CapsoVision, IncCV
CapsoVision, Inc Income Taxes Disclosure
14. INCOME TAXES
The domestic and foreign components of loss before income taxes are as follows.
Year ended December 31, | |||||||||||
2025 | 2024 | ||||||||||
| Domestic | $ | (24,424) | $ | (19,220) | |||||||
| Foreign | (867) | (667) | |||||||||
| Loss before income taxes | $ | (25,291) | $ | (19,887) | |||||||
The components of the income tax provision are as follows.
Year ended December 31, | |||||||||||
2025 | 2024 | ||||||||||
| Current provision | |||||||||||
| U.S. Federal | $ | — | $ | — | |||||||
| U.S. State | 11 | 4 | |||||||||
| Foreign | 13 | 7 | |||||||||
| Total current provision | $ | 24 | $ | 11 | |||||||
| Deferred provision | |||||||||||
| U.S. Federal | — | — | |||||||||
| U.S. State | — | — | |||||||||
| Foreign | — | — | |||||||||
| Total deferred provision | — | — | |||||||||
| Total income tax provision | $ | 24 | $ | 11 | |||||||
The reconciliation between the Company's effective tax rate and the statutory tax rate for the year ended December 31, 2025 is as follows:
| Year Ended December 31, 2025 | |||||||||||
| Amount | Percent | ||||||||||
| U.S. Federal statutory tax rate | $ | (5,311) | 21.0 | % | |||||||
State and local income tax, net of federal taxes | 11 | (0.04) | % | ||||||||
| Foreign tax effects | |||||||||||
Taiwan | |||||||||||
Local income taxes | 13 | (0.05) | % | ||||||||
Effects of changes in tax laws or rates enacted in the current period | — | — | % | ||||||||
Tax credits | |||||||||||
Research and development tax credits | — | — | % | ||||||||
| Changes in valuation allowance | 5,213 | (20.6) | % | ||||||||
| Nontaxable or nondeductible items | 100 | (0.4) | % | ||||||||
Other Adjustments | (1) | — | % | ||||||||
Total effective tax rate | $ | 24 | (0.1) | % | |||||||
The reconciliation between the Company's effective tax rate and the statutory tax rate for the year ended December 31, 2024 is as follows:
| Year Ended December 31, 2024 | |||||
Federal statutory income tax rate | 21.0 | % | |||
Permanent book-tax differences | (0.4) | % | |||
State income taxes, net of federal benefit | 3.7 | % | |||
Federal and State research and development tax credits | (0.8) | % | |||
Change in valuation allowance | (23.6) | % | |||
Other | — | % | |||
Total effective tax rate | (0.1) | % | |||
The amounts of cash paid for income taxes by the Company are as follows:
| Amount | |||||
| California | $ | 1 | |||
| Massachusetts | 0.5 | ||||
| North Carolina | 1.0 | ||||
| New York State | 5.6 | ||||
| Total cash paid for income taxes (net of refunds) | $ | 8 | |||
On July 4, 2025, the One Big Beautiful Bill was enacted (“OBBBA”), introducing significant and wide-ranging changes to the U.S. federal tax system. Significant components include restoration of 100% accelerated tax depreciation on qualifying property including expansion to cover qualified production property. Another major aspect includes the return to immediate expensing of domestic research and experimental expenditures (“R&E”) which in some cases may include retroactive application back to 2021 for businesses with gross receipts of less than $31 million or accelerated tax deductions of R&E that was previously capitalized for larger businesses. The
legislation also reinstates EBITDA-based interest deductions for tax purposes and makes several business tax incentives permanent. Less favorable business provisions include limitations on tax deductions for charitable contributions.
Deferred income taxes are accounted for using the asset and liability method, which requires recognition of deferred tax assets and liabilities for the expected future consequences of temporary differences between the financial reporting basis and the tax basis of assets and liabilities, as measured by enacted state and federal tax rates.
The main components of deferred tax assets (liabilities) are as follows.
December 31, 2025 | December 31, 2024 | ||||||||||
| Deferred tax assets: | |||||||||||
| Net operating loss carryforwards | $ | 32,568 | $ | 26,441 | |||||||
| Capitalized R&D expenses | 5,087 | 5,657 | |||||||||
| Research and development tax credits | 1,318 | 1,318 | |||||||||
| Accrued expenses | 443 | 95 | |||||||||
| Operating lease liabilities | 212 | 306 | |||||||||
| Other | 42 | 13 | |||||||||
| Total deferred tax assets | 39,670 | 33,830 | |||||||||
| Valuation allowance | (39,295) | (33,384) | |||||||||
| Deferred tax assets less valuation allowance | 375 | 446 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Depreciation | (132) | (151) | |||||||||
| Operating lease right-of-use assets | (202) | (295) | |||||||||
| Unrealized gains/losses | (41) | — | |||||||||
| Total deferred tax liabilities | (375) | (446) | |||||||||
| Net deferred tax assets | $ | — | $ | — | |||||||
Valuation Allowance Considerations
A valuation allowance against a deferred tax asset must be established when it is “more likely than not” that all, or a portion of, deferred tax assets will not be realized. A review of all available positive and negative evidence needs to be considered, including the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies. After consideration of all the information available, in particular the Company’s accumulated deficit and history of operating losses, it was concluded that uncertainty exists with respect to future realization of deferred tax assets. The valuation allowance increased during the years ended December 31, 2025 and December 31, 2024 in the amounts of $5,912 and $4,700, respectively.
