authID Inc. Income Taxes Disclosure

NOTE 8 – INCOME TAXES

 

The Company accounts for income taxes under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 740 “Income Taxes.” Under the asset and liability method of FASB ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under FASB ASC 740, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period the enactment occurs. We record Global Intangible Low Tax Income (GILTI) as a current period expense when incurred. A valuation allowance is provided for certain deferred tax assets if it is more likely than not that the Company will not realize tax assets through future operations.

 

We record uncertain tax positions on the basis of a two-step process whereby we determine whether it is more likely than not that the tax positions will be sustained based on the technical merits of the position, and for those tax positions that meet the more likely than not criteria, we recognize the largest amount of tax benefit that is greater than 50% likely to be realized upon ultimate settlement with the related tax authority. We record interest and penalties on uncertain tax positions in Income tax expense. There were no unrecognized tax benefits as of December 31, 2025 and 2024

 

The Company’s loss before income taxes from US and Foreign sources for the years ended December 31, 2025 and 2024, are as follows: 

 

		2025				2024
United States			(18,015,495	)			(14,163,648	)
Outside United States			(5,774	)			(112,246	)
Loss before income taxes			(18,021,269	)			(14,275,894	)

 

The income tax provision consisted of the following for the years ended December 31, 2025 and December 31, 2024

 

		2025				2024
Current			-				-
Federal			-				-
State & Local			-				-
Foreign			-				-
Deferred Tax Expense			-				-
Federal			-				-
State & Local			-				-
Foreign			-				-
			-				-
Net Income Tax Expense			-				-

 

A reconciliation of the statutory U.S. federal income tax rate to the Company’s effective tax rate for the year ended December 31, 2024 is as follows:

 

		2024
US Federal statutory federal income tax			21.00	%
State taxes			19.84	%
Foreign taxes			0.03	%
Other deferred adjustments			-6.35	%
R&D credit			3.12	%
Change in valuation allowance			-37.64	%
Total income tax provision			0.00	%

A reconciliation of the provision for income taxes to the amount computed by applying the 21% statutory U.S. federal income tax rate to income before income taxes after the adoption of ASU 2023-09 is as follows:

 

		2025
		Amount				Percentage
US Federal income tax statutory rate			(3,784,969	)			21.00	%
State taxes and local income tax, net of federal benefit			-				0.00	%
Foreign taxes effects			1,213				-0.01	%
Effect of changes in tax laws and rates enacted in the current period			-				0.00	%
Effect of cross border tax laws			-				0.00	%
Tax credits			(466,502	)			2.59	%
Change in valuation allowance			1,964,505				-10.90	%
Nontaxable or nondeductible items			-				0.00	%
Changes in share-based compensation			2,280,373				-12.65	%
Changes in unrecognized tax benefits			-				0.00	%
Other			5,382				-0.03	%
Effective tax rate			-				0.00	%

 

Deferred Tax Assets at December 31, 2025 and December 31, 2024 are related to the following:

 

		2025				2024
Net operating loss			24,115,034				19,980,310
Stock options			5,810,526				8,607,020
Federal tax credits			1,588,143				1,121,640
Basis difference in intangible and fixed assets			1,530,876				2,328,429
Accrued payroll			-				106,511
Accounting reserves			67,882				40,211
Capital loss			373,605				420,158
Valuation allowance			(33,486,066	)			(32,604,279	)
Deferred tax assets, net			-				-

 

We establish valuation allowances for deferred tax assets based on a more likely than not standard. Deferred income tax assets are evaluated quarterly to determine if valuation allowances are required or should be adjusted. The ability to realize deferred tax assets depends on the ability to generate sufficient taxable income within the carryback or carryforward periods provided for in the tax law for each applicable tax jurisdiction. The assessment regarding whether a valuation allowance is required or should be adjusted also considers all available positive and negative evidence factors. It is difficult to conclude a valuation allowance is not required when there is significant objective and verifiable negative evidence, such as cumulative losses in recent years. We utilize a rolling three years of actual and current year results as the primary measure of cumulative losses in recent years. The valuation allowance increased by approximately $0.5 million in the year ended December 31, 2025.

 

At December 31, 2025, the Company had federal research and development credit carryforwards of approximately $1.6 million. As of December 31, 2025, the Company has available federal net operating loss carry forward of $101.2 million and state net operating loss carry forwards of $45.5 million. Federal net operating loss carryforwards of approximately $14.4 million will expire through 2037 and the balance of $86.8 million have an indefinite life. Additionally, the Company has income tax net operating loss carryforwards related to our international operations which have an indefinite life. The federal credit carryforwards begin to expire in 2038. Section 382 of the Internal Revenue Code subject the future utilization of net operating losses and certain other tax attributes, such as research and experimental tax credits, to an annual limitation in the event of certain ownership changes, as defined. The Company may be subject to the net operating loss limitation provision of Section 382 of the Internal Revenue Code. The effect of an ownership change would be the imposition of an annual limitation of the use of NOL carryforwards and tax credits attributable to periods before the change. The amount of the annual limitation depends upon the value of the Company immediately before the change, changes to the Company’s capital during a specified period prior to the change, and the federal published interest rate. Although the Company has not completed an analysis under Section 382 of the Code, it is likely that the utilization of the NOLs will be limited.

Entities are also required to evaluate, measure, recognize and disclose any uncertain income tax provisions taken on their income tax returns. The Company has analyzed its tax positions and has concluded that as of December 31, 2025 there were no uncertain positions. The Company’s U.S. federal and state net operating losses have occurred since its inception in 2009 and as such, tax years subject to potential tax examination could apply from that date. This is because the utilization of net operating losses from prior years opens the relevant year to audit by the IRS and/or state taxing authorities. Interest and penalties, if any, as they relate to income taxes assessed, are included in the income tax provision. The Company did not have any unrecognized tax benefits and has not accrued any interest or penalties for the 12 months ended December 31, 2025 and 2024.