bioAffinity Technologies, Inc. Income Taxes Disclosure

Note 15. INCOME TAXES

 

The Company’s net loss before income taxes of $14.9 million and $9.0 million consisted entirely from U.S. operations for the years ended December 31, 2025 and 2024, respectively. The components of income tax expense and taxes paid by jurisdiction for the years ended December 31, 2025 and 2024 were as follows:

 

SCHEDULE OF INCOME TAX EXPENSE AND TAXES PAID BY JURISDICTION

		2025				2024
		December 31,
		2025				2024
Current:
Federal		$	—			$	—
State and local(1)			44,042				11,650
Foreign			—				—
Total		$	44,042			$	11,650

 

(1)

For the year ended December 31, 2025, state and local taxes, net of federal benefit, were attributable to Texas and Delaware.

 

Deferred tax assets and valuation allowance

 

The tax effect of significant items comprising deferred tax assets are as follows:

 

SCHEDULE OF DEFERRED TAX ASSETS AND LIABILITIES

		2025				2024
		December 31,
		2025				2024
Deferred tax assets:
Net operating loss carryover		$	9,916,597			$	8,185,845
Stock compensation			247,574				247,574
Capitalized R&E costs			817,594				662,855
Bad debt expense			96,680				203,323
Other			165,788				107,538
Operating lease liabilities			196,805				274,962
Tax credits			510,729				480,724
Total deferred tax assets			11,951,767				10,162,821
Deferred tax liability:
Right-of-use asset tax liability		$	(145,862	)		$	(261,215	)
Depreciation and amortization			(39,136	)			(50,463	)
Total deferred tax liability			(184,998	)			(311,678	)
Less: valuation allowance			(11,766,769	)			(9,851,143	)
Deferred tax assets (liabilities), net		$	—			$	—

 

The Company is required to reduce its deferred tax assets by a valuation allowance if it is more likely than not that some or all of its deferred tax assets will not be realized. Management must use judgment in assessing the potential need for a valuation allowance, which requires an evaluation of both negative and positive evidence. The weight given to the potential effect of negative and positive evidence should be commensurate with the extent to which it can be objectively verified. In determining the need for and amount of the valuation allowance, if any, the Company assesses the likelihood that it will be able to recover its deferred tax assets using historical levels of income, estimates of future income and tax planning strategies. As a result of historical cumulative losses, the Company determined that, based on all available evidence, there was substantial uncertainty as to whether it will recover recorded net deferred taxes in future periods. Accordingly, the Company recorded a valuation allowance against all of its net deferred tax assets as of December 31, 2025 and 2024. The net change in total valuation allowance was an increase of approximately $1.9 million and $2.0 million for the years ended December 31, 2025 and 2024, respectively.

 

 

The reconciliation of the statutory federal income tax rate to the Company’s effective tax rate for the years ended December 31, 2025 and 2024, was as follows:

 

SCHEDULE OF RECONCILIATION OF STATUTORY FEDERAL INCOME TAX RATE

T
		December 31,
		2025								2024
Tax at federal statutory rate		$	(3,131,048	)			-21.00	%		$	(1,898,365	)			-21.00	%
Permanent differences			953,106				6.4	%			7,219				0.1	%
Research and development credits			(103,949	)			-0.7	%			(73,945)				-0.8	%
Deferred true-up			366,263				2.5	%			—				0.0	%
Change in valuation allowance			1,915,628				12.8	%			1,965,091				21.7	%
Effective income tax rate		$	—				0.00	%		$	—				0.00	%

 

Unrecognized tax benefits

 

As of December 31, 2025 and 2024, the Company has unrecognized tax benefits related to tax credits of $0.3 million and $0.3 million, respectively. None of the unrecognized tax benefits as of December 31, 2025, if recognized, would impact the effective tax rate due to the valuation allowance, and no interest or penalties have been recognized. A reconciliation of the beginning and ending balance of unrecognized tax benefits is as follows:

 

SCHEDULE OF UNRECOGNIZED TAX BENEFITS

		2024				2023
		December 31,
		2025				2024
Beginning balance		$	281,207			$	249,516
Deductions based on tax positions related to the prior year			(31,691	)			—
Additions based on tax positions related to the current year			44,549				31,691
Ending balance		$	294,065			$	281,207

 

The Company’s policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. During the years ended December 31, 2025 and 2024, the Company recognized no interest and penalties associated with unrecognized tax benefits. There are no tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase or decrease within twelve months of the reporting date.

 

Under the tax statute of limitations applicable to the Internal Revenue Code, the Company and its U.S. subsidiary, either standalone or as part of the consolidated group, is no longer subject to U.S. federal income tax examinations by the Internal Revenue Service for tax years before tax year 2021. However, because the Company is carrying forward income tax attributes, such as net operating losses and tax credits from 2020 and earlier tax years, these attributes can still be audited when utilized on returns filed in the future.

 

As of December 31, 2025 and 2024, the Company had net operating loss (“NOL”) carryforwards of $47.2 million and $38.0 million for federal purposes, respectively. If not utilized, federal net operating losses of $6.0 million will begin to expire in 2034 and $41.2 million will be carried forward indefinitely.

 

As of December 31, 2025 and 2024, the Company had research and development tax credit carryforwards for federal purposes of $0.5 million and $0.7 million, respectively. The federal research and development tax credit carryforwards will expire at various dates between 2037 and 2045.

 

Sections 382 and 383 of the Internal Revenue Code provide for a limitation on the annual use of NOL and tax credit carryforwards following certain ownership changes that could limit the Company’s ability to utilize these carryforwards. The Company continues to disclose the NOL and tax credit carryforwards at their original amount in the table above as no potential limitation has been quantified. The Company has also established a full valuation allowance for all deferred tax assets, including the NOL and tax credit carryforwards, since the Company could not conclude that it was more likely than not able to generate future taxable income to realize these assets. Due to the existence of a full valuation allowance, limitations under Section 382 and 383 will not impact the Company’s effective tax rate. Further analyses will be performed prior to recognizing the benefits of any losses or credits in the consolidated financial statements.

 

Beginning on January 1, 2022, the Tax Cuts and Jobs Act (“the Act”), enacted in December 2017, eliminated the option to deduct research and experimentation expenditures in the current period and requires taxpayers to capitalize and amortize U.S.-based and non-U.S. based research and experimentation expenditures over five and fifteen years, respectively. However, the enactment of the bipartisan OBBB Act, signed into law in July 2025, repeals the mandatory capitalization requirement for domestic R&D expenditures for tax years beginning after December 31, 2024. The Company has elected to continue to capitalize research and experimentation expenditures. This legislation does not impact the Company's current tax obligations.