Castellum, Inc.CTM
Castellum, Inc. Income Taxes Disclosure
Income Taxes
The components of the provision for income taxes for the years ended December 31, are as follows:
| 2025 | 2024 | 2023 | |||||||||||||||
| Current | |||||||||||||||||
| Federal | 49,510 | (17,148) | 84,279 | ||||||||||||||
| State | 158,470 | 85,180 | 138,770 | ||||||||||||||
| Current tax expense | 207,980 | 68,032 | 223,049 | ||||||||||||||
| Deferred | |||||||||||||||||
| Federal | — | — | (1,165,655) | ||||||||||||||
| State | — | — | (314,511) | ||||||||||||||
| Deferred tax expenses | — | — | (1,480,166) | ||||||||||||||
| Total | $ | 207,980 | $ | 68,032 | $ | (1,257,117) | |||||||||||
The following table summarizes the significant differences between the U.S. federal statutory tax rate and the Company’s effective tax rate for financial statement purposes for the years ended December 31:
| Year Ended December 31, | ||||||||||||||||||||||||||
| 2025 | 2024 | 2023 | ||||||||||||||||||||||||
| Amount | % | Amount | % | Amount | % | |||||||||||||||||||||
| Pre-tax book income | $ | (2,190,312) | $ | (9,912,275) | $ | (19,057,295) | ||||||||||||||||||||
| U.S. federal statutory tax rate | (459,965) | 21.0 | % | (2,081,578) | 21.0 | % | (4,002,032) | 21.0 | % | |||||||||||||||||
| State and local income taxes, net of federal income tax effects (1) | 220,780 | (10.1) | % | 64,818 | (0.7) | % | (185,003) | 1.0 | % | |||||||||||||||||
| Tax Credits | ||||||||||||||||||||||||||
| Research and development tax credits | (149,376) | 6.8 | % | — | — | % | — | — | % | |||||||||||||||||
| Change in valuation allowance | 187,612 | (8.6) | % | 986,455 | (10.0) | % | 1,225,611 | (6.4) | % | |||||||||||||||||
| Nontaxable or nondeductible items | 15,314 | (0.7) | % | 105,363 | (1.1) | % | 64,732 | (0.3) | % | |||||||||||||||||
| Goodwill impairment | — | — | % | — | — | % | 1,209,001 | (6.3) | % | |||||||||||||||||
| Warrant fair value adjustments | (130,410) | 6.0 | % | 190,806 | (1.9) | % | (221,345) | 1.2 | % | |||||||||||||||||
| Compensation | 438,403 | (20.0) | % | 878,050 | (8.9) | % | 728,210 | (3.8) | % | |||||||||||||||||
| Other | 85,622 | (3.9) | % | (75,882) | 0.8 | % | (76,291) | 0.4 | % | |||||||||||||||||
| Totals | $ | 207,980 | (9.5) | % | $ | 68,032 | (0.7) | % | $ | (1,257,117) | 6.6 | % | ||||||||||||||
(1) State taxes in Florida, New Jersey, Maryland and Virginia comprise the majority of this category.
Our effective tax rates were (9.5)% and (0.7)% for the years ended December 31, 2025 and 2024, respectively. Our effective tax rates were below the 21% statutory rate primarily due to state taxes, nondeductible compensation and increase in valuation allowance, partially offset by tax credits and changes in fair value adjustments.
The tax effects of temporary differences that gave rise to significant portions of deferred tax assets and liabilities consist of the following at December 31:
| 2025 | 2024 | |||||||||||||
| Deferred tax assets: | ||||||||||||||
| Net operating losses | $ | 414,597 | $ | — | ||||||||||
| Deferred interest | 746,725 | 864,967 | ||||||||||||
| R&D credit carryforward | 223,212 | — | ||||||||||||
| Lease liabilities | 233,011 | 297,596 | ||||||||||||
| Accrued expenses | 178,134 | 317,407 | ||||||||||||
| Stock compensation | 3,990,163 | 3,896,517 | ||||||||||||
| Transaction costs | 37,146 | 40,488 | ||||||||||||
| Other | (101,084) | (68,193) | ||||||||||||
| Total deferred tax assets | 5,721,904 | 5,348,782 | ||||||||||||
| Deferred tax liabilities: | ||||||||||||||
| Intangible assets | (475,912) | (761,765) | ||||||||||||
| ROU Assets | (225,546) | (292,115) | ||||||||||||
| Property and equipment | (38,778) | (17,890) | ||||||||||||
| Cash to accrual method change | (58,816) | (113,542) | ||||||||||||
| Total deferred tax liabilities | (799,052) | (1,185,312) | ||||||||||||
| Valuation allowance | $ | (4,922,852) | $ | (4,163,470) | ||||||||||
| Net deferred tax assets (liabilities) | $ | — | $ | — | ||||||||||
The Company recognized a valuation allowance against deferred tax assets of $4,922,852 and $4,163,470 as of December 31, 2025 and 2024, respectively. The valuation allowance increased by $759,382 for the year ended December 31, 2025, compared to the increase of $1,324,423 for the year ended December 31, 2024. The increase in the valuation allowance is a result of the current year losses partially offset by nondeductible expenses that are not tax benefited. The Company believes that, based on a number of factors, the available objective evidence creates sufficient uncertainty regarding the realizability of the deferred tax assets such that a valuation allowance has been recorded. These factors include the Company’s history of book losses since its inception.
As of December 31, 2025, our federal and state net operating loss (“NOLs”) carryforwards for income tax purposes were approximately $1,471,502 and $1,060,113, respectively. If not utilized, certain state net operating loss carryforwards will begin to expire in 2042. The Company also has Federal and New Jersey research and development credit carryforwards for income tax purposes of $75,539 and $147,673, respectively. It is more likely than not that the majority of these net operation losses and credit carryforwards will not be realized.
Cash paid for income taxes, net of refunds, for the year ended December 31:
| 2025 | |||||
| US federal | — | ||||
| US state and local | |||||
| Virginia | 22,300 | ||||
| Maryland | 150,000 | ||||
| All Other States | 16,200 | ||||
| Total cash paid for income taxes, net of refunds | 188,500 | ||||
The Company’s policy is to recognize interest and penalties associated with uncertain tax benefits as part of the income tax provision and include accrued interest and penalties with the related income tax liability on the Company’s consolidated balance sheets. To date, the Company has not recognized any interest and penalties in its consolidated statements of operations, nor has it accrued for or made payments for interest and penalties. The Company has no material unrecognized tax benefits as of December 31, 2025 and 2024.
Fiscal years ending December 31, 2022 and later remain subject to examination by U.S. federal and state taxing authorities. There are currently no audits in progress.
As of December 31, 2025, our federal and state net operating loss (“NOLs”) carryforwards for income tax purposes were approximately $1,471,502 and $1,060,113, respectively. If not utilized, certain state net operating loss carryforwards will begin to expire in 2042. The Company also has Federal and New Jersey research and development credit carryforwards for income tax purposes of $75,539 and $147,673, respectively. It is more likely than not that the majority of these net operation losses and credit carryforwards will not be realized.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 9, 2026 | Showing above |
| 2024 | Mar 11, 2025 | |
| 2023 | Mar 21, 2024 | |
| 2022 | Mar 17, 2023 | |
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.