Fold Holdings, Inc. Income Taxes Disclosure
14. INCOME TAXES
Income tax (benefit) expense consists of:
|
December 31, 2025 |
|
|
December 31, 2024 |
|
||
Federal current tax expense |
$ |
- |
|
|
$ |
- |
|
State current tax expense |
|
1,472 |
|
|
|
7,400 |
|
Total current tax expense |
|
1,472 |
|
|
|
7,400 |
|
|
|
|
|
|
|
||
Federal deferred tax expense |
|
- |
|
|
|
- |
|
State deferred tax expense |
|
- |
|
|
|
- |
|
Total deferred tax expense |
|
- |
|
|
|
- |
|
Total tax expense |
$ |
1,472 |
|
|
$ |
7,400 |
|
Income tax (benefit) expense differs from the amounts computed by applying the applicable U.S. federal income tax rate of 21% as a result of the following:
|
December 31, 2025 |
|
||||
|
Amount |
|
Percent |
|
||
Income tax expense at the federal statutory rate |
$ |
(14,613,872 |
) |
|
21.00 |
% |
State taxes (1) |
|
504 |
|
|
0.00 |
% |
Federal credits |
|
(89,051 |
) |
|
0.13 |
% |
Changes in valuation allowance |
|
9,995,523 |
|
|
-14.36 |
% |
Non-deductible / Non-taxable items |
|
|
|
|
||
Excess stock compensation deduction |
|
988,450 |
|
|
-1.42 |
% |
Nondeductible losses on SAFE notes |
|
1,511,405 |
|
|
-2.17 |
% |
Nondeductible stock issuance costs |
|
2,009,513 |
|
|
2.89 |
% |
Nondeductible repurchase premium on convertible notes |
|
194,892 |
|
|
-0.28 |
% |
Other permanent items |
|
4,111 |
|
|
-0.01 |
% |
Other |
|
(3 |
) |
|
0.00 |
% |
Total income tax expense |
$ |
1,472 |
|
|
0.00 |
% |
(1) Certain categories within the effective tax rate reconciliation disclosure required by ASU 2023‑09 have not been separately disaggregated, as it was determined that such disaggregation would not be material, consistent with the materiality guidance in ASC 105‑10‑05‑6.
For the year ended December 31, 2025, the significant reconciling items, as noted in the table above, are primarily due to non-deductible/non-taxable items partially offset by the change in valuation allowance.
For the year ended December 31, 2024, prior to the adoption of ASU 2023-09, the income tax (benefit) expense differs from the amounts computed by applying the applicable U.S. federal income tax rate of 21% as a result of the following:
|
December 31, 2024 |
|
|
|
Amount |
|
|
Income tax expense at the federal statutory rate |
$ |
(13,667,089 |
) |
Non-Deductible/ Non-taxable Items |
|
18,559,723 |
|
State Taxes |
|
1,077,521 |
|
Rate Change |
|
(25,879 |
) |
Federal Credits |
|
(89,051 |
) |
Valuation Allowance |
|
(5,847,827 |
) |
Other |
|
2 |
|
Total income tax expense |
$ |
7,400 |
|
The tax effects of temporary differences and tax attributes that give rise to significant portions of the deferred income tax assets and deferred income tax liabilities are presented below:
Deferred taxes |
December 31, 2025 |
|
|
December 31, 2024 |
|
||
|
|
|
|
|
|
||
Customer rewards liability |
$ |
1,675,054 |
|
|
$ |
2,193,675 |
|
Goodwill and intangible assets |
|
2,888 |
|
|
|
13,376 |
|
Capitalized research and development costs |
|
570,930 |
|
|
|
815,967 |
|
Net operating losses |
|
10,170,376 |
|
|
|
5,676,941 |
|
Credits |
|
444,723 |
|
|
|
355,672 |
|
Start up costs |
|
2,232,158 |
|
|
|
- |
|
Convertible debt |
|
4,037,227 |
|
|
|
- |
|
Restricted stock |
|
746,055 |
|
|
|
- |
|
Other |
|
3,216 |
|
|
|
3,379 |
|
Total deferred tax assets |
|
19,882,627 |
|
|
|
9,059,010 |
|
Valuation allowance |
|
(14,403,016 |
) |
|
|
(275,686 |
) |
Net deferred tax assets |
|
5,479,611 |
|
|
|
8,783,324 |
|
|
|
|
|
|
|
||
Digital assets |
|
(5,479,611 |
) |
|
|
(8,783,324 |
) |
Total deferred tax liabilities |
|
(5,479,611 |
) |
|
|
(8,783,324 |
) |
Net deferred tax asset (liability) |
$ |
- |
|
|
$ |
- |
|
As of December 31, 2025 and 2024, the Company had $14.4 million and $0.3 million in net deferred tax assets, respectively. At each reporting date, management considers new evidence, both positive and negative that could affect its view of the future realization of deferred tax assets. The Company has established a full valuation allowance against the deferred tax assets due to the lack of sufficient positive evidence to support their realization. This assessment will be reviewed periodically, and adjustments to the valuation allowance will be made as warranted by changes in circumstances. As of December 31, 2025 and 2024, the Company recorded a full valuation allowance of $14.4 million and $0.3 million, respectively.
As of December 31, 2025 and 2024, the Company has federal net operating losses of $40.2 million and $21.2 million, respectively, which do not expire. Utilization of the net operating losses may be subject to annual limitations due to the “change in ownership” provisions of the Internal Revenue Code of 1986 under Section 382. As of December 31, 2025 and 2024, the Company has not completed a Section 382 study to make this determination.
As of December 31, 2025 and 2024, the Company has federal R&D credit carryforwards of $0.4 million and $0.4 million, respectively, which expire in 2040 through 2045.
As of December 31, 2025, the Company has state net operating loss carryforwards of $33.7 million, of which $4.6 million do not expire and $29.1 million expire in various jurisdictions in 2036 through 2045. As of December 31, 2024, the Company has state net operating loss carryforwards of $22.8 million, of which $2.2 million do not expire and $20.6 million expire in various jurisdictions in 2036 through 2044.
As of December 31, 2025 and 2024, the Company did not have any unrecognized tax benefits. To the extent penalties and interest would be assessed on any underpayment of income tax, the Company’s policy is that such amounts would be accrued and classified as a component of income tax expense in the financial statements. The Company is subject to the following material taxing jurisdictions: U.S., Arizona, California, and New York. As of December 31, 2025 and 2024, the Company is current on its income tax filings in all applicable state jurisdictions and is not currently under any federal or state income tax examinations. The Company is open to federal and state tax audits until the applicable statutes of limitations expire. The statute of limitations has expired for all federal and state returns filed for periods ending before 2022. As of December 31, 2025, the Company had no accrued interest or penalties related to uncertain tax positions.
For the year ended December 31, 2025, total income taxes paid (net of refunds) consisted of the following:
|
December 31, 2025 |
|
|
December 31, 2024 |
|
||
Federal |
$ |
- |
|
|
$ |
- |
|
Aggregated state and local jurisdictions (2) |
|
6,139 |
|
|
|
3,110 |
|
Net Cash Paid (refunds received) for income taxes |
$ |
6,139 |
|
|
$ |
3,110 |
|
(2) Certain categories within the income taxes paid disclosure required by ASU 2023‑09 have not been separately disaggregated, as it was determined that such disaggregation would not be material, consistent with the materiality guidance in ASC 105‑10‑05‑6.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 17, 2026 | Showing above |
| 2024 | Mar 28, 2025 | |
| 2023 | Mar 26, 2024 | |
| 2022 | Mar 29, 2023 | |
| 2021 | Mar 22, 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.