ACTUATE THERAPEUTICS, INC. Income Taxes Disclosure

11.        INCOME TAXES

 

The Company accounts for income taxes in accordance with ASC 740, “Income Taxes” (“ASC 740”), which requires that the tax benefit of net operating losses, temporary differences and credit carryforwards be recorded as an asset to the extent that management assesses that realization is “more likely than not.” Realization of the future tax benefits is dependent on the Company’s ability to generate sufficient taxable income within the carryforward period. Because of the Company’s recent history of operating losses, management believes that recognition of the deferred tax assets arising from the above-mentioned future tax benefits is currently not likely to be realized and, accordingly, has provided a full valuation allowance.

 

The provision (benefit) for income taxes for the years ended December 31, 2025 and 2024 is as follows:

Schedule of provision (benefit) for income taxes
		December 31,
		2025				2024
Current
Federal		$	–			$	–
State			800				800
Foreign			–				–
Total current			800				800
Deferred
Federal			(4,076,182	)			(5,918,525	)
State			(68,960	)			(35,752	)
Foreign			–				–
Change in valuation allowance			4,145,142				5,954,277
Total deferred			–				–
Income tax provision		$	800			$	800

 

The income tax provision is included in general and administrative expenses in the accompanying consolidated statements of operations. Deferred tax assets and liabilities reflect the net tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and amounts used for income tax purposes. Significant components of our deferred tax assets as of December 31, 2025 and 2024 are as follows:

Schedule of components of deferred tax assets
		December 31,
		2025				2024
Deferred tax assets (liabilities):
Capitalized R&D, net of amortization		$	8,771,836			$	8,914,944
Other			1,667,435				590,030
Net operating loss carryforwards			18,249,620				14,295,945
Research and development tax credits			13,277,728				13,908,401
Total deferred tax assets			41,966,619				37,709,320
Valuation allowance			(41,966,619	)			(37,709,320	)
Net deferred tax assets		$	–			$	–

 

Upon adoption of ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, the reconciliation of the effective income tax rate at the Federal statutory rate for the year ended December 31, 2025 is as follows:

Schedule of effective income tax rate
		December 31, 2025
		Amount				Percentage
Statutory federal income tax rate		$	(4,667,681	)			21.00	%
State income tax rate, net of federal income tax effect			632				0.00	%
Tax credits:
Research and development tax credits			(440,198	)			1.98	%
Change in valuation allowance			5,008,947				(22.54	%)
Nontaxable and nondeductible items:
Other			99,100				(0.44	%)
Effective income tax			800				0.00	%

 

The reconciliation of taxes at the federal statutory rate to our provision for (benefit from) income taxes for the year ended December 31, 2024 in accordance with the guidance prior to the adoption of ASU 2023-09 was as follows:

		December 31, 2024
Statutory federal income tax rate			21.00	%
Research and development tax credits			6.23	%
Other			(2.00	%)
Change in valuation allowance			(25.23	%)
Effective income tax rate			0.00	%

 

Upon adoption of ASU 2023-09, cash paid for income taxes, net of refunds, during the years ended December 31, 2025 and 2024 was as follows:

Schedule of cash paid for income taxes
		December 31,
		2025				2024
Federal		$	–			$	–
State (California)			800				800
Total cash paid for income taxes, net of refunds		$	800			$	800

 

As of December 31, 2025 and 2024, the Company had gross federal income tax net operating loss (“NOL”) carryforwards of $86,521,657 and $67,858,056, respectively, and federal research tax credits of $13,277,728 and $13,908,401, respectively. Of the federal NOL carryforwards, $3,010,902 will expire beginning in 2035 and $83,510,755 has an indefinite life while the federal research tax credits will expire by 2044. In addition, the Company has state NOL carryovers of $696,277 that will carry forward indefinitely.

 

Utilization of U.S. net operating losses and tax credit carryforwards may be limited by “ownership change” rules, as defined in Sections 382 and 383 of the Code. Similar rules may apply under state tax laws. The Company has not conducted a study to date to assess whether a limitation would apply under Sections 382 and 383 of the Code as and when it starts utilizing its net operating losses and tax credits. The Company will continue to monitor activities in the future. In the event the Company previously experienced an ownership change, or should experience an ownership change in the future, the amount of net operating losses and research and development credit carryovers available in any taxable year could be limited and may expire unutilized.

 

Federal net operating losses incurred in tax years beginning before December 31, 2017, are subject to a 20 year carry forward period and net operating losses incurred after December 31, 2017, can be carried forward indefinitely but will be subjected to the 80% taxable income limitation. In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion, or all, of the deferred tax asset will be realized. The ultimate realization of deferred tax assets is dependent upon the Company attaining future taxable income during periods in which those temporary differences become deductible.

 

Due to the uncertainty surrounding the realization of the benefits of its deferred assets, including NOL carryforwards, the Company has provided a 100% valuation allowance on its deferred tax assets at December 31, 2025 and 2024.