CLOUDASTRUCTURE, INC. Income Taxes Disclosure
Note 9 – Income Tax
As of December 31, 2025, the Company had net operating loss carryforwards of approximately $34,570,000 and $21,064,000 available to reduce future taxable income, if any, for both federal and state income tax purposes, respectively. The federal net operating loss carryforwards begin expiring in 2035 and the state net operating loss carryforwards begin expiring in 2035. The amount of federal net operating loss that does not expire is $33,699,000.
As of December 31, 2025, the Company had credit carryforwards of approximately $506,000 and $326,000 available to reduce future taxable income, if any, for both federal and California state income tax purposes, respectively. The federal R&D credit carryforwards begin expiring in 2039 and the California credits carryforward indefinitely. Valuation allowances have been reserved, where necessary.
Utilization of the net operating loss carryforward may be subject to an annual limitation due to the ownership percentage change limitations provided by the Internal Revenue Code of 1986 and similar state provisions. The annual limitation may result in the expiration of the net operating loss before utilization.
On January 1, 2009, the Company adopted the provisions of FASB Accounting Standards Codification (ASC 740-10), “Accounting for Uncertainty in Income Taxes.” ASC 740-10 prescribes a comprehensive model for the recognition, measurement, presentation and disclosure in financial statements of any uncertain tax positions that have been taken or expected to be taken on a tax return. It is unlikely that the amount of liability for unrecognized tax benefits will significantly change over the year. No liability related to certain tax positions is recorded on the financial statements.
As of December 31, 2024, and December 31, 2025, the Company had unrecognized tax benefits of $232,000 and $291,000, respectively.
The following table summarizes the activity related to the Company's unrecognized tax benefits:
| Balance at December 31, 2024 | $ | 232,000 | ||
| Decreases related to prior year tax positions | (2,000 | ) | ||
| Increases related to current-year tax positions | 61,000 | |||
| Balance at December 31, 2025 | $ | 291,000 |
The Company’s tax years 2003 through 2025 will remain open for examination by the federal and state authorities for three and four years, respectively, from the date of utilization of any net operating loss credits.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 31, 2026 | Showing above |
| 2024 | Mar 31, 2025 | |
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.