Bit Digital, Inc Income Taxes Disclosure

17. INCOME TAXES

 

(Loss) income before income taxes is attributable to the following geographic locations for the years ended December 31:

 

		For the Years Ended December 31,
		2025				2024
Domestic (loss) income before income taxes		$	(23,098,896	)		$	25,002,669
Foreign (loss) income before income taxes		$	(63,837,717	)		$	7,281,308
Total (loss) income before income taxes		$	(86,936,613	)		$	32,283,977

 

The tax (benefit) expense for income taxes consisted of the following components for the years ended December 31:

 

		For the Years Ended December 31,
		2025				2024
Current:
Federal		$	657,249			$	170,366
State			70,145				65,354
Foreign			(186,028	)			1,440,523
Total current income taxes		$	541,366			$	1,676,243
Deferred:
Federal		$	(2,431,058	)		$	-
State			47,302				-
Foreign			(164,565	)			2,301,924
Total deferred income taxes		$	(2,548,321	)		$	2,301,924
Total income tax (benefit) provision		$	(2,006,955	)		$	3,978,167

 

Taxes not based on income are not treated as income tax expense, and excluded from provision for income taxes and the aggregate amounts were not significant for the years ended December 31, 2025 and 2024.

 

We applied ASU 2023-09 on a prospective basis as discussed in Note 2. Summary of Significant Accounting Policies. Accordingly, the disaggregation of rate reconciliation categories in the table below provides the disclosures required by ASU 2023-09 for the year ended December 31, 2025.

The reconciliation of the U.S. federal statutory income tax rate to the 2025 effective income tax rate was as follows:

 

		For the Year Ended December 31, 2025
		Amount $				Percentage %
Federal tax at statutory rate		$	(18,256,689	)			21.0	%
Domestic federal
Effect of cross-border tax laws
Global intangible low-taxed income			657,500				(0.8	)%
Changes in valuation allowances			2,491,220				(2.9	)%
Non-taxable items			(131,834	)			0.2	%
Other adjustments			60,073				(0.1	)%
Domestic state and local income taxes, net of federal effect (1)			117,447				(0.1	)%
Foreign tax effects
Canada
Stock-based compensation expense			965,575				(1.1	)%
Others			(1,241,178	)			1.4	%
Singapore
Statutory income tax rate differential			1,650,152				(1.9	)%
Non-deductible capital loss			7,551,595				(8.7	)%
Others			(538,447	)			0.6	%
Cayman Islands
Statutory income tax rate differential			1,106,709				(1.3	)%
Others			12,071				0.1	%
Hong Kong
Statutory income tax rate differential			1,998,584				(2.3	)%
Others			1,293,202				(1.5	)%
Other foreign jurisdictions			257,065				(0.3	)%
Total income tax benefit		$	(2,006,955	)			2.3	%

 

(1) State taxes in Texas, Nebraska and Pennsylvania contributed to the majority of the tax effect in this category.

 

Income tax expense for the year ended December 31, 2024 differed from the amounts computed by applying the U.S. federal income rate of 21% to pre-tax income as a result of the following:

 

		2024
US Federal income tax rate			21.0	%
Effect of foreign operations taxed at various rates			15.2	%
GILTI Inclusion			1.0	%
State income taxes, net of federal benefit			0.2	%
Reserve on Hong Kong offshore and share-based compensation tax benefits			0.0	%
Non-deductible impairment on digital assets			0.0	%
Non-taxable capital gain on investments/digital assets			(12.0	)%
Non-deductible fixed asset impairment			0.0	%
Effect of change in valuation allowance			(14.6	)%
Impact from adoption of new accounting standard			1.4	%
Withholding tax on intercompany interest			0.0	%
Others			0.1	%
Effective income tax rate			12.3	%

 

Our accounting policy is to treat any tax on Global Intangible Low-Taxed Income or GILTI inclusions as a current period cost included in the tax expense in the year incurred. We estimate the GILTI inclusion provision will result in no material financial statement impact.

The significant components of deferred income tax assets and liabilities were as follows:

 

		December 31, 2025				December 31, 2024
Deferred tax assets:
Net operating losses carry forwards		$	23,599,256			$	18,812,792
Share-based compensation			738,456				1,092,438
Lease liability			1,377,279				2,178,837
Unrealized foreign exchange gain/loss			-				277
Foreign lease			800,677				-
Start-up cost amortization			73,344				-
Accrual expenses			244,231				73,597
Other deferred tax assets			100,980				92,816
Gross deferred tax assets			26,934,223				22,250,757
Less: valuation allowance			(4,763,306	)			(2,904,155	)
Net deferred tax assets		$	22,170,917			$	19,346,602
Deferred tax liabilities:
Right of use assets		$	(1,781,191	)		$	(2,572,678	)
Basis difference in fixed assets			(17,676,720	)			(11,402,585	)
Basis difference in digital assets			(289,939	)			(8,288,760	)
Allowance for bad debt			(228,827	)			-
Unrealized foreign exchange differences			(69,159	)			-
Prepaid assets			(55,036	)			-
Capitalized contract costs			(2,753,633	)			-
Cumulative translation adjustment			(57,653	)			-
Basis difference in intangible assets			(3,174,107	)			(3,403,248	)
Gross deferred tax liabilities			(26,086,265	)			(25,667,271	)
Total net deferred tax liabilities		$	(3,915,348	)		$	(6,320,669	)

