Fatpipe Inc/UT Income Taxes Disclosure
NOTE 10: INCOME TAXES
The Company files its federal income tax returns on a consolidated basis, which include the accounts of FatPipe, Inc., FatPipe Technologies, Inc. Tax attributes are assigned to each of the consolidated entities based on the taxable income and expenses of each entity.
Income before income taxes is as follows:
| March 31, | ||||||||
| 2025 | 2024 | |||||||
| United States | $ | 4,707,601 | $ | 7,555,691 | ||||
| Foreign | (1,419,845 | ) | (1,957,381 | ) | ||||
| Total income before income taxes | $ | 3,287,756 | $ | 5,598,310 | ||||
The provision for income tax consists of the following
| March 31, | ||||||||
| 2025 | 2024 | |||||||
| Federal | $ | (1,030,279 | ) | $ | (1,048,798 | ) | ||
| State | (264,033 | ) | (380,232 | ) | ||||
| Foreign | (7,055 | ) | ||||||
| Total | $ | (1,294,312 | ) | $ | (1,436,085 | ) | ||
Deferred tax assets consist of the following:
| Beginning | Change | Ending | ||||||||||
| Temporary differences | $ | 329,553 | $ | (122,201 | ) | $ | 207,352 | |||||
| NOL carryovers | 1,356,779 | 1,356,779 | ||||||||||
| Capital loss carryovers | 393,528 | 393,528 | ||||||||||
| Credit carryovers | ||||||||||||
| Total deferred tax assets | 2,079,860 | (122,201 | ) | 1,957,659 | ||||||||
| Valuation allowance | (1,962,405 | ) | 81,651 | (1,880,754 | ) | |||||||
| Net deferred tax assets | $ | 117,455 | $ | (40,550 | ) | 76,905 | ||||||
Temporary differences consist primarily of bad debt allowance, book to tax depreciation and amortization, and certain other accruals. The Company has elected to exclude penalties and interest from income tax expense. GILTI tax imposed on foreign earnings is recorded as tax expense in the year incurred.
A reconciliation from the U.S. statutory federal income tax rate to the effective income tax rate is as follows:
| March 31, | ||||||||
| 2025 | 2024 | |||||||
| Federal income tax rate | 21.00 | % | 21.00 | % | ||||
| State taxes | 5.11 | % | 3.63 | % | ||||
| Foreign earnings | 0.00 | % | 1.44 | % | ||||
| Foreign prior period tax settlement | 0.00 | % | 0.00 | % | ||||
| Effect of PPP (Pay check Protection Program) loan forgiveness | 0.00 | % | 0.00 | % | ||||
| Temporary differences | 2.25 | % | 3.63 | % | ||||
| Benefits of NOL carryovers | 0.00 | % | -4.14 | % | ||||
| Benefits of credit carryovers | 0.00 | % | 0.00 | % | ||||
| Effective tax rate | 28.36 | % | 25.56 | % | ||||
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.