AQUABOUNTY TECHNOLOGIES INC Income Taxes Disclosure
The components of loss from continuing operations before income taxes for the years ended December 31, 2025 and 2024 are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
| 2025 |
| 2024 | ||
Domestic | $ | (2,229,686) |
| $ | (11,364,882) |
Foreign |
| — |
|
| (14,296) |
Loss before income taxes | $ | (2,229,686) |
| $ | (11,379,178) |
Income taxes computed using the federal statutory income tax rate differ from the Company’s effective tax rate for the years ended December 31, 2025 and 2024 primarily due to the following:
|
|
|
|
|
|
| 2025 |
| 2024 | ||
Income tax benefit | $ | (468,234) |
| $ | (2,389,627) |
State and provincial income tax |
| (121,110) |
|
| (617,306) |
Permanent differences |
| (387,981) |
|
| 28,125 |
Other, net |
| (1,325,356) |
|
| (3,728,681) |
| $ | (2,302,681) |
| $ | (6,707,489) |
Change in valuation allowance |
| 2,302,681 |
|
| 6,707,489 |
Total income tax | $ | — |
| $ | — |
As of December 31, 2025, the Company had domestic net operating loss carryforwards of approximately $278 million, after consideration of limitations pursuant to section 382, to offset future federal taxable income, which begin to expire in 2034. Of this amount, the Company had domestic net operating loss carryforwards of approximately $250 million, which can be carried forward indefinitely. The future utilization of certain historic net operating loss and tax credit carryforwards, however, is subject to annual use limitations based on the change in stock ownership rules of Internal Revenue Code Sections 382 and 383. The Company experienced a change in ownership under these rules during 2012 and revised its calculation of net operating loss carryforwards based on annual limitation rules. Since the Company has incurred only losses from inception and there is uncertainty related to the ultimate use of the loss carryforwards and tax credits, a valuation allowance has been recognized to offset the Company’s deferred tax assets, and no benefit for income taxes has been recorded.
The IRS released guidance which modified the procedures for taxpayers that incur specified research or experimental (R&E) expenditures to change their method of accounting to comply with the new capitalization and amortization rules provided in Section 174, as revised by the Tax Cuts and Jobs Act. The Section 174 rules require taxpayers to capitalize and amortize specified R&E expenditures over a period of five years (for domestic research) or 15 years (for foreign research), beginning with the midpoint of the taxable year in which the expenses are paid or incurred. The impact defers the tax benefit of R&E expenditures.
Significant components of the Company’s deferred tax assets and liabilities are as follows:
|
|
|
|
|
|
|
| 2025 |
|
| 2024 |
Deferred tax assets: |
|
|
|
|
|
Net operating loss carryforwards | $ | 38,977,895 |
| $ | 36,533,697 |
Property and equipment |
| 1,566,849 |
|
| (1,062,124) |
Intangibles |
| — |
|
| 2,172,310 |
R&D costs |
| — |
|
| 837,054 |
Other |
| 532,532 |
|
| 293,658 |
Total deferred tax assets | $ | 41,077,276 |
| $ | 38,774,595 |
Valuation allowance |
| (41,077,276) |
|
| (38,774,595) |
Net deferred tax assets | $ |
|
| $ |
|
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 31, 2026 | Showing above |
| 2024 | Mar 27, 2025 | |
| 2023 | Apr 1, 2024 | |
| 2022 | Mar 7, 2023 | |
| 2021 | Mar 10, 2022 | |
| 2020 | Mar 9, 2021 | |
| 2019 | Mar 10, 2020 | |
| 2018 | Mar 7, 2019 | |
| 2017 | Mar 8, 2018 | |
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.