DSS, INC. Income Taxes Disclosure

15. INCOME TAXES

 

The Company accounts for income taxes in accordance with Accounting Standards Codification (“ASC”) Topic 740, Income Taxes, using the asset and liability method. Deferred tax assets and liabilities are recognized for the expected future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply in the years in which those temporary differences are expected to reverse or such carryforwards are expected to be utilized.

 

The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities. Deferred tax assets are reduced, if deemed necessary, by a valuation allowance for the amount of tax benefits which are not expected to be realized.

 

The following is a summary of the components giving rise to the income tax provision (benefit) for the years ended December 31:

 

The provision (benefit) for income taxes consists of the following:

 SCHEDULE OF INCOME TAX PROVISION

		2025				2024
Currently payable:
Federal		$	-			$	-
State			-				8,000
Foreign			-				-
Total currently payable			-				8,000
Deferred:
Federal			(4,672,000	)			256,000
State			70,000				(290,000	)
Foreign			(9,000	)			(4,000	)
Total deferred			(4,611,000	)			(38,000	)
Less: increase/(decrease) in allowance			4,611,000				38,000
Net deferred			-				-
Total income tax provision		$	-			$	8,000

 

 

Individual components of deferred tax assets and liabilities are as follows:

 SCHEDULE OF DEFERRED TAX ASSETS AND LIABILITIES

 

		2025				2024
Deferred tax assets:
Net operating loss carry forwards		$	25,672,000			$	19,201,000
Net operating loss IRC 382 limited			9,634,000				9,634,000
Unrealized loss on securities			4,407,000				4,243,000
Equity issued for services			197,000				194,000
Goodwill and other intangibles			95,000				84,000
Investment in pass-through entity			11,000				11,000
Deferred revenue			176,000				176,000
Operating Lease Liability			1,419,000				1,557,000
Depreciation and amortization			1,000				1,000
Other			2,480,000				3,094,000
Gross deferred tax assets			44,092,000				38,195,000
Deferred tax liabilities:
Goodwill and other intangibles			3,367,000				1,567,000
Depreciation and amortization			(61,000	)			309,000
Right to Use Asset			1,311,000				1,455,000
Gross deferred tax liabilities			4,617,000				3,331,000
Less: valuation allowance			(39,475,000	)			(34,864,000	)
Net deferred tax assets (liabilities)		$	-			$	-

 

At December 31, 2025 and 2024, the Company has approximately $154.0 million and $126.2 million in federal net operating loss carry forwards (“NOLs”), respectively, available to reduce future taxable income. Under the provisions of the Internal Revenue Code, the net operating losses are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities. Certain tax attributes are subject to an annual limitation as a result of certain cumulative changes in ownership interest of significant shareholders which could constitute a change of ownership as defined under Internal Revenue Code Section 382. For the year ended December 31, 2021, the Company has completed a full analysis of historical ownership changes and determined that a portion of the net operating losses have a limitation on future deductibility. Approximately $43.8 million of net operating losses incurred prior to 2020 will be unable to offset future taxable income and have been reserved via a valuation allowance to reduce the deferred tax asset to the expected realizable amount, leaving $2.9 million available for use which expire at various dates through 2038 and the residual which never expire. Additionally, at December 31, 2025 and 2024, the Company had approximately $20.7 million and $20.7 of California and Illinois NOL carry-forwards, respectively, which expire through 2043. The NOL carry forwards may be limited in certain circumstances, including ownership change and have been fully reserved via a valuation allowance.

 

The valuation allowance for deferred tax assets decreased approximately $4.6 million for the year ended December 31, 2025 and increased approximately $2.2 for the year ended December 31, 2024, The valuation allowance for deferred tax liability increased approximately $1.3 million in the year ended December 31, 2025 and decreased approximately $2.3 million for the year ended December 31, 2024.

 

The differences between the United States statutory federal income tax rate and the effective income tax rate in the accompanying consolidated statements of operations are as follows:

 

 SCHEDULE OF EFFECTIVE INCOME TAX RATE RECONCILIATION

							2025								2024
		2025								2024
Statutory United States federal rate		$	(5,766,000	)			21.00	%			(11,276,000	)			21.00	%
State income taxes net of federal benefit			63,000				(0.23	)			(210,000	)			0.39
Permanent differences			13,000				(0.05	)			5,286,000				(9.84	)
Foreign Rate			1,000				(0.00	)			-				0.00
NOL DTA Write-off			36,000				(0.13	)			41,000				(0.08	)
other			1,042,000				(3.80	)			6,142,000				(11.44	)
Change in valuation reserves			4,611,000				(16.79	)			25,000				(0.05	)
Effective tax rate		$	-				0.00	%		$	8,000				(0.02	)%

 

The Company recognizes interest accrued and penalties related to unrecognized tax benefits in tax expense. During the years ended December 31, 2025 and 2024 the Company recognized no interest and penalties. The Company has taken no uncertain tax positions as of December 31, 2025 and 2024. Accordingly, the Company has recorded no liability for unrecognized tax benefits as of such dates, and no interest or penalties related to uncertain tax positions were recognized for the years then ended.

 

The Company files income tax returns in the U.S. federal jurisdiction and various states. The tax years 2022-2024 generally remain open to examination by major taxing jurisdictions to which the Company is subject.