Dominari Holdings Inc. Income Taxes Disclosure

Note 14. Income Taxes

 

The following table summarizes income (loss) before income taxes ($ in thousands):

 

		2025
Domestic		$	(13,154	)
Foreign			—
Total		$	(13,154	)

 

The Company’s income tax expense (benefit) is as follows ($ in thousands):

 

		2025
U.S. Federal		$	4,458
State			2,860
Foreign			—
Current income tax expense (benefit)		$	7,318
U.S. Federal			—
State			—
Foreign			—
Deferred income tax expense (benefit)			—
Total income tax expense (benefit)		$	7,318

 

During the year ended December 31, 2024, the Company did not record any income tax expense or benefit.

 

The Company’s effective tax rate for the period ended December 31, 2025 was (55.6)%. The primary drivers of the variance from the statutory rate were state taxes, Sec. 162m disallowed compensation, net operating loss and amortization adjustments, and valuation allowance.

The following is a reconciliation from the Company’s statutory rate to the effective tax rate reported in the financial statements ($ in thousands):  

 

		2025
		Amount				Rate
Statutory Federal Income Tax Rate		$	(2,762	)			21.0	%
State and local income taxes, net of federal benefit of state			2,251				(17.1	)%
Tax Credits (Federal)			(56	)			0.4	%
Valuation Allowance			(2,943	)			22.4	%
Non-Deductible or Non-Taxable Items:
Warrants			(1,125	)			8.6	%
Excess Employee Compensation under Sec. 162m			11,673				(88.7	)%
Other			(366	)			2.8	%
Other Adjustments:
Net Operating Loss Adjustment			(2,540	)			19.3	%
Amortization Adjustment			3,196				(24.3	)%
Other			(10	)			0.1	%
Effective income tax rate		$	7,318				(55.6	)%

 

The state and local income tax rate reconciliation category primarily reflects the impact of New York State and New York City, which together constitute more than 50% of the total effect of this category.

 

The Company’s effective tax rate for the period ended December 31, 2024 was 0.0%. The primary drivers of the variance from the statutory rate were state taxes, Sec. 162m disallowed compensation, and valuation allowance.

 

The following is a reconciliation from the Company’s statutory rate to the effective tax rate reported in the financial statements:

 

		2024
U.S. Statutory Federal Rate			21.00	%
State Taxes, Net of Federal Tax Benefit			37.42	%
Sec. 162m disallowed compensation			(7.65	)%
Other permanent differences			(0.23	)%
State rate change in effect			(47.16	)%
Deferred tax adjustment for stock based compensation			(0.67	)%
Decrease due to change in Federal NOL and other true ups			1.90	%
Change in Valuation Allowance			(4.61	)%
Income Tax Benefit			0.00	%

 

As of December 31, 2025 and 2024, the Company’s deferred tax assets and liabilities consisted of the effects of temporary differences attributable to the following ($ in thousands):

 

		As of December 31,
		2025				2024
Deferred tax assets:
Net-operating loss carryforward		$	33,063			$	35,913
Stock based compensation			9,530				289
Patents & licenses			963				5,339
Transaction costs			120				160
Research & development, net			868				1,412
Operating lease liability			839				870
Investment portfolio and other			1,314				5,305
Total deferred tax assets			46,697				49,288
Valuation allowance			(38,301	)			(48,403	)
Deferred tax asset, net of allowance		$	8,396			$	885
Deferred tax liability:
Depreciation			(29	)			(42	)
Right of use asset			(802	)			(843	)
Investment portfolio and other			(7,565	)			—
Total deferred tax assets (liabilities)		$	—			$	—

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the period in which those temporary differences become deductible. Management considers the Company’s history of cumulative net losses, the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. The Company has determined that, based on objective positive and negative evidence currently available, it is more likely than not that the Company will not realize the benefits of all deferred tax assets. Accordingly, the Company has provided a full valuation allowance for the deferred tax assets of approximately $38.3 million as of December 31, 2025 and approximately $48.4 million as of December 31, 2024. As of December 31, 2025, the change in valuation allowance is approximately $(10.1) million. The change in the valuation allowance reflected in the rate reconciliation relates solely to federal deferred tax attributes, whereas the larger net decrease in the valuation allowance presented in the deferred tax table primarily reflects a reduction in state valuation allowance balances, which are not included in the rate reconciliation.

 

As of December 31, 2025, the Company has federal, state post-apportioned, and foreign net operating loss (“NOL”) carryforwards of approximately $76.7 million , $74.5 million, and $0, respectively. Of the federal amount, $29.8 million have a limited carryforward period and will begin to expire in 2026, and $47.0 million will have an indefinite carryforward period. Of the state post-apportioned amount, $74.5 million have a limited carryforward period and will begin to expire in 2038.

