refunds
|
- |
|||
|
Total taxes (absolute values)
|
$
|
1,851 |
||
A reconciliation of the beginning and ending amount of uncertain tax positions (“UTP”) is as follows:
|
2025
|
2024
|
|||||||
|
UTP at beginning of the year
|
$
|
248 |
$
|
388 |
||||
|
Gross decrease to tax positions in current period
|
(21 |
)
|
(140 |
)
|
||||
|
UTP at end of year
|
$
|
227 |
$
|
248 |
||||
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 24, 2026 | Showing above |
| 2024 | Feb 26, 2025 | |
| 2023 | Mar 22, 2024 | |
| 2022 | Mar 31, 2023 | |
| 2021 | Mar 31, 2022 | |
| 2020 | Sep 2, 2021 | |
| 2019 | Jun 22, 2021 | |
| 2018 | Mar 8, 2019 | |
| 2017 | Mar 8, 2018 | |
| 2016 | Mar 27, 2017 | |
| 2015 | Mar 30, 2016 | |
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.