(8) Income Taxes

The Company adopted ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures on January 1, 2025 on a prospective basis. Accordingly, the presentation of certain prior year disclosures below differs from 2025 disclosures.

Income tax expense consists of the following:


Income tax expense from continuing operations		2025
Current tax expense
Federal	$	—
State and local		1,297
Total current tax expense	$	1,297

Deferred tax expense
Federal		(4,205,724	)
State and local		13,844
Total deferred tax expense	$	(4,191,880	)

Valuation allowance		4,191,880

Total income tax expense
Federal		—
State and local		1,297
Total income tax expense	$	1,297

The current tax provisions and deferred tax provisions, as reflected in the financial statements are as follows as of December 31, 2024:


		2024
Current federal taxes	$	—
Current state taxes		9,602
Current tax provision		9,602
Deferred federal taxes		(4,433,940	)
Deferred state taxes		(342,310	)
Valuation allowance change		4,776,250
Deferred tax provision		—
Total income tax expense provision	$	9,602

As further described in Note 2, Summary of Significant Accounting Policies, the Company has elected to prospectively adopt the guidance in ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Taxes Disclosures, or ASU 2023-09. The following table is a reconciliation of the federal statutory rate to the Company’s effective rate for the year ended December 31, 2025:



		2025
		Total		%

Loss from continuing operations before income tax expense	$	(18,626,590	)

Tax provision at U.S. federal statutory rate		(3,911,584	)	21.00	%
Federal
Permanent differences		(73,174	)	0.40	%
Research and development credit		(415,511	)	2.20	%
Other deferred adjustments		194,817		(1.00	)%
Valuation allowance		4,205,724		(22.60	)%
Changes in unrecognized tax benefits
State income taxes, net of federal income tax benefit		1,025		0.00	%
Income tax expense	$	1,297		—	%

The following is a reconciliation of income tax expense at the statutory federal income tax rate and income taxes as for the year ended December 31, 2024 in accordance with guidance prior to the adoption of ASU 2023-09:

	2024
Federal income tax at statutory federal rate	21	%
Permanent differences	—
Research and development credit	3
Other deferred adjustments	—
State income tax expense (net of federal benefit)	2
Valuation allowance	(26	)
Effective tax rate	—	%

Under the prospective adoption of ASU 2023-09, income taxes paid by jurisdiction as of December 31, 2025, are as follows:


		2025
U.S. Federal	$	—
New York		2,000
California		1,600
New Hampshire		1,100
Georgia		1,000
New Jersey		500
Massachusetts		456
Other States		150
Total U.S. State and Local		6,806
Total income taxes paid	$	6,806

Deferred tax assets (liabilities) consisted of the following as of December 31, 2025 and 2024:


		2025		2024
Deferred tax asset arising from
Net operating loss carryforwards	$	26,318,782		23,030,273
Accrued expenses (compensation)		109,914		138,806
Intangibles		98,355		93,426
Property and equipment		67,159		80,313
Research and development expense capitalization		3,835,472		3,326,621
Research and development tax credits		4,139,328		3,839,058
Share-based compensation expense		375,773		257,891
Lease liabilities		344,986		471,733
Other		10,796		5,210
Deferred tax asset		35,300,565		31,243,331
Deferred tax liability arising from:
Uniform capitalization		—		(11,092	)
Right-of-use assets		(294,769	)	(418,323	)
Deferred tax liability		(294,769	)	(429,415	)
Valuation allowance	$	35,005,796		30,813,916
Net deferred tax asset	$	—		—

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and the Company is required to reduce its deferred tax assets by a valuation allowance if it is more likely than not that some or all of its deferred tax assets will not be realized. Management must use judgment in assessing the potential need for a valuation allowance, which requires an evaluation of both negative and positive evidence. The weight given to the potential effect of negative and positive evidence should be commensurate with the extent to which it can be objectively verified. In determining the need for and amount of the valuation allowance, if any, the Company assesses the likelihood that it will be able to recover its deferred tax assets using historical levels of income, estimates of future income and tax planning strategies. As a result of historical cumulative losses, the Company determined that, based on all available evidence, there was substantial uncertainty as to whether it will recover recorded net deferred taxes in future periods. Accordingly, the Company recorded a valuation allowance against all of its net deferred tax assets as of December 31, 2025 and 2024. The change in valuation allowance was $4,191,880 and $4,776,250 for the years ended December 31, 2025 and 2024, respectively.

Beginning on January 1, 2022, the Tax Cuts and Jobs Act, enacted in December 2017, eliminated the option to deduct research and development expenditures in the current period and requires taxpayers to capitalize and amortize U.S.-based and non-U.S. based research and development expenditures over five and fifteen years, respectively. This legislation does not impact the Company’s current tax obligations.

As of December 31, 2025 and 2024, respectively, the Company has $120,129,845 and $104,880,492 of federal net operating loss carryforwards and $4,139,328 and $3,723,817 of federal research and experimentation tax credits, respectively, and state net operating loss carryforwards of $20,275,840 and $17,675,024, respectively. The utilization of such net operating loss carryforwards and the realization of tax benefits in future years depend predominately upon having taxable income. Under the provisions of the Internal Revenue Code, certain substantial changes in the Company’s ownership may result in a limitation on the amount of net operating loss carryforwards and tax credit carryforwards that may be used in future years.

The Company’s net operating losses may be subject to Section 382 of the Internal Revenue Code which provide for a limitation on the annual use of net operating losses following certain ownership changes that could limit the Company’s ability to utilize these carryforwards. The Company has completed an analysis covering the period February 19, 2004 through December 31, 2018, to determine if such ownership changes have occurred and concluded it was more likely than not that there were changes in ownership during the period, with the most recent change of ownership occurring on December 16, 2016. Further analyses will be performed prior to recognizing the benefits of any losses or credits in the financial statements, and the Company is in the process of determining the limitations that Section 382 will have on the Company’s net operating loss carryforwards and research credits. In general, the annual use limitation equals the aggregate value of the Company’s stock at the time of the ownership change multiplied by a specified tax-exempt interest rate.

The following schedule indicates the expiration year, as of December 31, for the Company’s federal net operating loss carryforwards available to future years without taking into account any Section 382 limitations as of December 31, 2025:

2026	$	1,213,130
2027		2,082,043
2028		2,536,605
2029		2,235,045
2030		4,132,949
2031		3,160,709
2032		3,533,521
2033		2,987,848
2034		2,516,728
2035		4,777,558
2036		4,503,474
2037		6,869,819
2038		11,194,631
Indefinitely		68,385,785
Total	$	120,129,845

The FASB issued authoritative guidance on accounting for uncertainty in income taxes, which clarifies the accounting for income taxes, by prescribing a minimum recognition threshold that a tax position is required to meet before recognition in the financial statements. The guidance also provides direction on recognition, measurement, classification, interest, and penalties, accounting in interim periods, disclosure, and transition. Management has determined there are no uncertain tax positions. Accordingly, these financial statements do not include any adjustments or disclosures related to uncertain tax positions.

Historical Timeline

Fiscal Year	Filed
2025	Mar 31, 2026	Showing above
2024	Mar 27, 2025

2023	Mar 28, 2024

2022	Mar 30, 2023

2021	Mar 24, 2022

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.

FEMASYS INC Income Taxes Disclosure

Historical Timeline

About Income Taxes Disclosures

Other Available Disclosures