FRANKLIN WIRELESS CORP Income Taxes Disclosure

NOTE 4 - INCOME TAXES

 

Income tax benefit for the years ended June 30, 2025, and 2024 consists of the following:

Schedule of income tax benefit
		Years Ended June 30,
		2025				2024
Current income tax (benefit) expense:
Federal		$	33,736			$	8,659
State			800				800
Foreign			–				–
Total Current income tax expense (benefit)			34,536				9,459
Deferred income tax (benefit) expense:
Federal			189,057				(891,455	)
State			(123,770	)			3,101
Foreign			(144,990	)			(70,405	)
Total deferred income tax expense (benefit)			(79,703	)			(958,759	)
Benefit for income taxes		$	(45,167	)		$	(949,300	)

 

The income tax benefit reconciles to the amount computed by applying the effective federal statutory income tax rate to the income before provision for income taxes as follows:

Schedule of effective federal statutory income tax rate to the income before provision for income taxes
		Years Ended June 30,
		2025				2024
Federal income tax, at statutory rate of 21% applied to loss before income taxes and extraordinary items		$	(50,519	)		$	(1,074,307	)
State tax, net of federal tax (benefit) expense			(98,897	)			2,535
Nondeductible expenses			(17,146	)			63,393
R&D credits			(50,535	)			(46,945	)
Foreign rate difference			1,879				(13,450	)
Others			170,051				119,474
Benefit for income taxes		$	(45,167	)		$	(949,300	)

 

Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred tax assets are as follows:

Schedule of deferred tax assets
		June 30, 2025				June 30, 2024
Deferred tax asset:
Net operating losses		$	952,166			$	1,445,271
State tax			168				168
Lease accounting, net			2,529				2,457
Intangibles			1,768,558				1,330,679
Tax credits			255,598				227,706
Bad debt expense reserve			33,279				–
Inventory reserve			8,430				19,236
Other, net			433,565				306,415
Total deferred tax assets			3,454,293				3,331,932
Deferred tax liabilities:
Deferred state taxes			(73,186	)			(47,193	)
Property and equipment, net			1,856				(80	)
Unrealized gain (loss)			(109,341	)			(100,419	)
Total deferred tax liabilities			(180,671	)			(147,692	)
Less valuation allowance			–				–
Net deferred tax asset		$	3,273,622			$	3,184,240

 

Deferred income tax assets and liabilities are recorded for differences between the financial statement and tax basis of the assets and liabilities that will result in taxable or deductible amounts in the future based on enacted laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. We have evaluated the available evidence supporting the realization of our gross deferred tax assets, including the amount and timing of forecasted future taxable income. Management determined it is more likely than not that the federal deferred tax assets will be fully realized, and no valuation allowance is necessary to record as of June 30, 2025, or 2024.

 

As of June 30, 2025, we have federal and state net operating loss carryforwards of approximately $2.7 million and $0.7 million, respectively. Under the Tax Cuts and Jobs Act, the federal net operating loss of approximately $2.7 million, which will carry forward indefinitely. The state net operating loss of approximately $0.7 million will begin to expire in 2043. The utilization of net operating loss carryforwards may be subject to limitations under provisions of the Internal Revenue Code Section 382 and similar state provisions.

 

We apply the provisions of ASC 740 related to accounting for uncertain tax positions, which prescribes a recognition threshold and measurement process for recording in the financial statements uncertain tax positions taken or expected to be taken in a tax return. Under this provision, the impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. Tax benefits of an uncertain tax position will not be recognized if it has less than a 50% likelihood of being sustained based on technical merits.

 

A reconciliation of the beginning and ending balance of unrecognized tax benefits, which have been considered in the Company's computation of its deferred tax assets, is as follows:

Schedule of deferred tax assets
Balance as of June 30, 2023		$	389,016
Gross increase			25,310
Balance as of June 30, 2024			414,326
Gross decrease			(192,199	)
Balance as of June 30, 2025		$	222,127

 

We do not anticipate any material change in the total amount of unrecognized tax benefits to occur within the next twelve months. ASC 740 requires us to accrue interest and penalties where there is an underpayment of taxes based on our best estimate of the amount ultimately to be paid. Our policy is to recognize interest accrued related to unrecognized tax benefits and penalties as income tax expense. We have not recorded any interest or penalties as the liability associated with the unrecognized tax benefits is immaterial. We are subject to taxation in the U.S., and various state and foreign jurisdictions.