AUDDIA INC. Income Taxes Disclosure

Note 8 – Income Taxes

 

For the years ended December 31, 2025 and 2024, the Company recorded no income tax benefit for the net operating losses incurred during the year, due to the uncertainty of realizing a benefit from those items.

 

The following is a reconciliation of the statutory federal income tax rate to the effective tax rate reported in the financial statements: 

Schedule of effective income tax rate reconciliation
		2025							2024
U.S. federal statutory rate		$	(1,615,571	)		21.0%			$	(1,831,628	)	21.0%
Effects of:
State and local taxes, net of federal benefit			(32,356	)		0.4%				(337,994	)	3.9%
Prior year true-ups			(1,090,658	)		14.2%				(596,910	)	6.8%
Other			29,214			(0.4)%				166,141		(1.9)%
Change in valuation allowance			2,545,572			(33.1)%				2,600,424		(29.8)%
Change in entity status			171,314			(2.2)%				0		–%
Change in tax rates			(7,514	)		0.10%				(33	)	–%
Effective rate		$	–			–%			$	–		–%

 

Significant components of the Company’s deferred tax assets as of December 31, 2025 and 2024 are summarized below. 

Schedule of deferred tax assets
		2025				2024
Deferred tax assets:
Federal net operation losses		$	5,978,691			$	4,716,750
State net operation losses			1,971,631				1,153,016
Stock based compensation			862,177				840,860
Capitalized software			257,982				43,892
Other assets			156,041				154,788
Total deferred tax assets			9,226,522				6,909,306
Deferred income tax liabilities:
Capitalized software			–				–
Property & equipment			(887)				(1,270	)
Total deferred tax liabilities			(887)				(1,270	)
Net deferred tax assets			9,225,635				6,908,036
Valuation allowance			(9,225,635	)			(6,908,036	)
Net deferred tax asset, net of valuation allowance		$	–			$	–

  

For the year ended December 31, 2025, the Company has federal and state net operating loss carryforwards of $29,496,111 and $1,036,222, respectively.

 

The federal net operating loss carryforwards do not have an expiration, however, are limited to 80% of the excess of taxable income over the total net operating loss deduction. The state net operating loss carryforwards will conform to the federal provisions.

 

After weighing all available positive and negative evidence for the years ended December 31, 2025 and 2024, the Company has recorded a valuation allowance of $9,225,635 and $6,908,036, respectively.

 

The Company continuously monitors its current and prior filing positions in order to determine if any unrecognized tax positions should be recorded. The analysis involves considerable judgement and is based on the best information available. For the years ended December 31, 2025 and 2024, the Company is not aware of any positions which require an uncertain tax position liability.

 

The Company is subject to taxation in the United States and Colorado. The statute of limitations on the initial tax return filed for 2021 tax year expired in 2025 for federal and in 2026 for state jurisdictions.

 

The Company has significant federal and state net operating loss carryforwards (“NOLs”). The proposed merger with Thramann Holdings is expected to result in an ownership change under Internal Revenue Code Section 382. An ownership change would subject the Company’s NOLs to an annual limitation based on the fair market value of the Company immediately prior to the ownership change multiplied by the applicable long-term tax-exempt rate. As a result, a substantial portion of the Company’s NOLs may not be available to offset future taxable income.

 

Because the Company maintains a full valuation allowance against its deferred tax assets, any such limitation would not impact the Company’s financial statements. The Company will continue to evaluate the potential impact of Section 382 limitations in future periods.