 

Our accounting for deferred taxes requires an assessment of the realizability of deferred tax assets in each taxing jurisdiction, based on the weight of available positive and negative evidence. In evaluating the need for a valuation allowance, we considered factors among duration of current and cumulative financial reporting losses, future reversals of existing taxable temporary differences, future taxable income exclusive of reversing temporary differences and carryforwards, taxable income in carryback years if carryback is permitted by the tax law, and feasible tax-planning strategies.

 

Based on this analysis, we concluded that valuation allowances were required in certain jurisdictions. In particular, the operations in the jurisdictions for which a valuation allowance has been recorded have experienced a history of losses as of December 31, 2025 and the Company does not expect material taxable income in the foreseeable future. Accordingly, we do not believe that these operations have established sustained profitability sufficient to support the realization of their deferred tax assets. As a result, a valuation allowance has been recorded to reduce the deferred tax assets to the amounts that are more likely than not to be realized.

 

As of December 31, 2025, the Company applies a full valuation on the deferred tax assets in Singapore, Hong Kong, Japan and certain entities in Canada.

 

Changes in the valuation allowance for deferred tax assets for the years ended December 31 are as follows:

 

		For the Years Ended December 31,
		2025				2024
Beginning balance		$	2,904,155			$	9,403,958
Current increase			1,859,151				-
Current decrease			-				(6,499,803	)
Ending Balance		$	4,763,306			$	2,904,155

Our net operating loss carryforwards for federal, state and foreign tax purposes which expire, if not utilized, starting at 2035, are outlined below:

 

Expiration Date (1)		Federal				State				Foreign
2026			-				-				-
2027 to 2030			-				-				-
2031 to 2035			-				-				1,074,393
2036 to 2040			-				14,403,560
2041 to 2045			-				41,632,650				11,987,133
2046 to 2050			-				-				-
2051 to 2055			-				-				-
Indefinite			85,318,547				361,210				15,676,426
			85,318,547				56,397,420				28,737,952

 

(1)	In certain jurisdictions, the net operating loss carryforwards can only be used to offset a percentage of taxable income in a given year.

 

A reconciliation of gross unrecognized tax benefits was as follows:

 

		2025				2024
Unrecognized tax benefits at the beginning and end of the year		$	3,196,204			$	3,196,204

 

The amounts of unrecognized tax benefits that would impact the effective tax rate were $3.2 million and $3.2 million as of December 31, 2025 and 2024, respectively. The amounts of interest and penalties recognized during the years ended December 31, 2025 and 2024 were expenses (benefits) of $nil million and $nil million, respectively. Our policy is to include interest and penalties related to unrecognized tax benefits within other expense (income), net.

 

In the ordinary course of business, the Company is subject to examination by tax authorities in various jurisdictions. With respect to U.S. federal and state income taxes, tax years beginning from on or after December 31, 2020 remain open to examination. For foreign jurisdictions, including but not limited to Singapore, Hong Kong, Canada and Iceland, in which the Company operates, tax years beginning on or after December 31, 2021 remain open to examination through the current year, subject to applicable statutes of limitations. As of the December 31, 2025, the Company is not under audit by any taxing authority in the jurisdiction in which it operates.

 

We applied ASU 2023-09 on a prospective basis as discussed in Note 2. Summary of Significant Accounting Policies. Accordingly, the income taxes paid/(refund) by jurisdiction (net of refunds received) below provide the disclosures required by ASU 2023-09 for the year ended December 31, 2025:

 

		2025
US federal		$	225,000
US states			-
Texas			67,298
Foreign
Iceland			373,182
Total foreign			373,182
Total income taxes paid (net of refund received)		$	665,480

On July 4, 2025, President Trump signed into law the reconciliation bill, commonly referred to as the One Big Beautiful Bill Act (“OBBBA”). The OBBBA introduces several changes to U.S. federal income tax law, such as suspending the capitalization and amortization of domestic research and development expenditures and reinstating bonus depreciation. It also modifies the deductions available for net controlled foreign corporation tested income (formerly referred to as “global intangible low-taxed income”) from non-U.S. subsidiaries and changes the limitations on deductible interest. The effective dates of the OBBBA provisions range from 2025 through 2027. We do not expect the OBBBA provisions to have a material impact on our consolidated financial statements.