Fluent, Inc. Income Taxes Disclosure

10. Income taxes

 

The Company adopted ASU 2023-09 and applied the new disclosure requirements prospectively as of and for the year ended December 31, 2025.

 

The following table presents the domestic and foreign income (loss) from continuing operations before income taxes for the years ended December 31, 2025 and 2024:

 

		Year Ended December 31,
(In thousands)		2025				2024
Domestic		$	(27,216	)		$	(30,036	)
Foreign			47				(1,052	)
Loss before income taxes		$	(27,169	)		$	(31,088	)

 

The Company is subject to federal and state income taxes in the United States ("US") and Canada. For the years ended December 31, 2025 and 2024, the provision for income taxes on income (loss) from operations consisted of the following:

 

		Year Ended December 31
(In thousands)		2025				2024
Current:
Federal		$	—			$	(1,260	)
State			13				(278	)
Foreign			(156	)			3
Total current			(143	)			(1,535	)
Deferred:
Federal			(6,415	)			(7,597	)
State			(1,576	)			(1,001	)
Foreign			141				(275	)
Less: valuation allowance			7,991				8,597
Total deferred			141				(276	)
Total income tax benefit		$	(2	)		$	(1,811	)

 

For the years ended December 31, 2025 and 2024, pursuant to the requirements after the adoption of ASU 2023-09, and 2024, pursuant to the requirements prior to the adoption of ASU 2023-09, the provision for income taxes differs from the amounts computed by applying the applicable federal statutory rates as follows:

 

		Year Ended December 31,
(In thousands)		2025
Federal income taxes at the statutory rate		$	(5,705	)			21.0	%
State and local income tax, net of federal income tax effect (1)
State changes in valuation allowance			1,576				(5.8	)
Other			(1,565	)			5.8
Foreign tax effects
Canada			(26	)			0.1
Effect of changes in tax laws or rates enacted in the current period			—				—
Effect of cross-border tax laws			9				(0.0	)
Tax credits
Research and development credit			(1,015	)			3.7
Changes in valuation allowance
U.S. federal changes			6,415				(23.6	)
Non-taxable or non-deductible items
Other			45				(0.2	)
Changes in unrecognized tax benefits			—				—
Other reconciling items			264				(1.0	)
Income tax benefit		$	(2	)			0.0	%

 

(1) Taxes in New Hampshire and New York comprise the majority (greater than 50%) of the tax effect in this category for the year ended December 31, 2025.

 

		Year Ended December 31,
(In thousands)		2024
Federal income taxes at the statutory rate		$ (6,528)		21.0%
Share-based compensation shortfall (windfall)		6		(0.0)
Effect of state taxes, net of federal tax benefit		(999)		3.2
Non-deductible items		39		(0.1)
Return to provision adjustment		(540)		1.7
Foreign rate difference		(56)		0.2
Deferred only adjustments		343		(1.1)
Changes in valuation allowance		8,597		(27.7)
Research and development tax credit		(1,194)		3.8
Reversal of uncertain tax positions		(1,480)		4.8
Other		1		(0.0)
Income tax benefit		$ (1,811)		5.8%

 

The income taxes paid, net of refunds, by the Company for the year ended December 31, 2025 is as follows:

 

		Year Ended December 31
(In thousands)		2025
Federal		$	—
State and local			(69	)
Foreign			—
Total taxes paid, net of refunds (1)		$	(69	)

 

(1) Individual jurisdictions equaling 5% or more of the total income taxes paid, net of refunds, for the year ended December 31, 2025 included Illinois at ($71), New York City at $16, and New York State at ($13). For the year ended December 31, 2024, total income taxes paid, net of refunds was ($323).

 

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. As of December 31, 2025 and 2024, the significant components of deferred tax assets and (liabilities) consist of the following:

 

(In thousands)		December 31, 2025				December 31, 2024
Deferred tax assets:
Net operating loss carryforwards		$	10,894			$	5,136
Share-based compensation			4,590				4,569
Capitalized research and experimental expenditures			6,324				5,257
Intangible assets, net			1,954				2,230
Tax credits			3,801				2,786
Accrued expense			678				894
Operating lease liability			769				450
Interest expense limitation			2,439				1,652
Accounts receivable, net			40				119
Other			485				765
			31,974				23,858
Valuation allowance			(31,156	)			(23,165	)
Total deferred tax assets, net of valuation allowance			818				693
Deferred tax liabilities:
Operating lease right-of-use asset			(711	)			(383	)
Property and equipment, net			(1	)			(64	)
			(712	)			(447	)
Net deferred tax asset (liability)		$	106			$	246

 

As of December 31, 2025, the Company has federal net operating loss carryforwards of $37,407, which can be carried forward indefinitely, and state net operating loss carryforwards of $50,036, which begin to expire in 2030. At December 31, 2025, the Company had federal research and development tax credit carryforwards of approximately $3,801. If not utilized, these credits will begin to expire in 2036. 

 

As of December 31, 2025 and 2024, the Company recorded a full valuation allowance against its U.S. net deferred tax assets of $31,156 and $23,165, respectively, which is driven by the movement in the U.S. net deferred tax assets. For the year ended December 31, 2025, the movement in U.S. net deferred tax assets was primarily a result of the generation of federal and state net operating losses and capitalized research and experimental expenditures. No valuation allowance has been recorded against foreign deferred tax assets, as management believes it is more likely than not that such deferred tax assets will be realized.

 

The Company intends to continue maintaining a full valuation allowance on its U.S. net deferred tax assets until there is sufficient evidence to support the release of all or some portion of the allowance. Release of some or all of the valuation allowance would result in the recognition of certain deferred tax assets and an increase in deferred tax benefit for any period in which such a release may be recorded; however, the exact timing and amount of any valuation allowance release are subject to change depending upon the level of profitability that the Company is able to achieve and the net deferred tax assets available.

 

The Company continually evaluates expiring statutes of limitations, audits, proposed settlements, changes in tax law and new authoritative rulings. The Company files tax returns in federal and certain state and local jurisdictions. The periods subject to examination are generally for tax years ended 2022 through 2025, including the following major jurisdictions: U.S. Federal, New York State, and New York City. 

 

For the years ended and as of  December 31, 2025 and 2024, the Company has no accrued interest or penalties related to uncertain tax positions. For the years ended December 31, 2025 and 2024, reconciliation of the gross amounts of unrecognized tax benefits consists of the following:

 

		Year Ended December 31,
(In thousands)		2025				2024
Unrecognized tax benefits, opening balance		$	—			$	1,480
Settlement/expiration of statutes of limitations			—				(1,480	)
Unrecognized tax benefits, ending balance		$	—			$	—

 

The Company intends to indefinitely reinvest the undistributed earnings of its Canadian subsidiary. Accordingly, no deferred tax liability has been recorded for U.S. federal or state income taxes or Canadian withholding taxes that may result from future remittances of such earnings. Determination of the amount of the unrecognized deferred tax liability is not practicable.