Cyngn Inc. Income Taxes Disclosure

11. Income Taxes

 

Domestic and international pre-tax loss consists of the following:

 

		December 31,
		2025				2024 Restated
United States			(23,469,273	)			(33,335,579	)
International			-				-
Loss before income taxes			(23,469,273	)			(33,335,579	)

 

For the years ended December 31, 2025 and 2024, income tax expense attributable to operations is immaterial.

 

Income tax expense differed from the amount computed by applying the federal statutory income tax rate of 21% to pretax income for the years ended December 31, 2025 and 2024 as a result of the following:

 

		December 31, 2025
		Amount				Percent
US Federal Statutory Tax Rate		$	(4,928,547	)			21.00	%
State and Local Income Taxes (1)			(211,513	)			0.90
Foreign Tax Effects			-				0.00
Tax Credits			(1,010,247	)			4.30
Change in Valuation Allowance			4,421,241				(18.84	)
Nontaxable or Nondeductible Items
Section 162m Limitation			262,808				(1.12	)
Warrant Revaluation			248,946				(1.06	)
Other permanent differences			236,687				(1.01	)
Change in unrecognized tax benefits			303,074				(1.29	)
Other Reconciling Items
Deferred True Up			622,366				(2.65	)
Other			55,184				(0.24	)
Total		$	-				0.00	%

 

(1)	For the year ended December 31, 2025, state and local income taxes in California made up the majority (greater than 50 percent) of the tax effect in this category.

		December 31, 2024
Federal tax at statutory rate		$	(6,142,980	)
State income taxes			(218,456	)
Stock based compensation			180,319
Foreign taxes			-
Tax credits			(1,039,015	)
Nondeductible items			26,970
Valuation allowance			5,327,801
Deferred true up			1,165,581
Rate change			717,809
Other items			(18,029	)
Total		$	-

 

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts for income tax purposes. Significant components of our deferred tax assets and liabilities as of December 31, 2025 and 2024 are as following:

 

		December 31,
		2025				2024
Deferred tax assets:
Net operating loss carryforwards		$	41,820,615			$	36,178,997
Research and development credits			7,713,764				7,006,591
Intangibles			616,331				880,481
Fixed assets			(365,067	)			(181,103	)
Stock based compensation			27,813				452,339
Accruals and reserves			441,240				281,367
Deferred revenue			155,914				21,751
Lease liability			1,491,200				69,025
Capitalized research costs			3,761,293				5,280,797
Other			223				8,639
Gross deferred tax assets			55,663,326				49,998,884
Valuation allowance			(54,355,211	)			(49,934,084	)
Total deferred tax assets			1,308,115				64,800
Deferred tax liabilities:
Right of use asset			(1,308,115	)			(64,800	)
Deferred project costs							-
Total deferred tax liabilities			(1,308,115	)			(64,800	)
Net deferred tax assets		$	-				-

 

Management regularly assesses the ability to realize deferred tax assets recorded based upon the weight of available evidence, including such factors as recent earnings history and expected future taxable income on a jurisdiction by jurisdiction basis. In the event that the Company changes its determination as to the amount of realizable deferred tax assets, the Company will adjust its valuation allowance with a corresponding impact to the provision for income taxes in the period in which such determination is made. The Company’s management believes that, based on a number of factors, it is more likely than not, that all or some portion of the deferred tax assets will not be realized; and accordingly, for the year ended December 31, 2025, the Company has provided a valuation allowance against the Company’s U.S. net deferred tax assets. The net change in the valuation allowance for the years ended December 31, 2025 and 2024 was an increase of $4,421,241 and $5,327,800, respectively.

 

As of December 31, 2025, the Company had net operating loss carryforwards for federal and state income tax purposes of approximately $161,732,697 and $120,845,916, respectively, which will begin to expire in 2034 and 2035 with $126,395,500 of our federal net operating loss carryforward lasting indefinitely.

 

As of December 31, 2025, the Company had federal and state research credit carryforwards of approximately $7,526,906 and $4,421,211, respectively. The federal research credit carryforwards will begin to expire in 2033 while the California research credits carry forward have an indefinite life.

The Internal Revenue Code of 1986, as amended, imposes restrictions on the utilization of net operating losses in the event of an “ownership change” of a corporation. Accordingly, a company’s ability to use net operating losses may be limited as prescribed under Internal Revenue Code Section 382 (“IRC Section 382”). Events which may cause limitations in the amount of the net operating losses that the Company may use in any one year include, but are not limited to, a cumulative ownership change of more than 50% over a three-year period. Utilization of the federal and state net operating losses may be subject to substantial annual limitation due to the ownership change limitations provided by the IRC Section 382 and similar state provisions.

 

Effective for tax years beginning after December 31, 2021, the Tax Cuts and Jobs Act of 2017 eliminates the option to deduct research and development expenditures currently and requires taxpayers to amortize such costs over a period of five or fifteen years. While it is possible that Congress may modify, defer, or repeal such provision, we have no assurance that the provision will be modified, deferred or repealed. This legislation has accelerated the utilization of our net operating losses in the U.S., but it has not impacted our current tax obligations.

 

In response to the COVID-19 pandemic, the Coronavirus Aid, Relief and Economic Security Act, or the CARES Act, and the Consolidated Appropriations Act, 2021 were passed into law and provide additional economic stimulus to address the impact of the COVID-19 pandemic, including among other items, several U.S. income tax provisions related to, among other things, net operating loss carrybacks, alternative minimum tax credits, modifications to interest expense limitations, and an option to defer payroll tax payments for a limited period. In 2023, we assessed our eligibility to claim a refund of employer taxes available under the Employee Retention Credit provisions of the CARES Act. For the year ended December 31, 2023, we calculated eligible credits of approximately $763,624 provided by the CARES Act, which have been recognized as offsets to salaries costs in operating expenses. As of December 31, 2025 and 2024, the aggregate eligible credit amount has been accrued as a receivable on our consolidated balance sheets.

 

The following table reflects changes in gross unrecognized tax benefits:

 

		December 31,
		2025				2024
Balance at beginning of year		$	3,002,825			$	2,545,189
Increase in balance related to tax positions taken during the current year			303,074				445,293
Increase in balance related to tax positions taken during prior years			-				12,343
Decrease in balance related to prior year tax positions			-				-
Decrease in balance related to settlement with tax authorities			-				-
Balance at end of year		$	3,305,899			$	3,002,825

 

As of December 31, 2025 and 2024, the total amount of gross unrecognized tax benefits was $3,305,899 and $3,002,825, respectively, which does not include any reserved interest or penalties. As of December 31, 2025, $3,305,899 of the total unrecognized tax benefits, if recognized, would have an impact on the Company’s effective tax rate. The Company estimates that there will be no material changes in its uncertain tax positions in the next 12 months. The Company’s has not recorded any interest or penalties related to its unrecognized tax benefits for 2025 or 2024.

 

The Company files income tax returns in the U.S. federal and various state jurisdictions with varying statutes of limitations. The Company is generally no longer subject to tax examinations for years prior to 2021 for federal purposes and 2020 for state purposes, except in certain limited circumstances.

 

However, due to the fact that the Company had loss and credits carried forward in some jurisdictions, certain items attributable to technically closed years are still subject to adjustment by the relevant taxing authority through an adjustment to tax attributes carried forward to open years. The Company’s NOL and credit carryforwards from all years may be subject to adjustment for three (or four for certain states) following the year in which utilized. The Company does not anticipate that any potential tax adjustments will have a significant impact on our financial position or results of operations.