Dolphin Entertainment, Inc. Income Taxes Disclosure

 NOTE 22 — INCOME TAXES

 

The Company’s current and deferred income tax provision (benefits) are as follows:

Schedule of current and deferred income tax provision (benefits)
		December 31,
		2025				2024
Current income tax expense (benefit)
Federal		$	—			$	—
State			—				—
Current		$	—			$	—
Deferred income tax expense (benefit)
Federal		$	(501,764	)		$	(1,971,524	)
State			(256,133	)			(812,753	)
Deferred		$	(757,897	)		$	(2,784,277	)
Change in valuation allowance
Federal		$	525,558			$	1,995,089
State			301,701				877,042
Change in valuation allowance		$	827,259			$	2,872,131
Income tax expense (benefit)		$	69,362			$	87,854

 

 

 

At December 31, 2025 and 2024, the Company had deferred tax assets and liabilities as a result of temporary differences between financial statement carrying amounts and the tax basis of assets and liabilities. Deferred income taxes at December 31, 2025 and 2024 are as follows:

Schedule of deferred tax assets and liabilities
		December 31,
		2025				2024
Deferred Tax Assets:
Accrued expenses		$	1,334,754			$	1,151,704
IRC 163(j)			2,320,594				1,966,053
Lease liability			1,415,747				1,415,747
Accrued compensation			711,164				711,164
Intangibles			4,737,234				5,125,534
Other assets			351,616				356,519
Capitalized production costs			564,900				541,025
Net operating losses and credits			17,588,586				16,967,044
Equity investments			2,235,034				2,235,034
Total Deferred Tax Assets		$	31,259,629			$	30,469,824
Deferred Tax Liabilities:
Right of use asset			(1,315,796	)			(1,283,888	)
Total Deferred Tax Liability		$	(1,315,796	)		$	(1,283,888	)
Subtotal		$	29,943,833			$	29,185,936
Valuation Allowance		$	(30,407,742	)		$	(29,580,483	)
Net Deferred Tax Liability		$	(463,909	)		$	(394,547	)

 

The Company had the following net operating loss (“NOL”) carry-forwards, gross, as of December 31, 2025:

Schedule of net operating loss
Jurisdiction		NOL Amount				Expires
U.S. Federal(1)		$	60,739,198				2028
Florida			26,707,662				2029
California			22,723,897				2032
New York State			6,937,079				2039
New York City			7,747,301				2039
Illinois			746,343				2031
Massachusetts			1,591,800				2038
Total		$	127,193,280

 

(1)

Federal net operating losses generated after December 31, 2017 have an indefinite life and do not expire.

 

Utilization of net operating losses and tax credit carryforwards may be subject to an annual limitation provided by the Internal Revenue Code of 1986, as amended, and similar state provisions. Further, a portion of the carryforwards may expire before being applied to reduce future income tax liabilities.

 

In assessing the ability to realize the deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of the deferred tax asset is dependent upon the generation of future taxable income during the periods in which these temporary differences become deductible. Management believes it is more likely than not that the deferred tax asset will not be realized and has recorded a net valuation allowance of $30,407,742 and $29,580,483 as of December 31, 2025 and 2024, respectively.

 

The Company adopted ASU 2023-09 on a prospective basis beginning with the year ended December 31, 2025. The following table presents the required disclosure pursuant to ASU 2023-09 and reconciles the U.S. statutory federal income tax rate related to pretax income to the effective amount and tax rate for the year ended December 31, 2025 and 2024:

Schedule of effective tax rate reconciliation
		December 31,
		2025								2024
		Amount				Percent				Amount				Percent
U.S. statutory federal rate		$	(634,075	)			21.0	%		$	(2,628,228	)			21.0	%
Goodwill impairment			—				—				613,947				(4.9	%)
State and local income taxes, net of federal income tax effect			45,567	(1)			(1.5	%)			64,291	(1)			(0.5	%)
Nontaxable or nondeductible items
Meal and entertainment			55,689				(1.9	%)			55,583				(0.4	%)
Other			27,413				(0.9	%)			(30,964	)			0.2	%
Changes valuation allowances			574,768				(19.0	%)			2,013,225				(16.1	%)
Total income tax expense		$	69,362				(2.3	%)		$	87,854				(0.7	%)

 

(1)

Taxes in New York, State, California, and New York City made of the majority of the tax effect in this category.

 

 

The Company’s components of deferred income tax expense and rate reconciliation to the U.S. federal statutory rate both include amounts related to changes in the valuation allowance, the amounts presented in these sections may differ due to differences in presentation requirements and the underlying nature of certain adjustments.

 

As of December 31, 2025 and 2024, the Company does not have any material unrecognized tax benefits and accordingly has not recorded any interest or penalties related to unrecognized tax benefits. The Company does not believe that unrecognized tax benefits will significantly change within the next twelve months. The Company and its subsidiaries file Federal, California, Florida, Illinois, Massachusetts, New York State, and New York City income tax returns. These returns remain subject to examination by taxing authorities for all years with net operating loss carryforwards.

 

Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes related primarily to differences between the basis of certain assets and liabilities for financial and tax reporting. The deferred taxes represent the future tax consequences of those differences, which will either be deductible or taxable when the assets and liabilities are recovered or settled.