Net Operating Losses and Tax Credit Carryforwards
The Company has experienced and generated net operating losses (“NOLs”) for tax purposes since inception. As of December 31, 2025 (December 31, 2024), total available gross (pre-tax) Federal and U.S. state NOL carryforward amounts were $126,094 and $93,244 ($100,304 and $79,481), respectively. Under the Federal Tax Cuts and Jobs Act of 2017, NOLs incurred in tax years beginning on or after January 1, 2018, are carried forward indefinitely and subject to a usage limitation of 80% of taxable income; NOLs incurred in tax years prior to January 1, 2018, are subject to a twenty-year carryforward before expiring and not subject to a usage limitation of taxable income. As of December 31, 2025 (December 31, 2024), total Federal and U.S. state research and development tax credit carryforward amounts, net of unrecognized tax benefits, were 1,318 (1,318), respectively.
NOLs and tax credit carryforward values are as follows as of December 31, 2025.
| Amount | Expiration Term | ||||||||||
| Net Operating Losses (gross; pre-tax) | |||||||||||
| NOLs – Federal (arising after December 31, 2017) | $ | 77,974 | No expiry | ||||||||
| NOLs – Federal (arising before January 1, 2018) | $ | 48,120 | 2027 | ||||||||
| NOLs – State - indefinite | $ | 3,327 | No expiry | ||||||||
| NOLs – State – definite lived | $ | 89,917 | 2028 | ||||||||
| R&D Tax Credits | |||||||||||
| R&D tax credits – Federal and State | $ | 1,318 | 2033 | ||||||||
Utilization of NOL carryforwards and research and development tax credit carryforwards may be subject to a substantial annual limitation under Section 382 of the Internal Revenue Code of 1986 as amended (“Section 382”), or, for states, state laws, due to ownership changes that have occurred previously or that could occur in the future. These ownership changes may limit the amount of carryforwards that can be utilized annually to offset future taxable income.
In general, an ownership change, as defined by Section 382, results from transactions increasing the ownership of certain stockholders or public groups in the stock of a corporation by more than 50% over a three-year period. The Company has not conducted a study to assess whether a change of control has occurred or whether there have been multiple changes of control since inception. If the Company has experienced a change of control, as defined by Section 382, at any time since inception, utilization of the NOL carryforwards or research and development tax credit carryforwards would be subject to an annual limitation under Section 382. Any limitation may result in expiration of a portion of the NOL carryforwards or research and development tax credit carryforwards before utilization.
Section 174 Capitalization
OBBBA made changes to Section 174 of the Internal Revenue Code of 1986 as amended for taxable years beginning December 31, 2024 with the Company being able to deduct domestic research and experimental (R&E) expenditures in the year they are incurred when before these costs were capitalized and amortized over 5 years. The Company is still required to capitalize foreign R&E costs and amortize them over 15 years.
For the tax year ended December 31, 2025 the Company incurred $3,545 of foreign R&D expenses which were capitalized and are being amortized over the respective period noted above. For the tax year ended December 31, 2024 the Company incurred $13,910 and $1,116 of domestic and foreign R&D expenses, respectively, which were capitalized and are being amortized over the respective periods noted above. These amounts are reflected in gross deferred tax assets (together with previous periods’ amounts, net of amounts amortized for tax purposes).
Uncertain Tax Positions
A reconciliation of the beginning and ending balance of total unrecognized tax benefits on a tax-effected basis for follows; these relate principally to research and development credit carryforwards.
| Unrecognized tax benefits, December 31, 2023 | $ | 1,634 | |||
| Additions for current tax positions | 3 | ||||
| Changes for previous tax positions | (165) | ||||
| Unrecognized tax benefits, December 31, 2024 | $ | 1,472 | |||
| Additions for current tax positions | 12 | ||||
| Changes for previous tax positions | — | ||||
| Unrecognized tax benefits, December 31, 2025 | $ | 1,484 | |||
The Company has not yet conducted a study of its research and development credit carryforwards. This study may result in an adjustment to the Company’s research and development credit carryforwards; however, until a study is completed and any adjustment is known, the tax assets associated with the research and development credit carryforwards have been fully offset with a reserve. A full valuation allowance has been provided against the Company’s net deferred tax assets, and if an adjustment to the net unrecognized tax benefits were to occur, this adjustment would be offset by an equal adjustment to the valuation allowance.
The Company has recognized no interest and penalties associated with substantially all of its 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.
The Company files U.S. Federal and State income tax returns in jurisdictions with varying statutes of limitations. In the normal course of business, the Company is subject to examination by taxing authorities throughout the U.S. These examinations could include examining the timing and amount of deductions, the allocation of income among various tax jurisdictions and compliance with laws.
The Company’s remaining open tax years subject to examination by federal and state tax authorities include the years ended December 31, 2019, through 2025 in the U.S and December 31, 2020 through 2025 in the Company’s foreign operations. However, for tax years from inception through the present, federal and state taxing authorities may examine and adjust loss carryforwards in the years in which those loss carryforwards are ultimately utilized. There are currently no pending income tax examinations.
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.