 

Utilization of the U.S. NOL carryforwards may be subject to a substantial annual limitation under Section 382 of the Internal Revenue Code of 1986, and corresponding provisions of state law, 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 completed a Section 382 study and concluded that it underwent ownership changes as defined by the Code on September 10, 2013, March 31, 2014, May 24, 2016, December 5, 2019, March 31, 2020, March 31, 2021, and February 10, 2025. The Company had a net unrealized built in loss (“NUBIL”) position at each ownership change date. As a result, the Company’s utilization of certain tax attributes, including amortization of acquired intangible assets, is subject to the Section 382 limitation. The Company has approximately $76 million of acquired intangible assets capitalized between 2013 and 2023 that are subject to this limitation. The original net operating loss (“NOL”) carryforwards of approximately $122 million reflected approximately $38 million of tax amortization deductions previously claimed in excess of the amount allowable under the Section 382 limitation. Accordingly, these excess deductions are treated as recognized built in losses (“RBILs”) and are subject to limitation under Section 382. In addition, the Section 382 study identified approximately $17 million of future tax amortization deductions related to intangible assets that are expected to be limited, which are treated as additional RBILs. Accordingly, the $38 million of excess amortization deductions previously claimed, together with $17 million of future amortization deductions expected to be limited, are reflected as $55 million of RBIL carryforwards as of year end, rather than as net operating loss carryforwards. The remaining NOL carryforwards were adjusted to exclude $6 million generated prior to 2006 that expired unused and to reflect $2 million utilized during the current period, resulting in $77 million of NOL carryforwards as of the end of the period.

 

Any future ownership changes that may occur after December 31, 2025, may limit the Company’s ability to utilize remaining tax attributes. Due to the existence of the valuation allowance, limitations created by the 2013 ownership change and any potential future ownership changes will not impact the Company’s effective tax rate.

 

The One Big Beautiful Bill Act (“OBBBA”) was enacted on July 4, 2025. The Company has evaluated the provisions of OBBBA and concluded that its enactment did not have a material impact on the Company’s 2025 consolidated financial statements. The only provision of OBBBA that affects the Company’s income tax accounting under ASC 740 is the enactment of new Internal Revenue Code (“IRC”) Section 174A, which permanently allows taxpayers to deduct domestic research or experimental (“R&E”) expenditures paid or incurred in taxable years beginning after December 31, 2024. The requirement to capitalize and amortize foreign R&E expenditures over 15 years remains unchanged.

 

On August 28, 2025, the Internal Revenue Service issued procedural guidance in Revenue Procedure 2025-28, which provides rules for implementing IRC Section 174A, including available elections and transition rules. Under the transition rules, taxpayers may elect how to treat unamortized domestic R&E expenditures that were paid or incurred in taxable years beginning after December 31, 2021 and before January 1, 2025. Specifically, taxpayers may (i) continue to amortize such costs over the remaining five-year amortization period, (ii) deduct the remaining unamortized balance entirely in the first taxable year beginning after December 31, 2024, or (iii) deduct the remaining unamortized balance ratably over two taxable years.

 

As of December 31, 2024, the Company had approximately $90 thousand of remaining unamortized domestic R&E expenditures capitalized under IRC Section 174, which gave rise to a deferred tax asset of approximately $26 thousand. The Company has elected to continue amortizing these costs over the remaining statutory amortization period. All such domestic R&E expenditures were incurred in 2022 and are expected to be fully amortized by 2027. As of December 31, 2025, the Company had approximately $40 thousand of remaining unamortized domestic R&E expenditures, representing a deferred tax asset of approximately $12 thousand.

 

The Company has made no income tax payments and received no income tax refunds during the year. All payments made to taxing authorities were for non-income based tax liabilities and are outside the scope of ASC 740.

As of December 31, 2025 and 2024, no liability for unrecognized tax benefit was required to be reported. The Company’s policy is to record interest and penalties related to income taxes outside of its income tax provision and classify as interest and penalties in general and administrative expense in the statement of operations. As of December 31, 2025 or 2024, the Company had no accrued interest or penalties related to uncertain tax positions and no amounts had been recognized in the Company’s statement of operations. The Company does not expect any significant changes in its unrecognized tax benefits in the next year. The Company files U.S. federal and state income tax returns (California, Florida, New Jersey, New York, New York City, Virginia, and Texas). As of December 31, 2025, the statute of limitations for assessment by the Internal Revenue Service and state tax authorities remains open for the tax periods ended December 31, 2022, 2023, and 2024. To the extent the Company has tax attribute carryforwards, the tax years in which the attribute was generated may still be adjusted upon examination by the Internal Revenue Service or state authorities to the extent utilized in a future period. There are no audits pending in any of the above-mentioned jurisdictions during 2025 and 2024. The Company believes that its income tax positions would be sustained upon an audit and does not anticipate any adjustments that would result in material changes to its consolidated financial position.