Note 12 — Income Taxes

The income tax provision for the years ended October 1, 2023 and October 2, 2022 include the following:

Schedule of Income Tax Provision 

As of October 1, 2023, Optex Systems Inc. has a net carrying value of $0.9 million in deferred tax assets represented by deferred tax assets of $1.7 million and a deferred tax asset valuation allowance of ($0.8) million against those assets. The valuation allowance has been established due to historical losses resulting in a Net Operating Loss Carryforward for each of the fiscal years 2010 through 2016 which may not be fully recognized due to an IRS Section 382 limitation related to a change in control occurring in fiscal year 2018. As of October 1, 2023 and October 2, 2022, we reviewed the deferred tax assets and determined it was more likely than not that we would be able to utilize a substantial portion of the deferred tax asset balance against future earnings. Our assumptions were based on the previous three years earnings trend as well as anticipated future earnings. During the twelve months ended October 1, 2023, the Company recognized $20 thousand in tax expenses to deferred tax assets. During the twelve months ended October 2, 2022, the Company recognized $33 thousand in tax expenses to deferred tax assets. We will continue to review the deferred tax assets and related valuation reserves in accordance with ASC 740 on an annual basis.

The income tax provision for Optex Systems as of October 1, 2023 and October 2, 2022 differs from those computed using the statutory federal tax rate in the respective years due to the following permanent differences:

Schedule of Effective Income Tax Rate Reconciliation 

Deferred income taxes recorded in the balance sheets result from differences between financial statement and tax reporting of income and deductions. A summary of the composition of the deferred income tax assets (liabilities) follows:

Schedule of Deferred Income Taxes 

The Company has a net loss carryforward of $6.0 million as of October 1, 2023 as compared to a net loss carryforward of $6.3 million as of October 2, 2022. Due to an IRS section 382 change in control limitation which was effective during the fiscal year ended 2017, it is anticipated that the Company may only realize $2.3 million of the current net operating loss carryforward for a net tax benefit of $0.5 million through fiscal year ending in 2037. During the twelve months ended October 1, 2023, the Company recovered $0.3 million in cash for a tax refund related to the net operating loss carryback from the October 3, 2021 year end.

The Company applied FASB ASC 740-10 and has no unrecognized tax benefits. By statute, the tax years ended October 1, 2023, October 2, 2022 and October 3, 2021 are open to examination by the major taxing jurisdictions to which the Company is subject.

During the twelve months ended October 1, 2023 the Company paid $534 thousand in income taxes. During the twelve months ended October 2, 2022 the Company paid zero in income taxes, received a tax refund of $312 thousand for fiscal year 2021 operating loss carrybacks, and recorded a current year federal income tax liability of $331 thousand which was paid during the twelve months ended October 1, 2023. As of October 1, 2023 the Company has recorded a tax liability of $247 thousand.