ESH Acquisition Corp. Income Taxes Disclosure

NOTE 8. INCOME TAXES

 

The Company’s net deferred tax assets are as follows: 

 

		December 31,				December 31,
		2024				2023
Deferred tax assets
Net operating loss carryforward		$	—			$	—
Startup costs			264,623				106,912
Total deferred tax assets			264,623				106,912
Valuation allowance			(264,623	)			(106,912	)
Deferred tax assets, net of allowance		$	—			$	—

 

The income tax provision for the years ended December 31, 2024 and 2023 consisted of the following:

 

		For the Years Ended
		December 31,				December 31,
		2024				2023
Federal
Current		$	1,068,183			$	819,453
Deferred			(157,711	)			(82,464	)
State
Current			—				—
Deferred			—				(19,398	)
Change in valuation allowance			157,711				101,862
Income tax provision		$	1,068,183			$	819,453

 

As of December 31, 2024 and 2023, the Company had no U.S. federal net operating loss carryovers available to offset future taxable income. The federal net operating loss can be carried forward indefinitely. As of December 31, 2024 and 2023, the Company did not have any state net operating loss carryovers available to offset future taxable income.

 

In assessing the realization of the deferred tax assets, management considers whether it is more likely than not that some portion of all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences representing net future deductible amounts become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. After consideration of all of the information available, management believes that significant uncertainty exists with respect to future realization of the deferred tax assets and has therefore established a full valuation allowance. For the years ended December 31, 2024 and 2023, the change in the valuation allowance were $157,711 and $101,862, respectively.

A reconciliation of the federal income tax rate to the Company’s effective tax rate is as follows:

 

		For the Years Ended
		December 31,				December 31,
		2024				2023
Statutory federal income tax rate			21.0	%			21.0	%
Prior year true-up			(2.7	)%			—
State taxes, net of federal tax benefit			—	%			4.9	%
Fines and penalties			0.1	%			—
Change in valuation allowance			3.2	%			3.7	%
Income tax provision			21.6	%			29.6	%

 

The Company’s effective tax rates for the periods presented differ from the expected (statutory) rates due to changes in fair value in warrants, transaction costs associated with warrants and the recording of full valuation allowances on deferred tax assets.

 

The Company files income tax returns in the U.S. federal jurisdiction in various state and local jurisdictions and is subject to examination by the various taxing authorities.