FONAR CORP Income Taxes Disclosure

NOTE 10 - INCOME TAXES

 

Income tax expense is computed using an asset and liability method using expected annual effective tax rates. Under this method, deferred income tax assets and liabilities result from temporary differences in the financial reporting basis and the income tax basis of assets and liabilities. The measurement of deferred tax assets is reduced, if necessary, by the amount of any tax benefit that, based on available evidence, is not expected to be realized. When it appears more than likely than not that deferred taxes will not be realized, a valuation allowance is recorded to reduce the deferred tax asset to its realizable value. For net deferred tax assets we consider estimates of future taxable income in determining whether or net deferred tax assets are more likely than not to be realized.

 

The Company has recorded a deferred tax asset of $6,349,194 and a deferred tax liability of $321,159 as of June 30, 2025, primarily relating to its allowance for credit losses of $4,366,000, non deductible accruals of $759,000 and capitalized research and development costs of approximately $960,000. During fiscal 2025, the Company utilized all tax credits pertaining to research and development costs. In addition the Company has state operating loss carryforwards of approximately $3,694,000. The Company has also fully recorded a valuation allowance against all of the state operating losses since the Company doesn’t anticipate being able to utilize them.

 

The Company files corporate income tax returns in the United States (federal) and in various state and local jurisdictions. In most instances, the Company is no longer subject to federal, state and local income tax examinations by tax authorities for years prior to 2021.

 

Future ownership changes as determined under Section 382 of the Internal Revenue code could further limit the utilization of net operating loss carryforwards. As of June 30, 2025, no such changes in ownership have occurred.

 

On July 4, 2025, the One Big Beautiful Act (“OBBBA) was signed into law, which enacts significant changes to the U.S. tax and related laws. Some of the provisions of the new tax law that affect corporations include but are not limited to expensing of domestic specified research or experimental expenditures, increasing the limit of the deduction to thirty percent of EBITDA, and one hundred percent bonus depreciation on eligible property acquired after January 19, 2025. The Company is currently evaluating the impact that the new tax law will have on its financial condition and results of operations.

 

The valuation allowance for deferred tax assets decreased during the year ended June 30, 2025, by approximately $67,000. The valuation allowance decreased by approximately $171,000 during the year ended June 30, 2024.

 

Components of the provision for income taxes are as follows:

 

Schedule of Components of the provision for income taxes
Components Of The Provision For Income Taxes
		Years Ended June 30,
Current:		2025				2024
Federal		$	1,374,724			$	429,873
State			908,421				1,943,588
Subtotal			2,283,145				2,373,461
Deferred:
Federal deferred taxes			838,154				2,585,515
State deferred taxes			(14,494	)			209,992
Subtotal			823,660				2,795,507
Provision (Benefit) for Income Taxes - Net		$	3,106,805			$	5,168,968

 

A reconciliation of the federal statutory income tax rate to the Company’s effective tax rate as reported is as follows:

 

Schedule of reconciliation of federal statutory income tax rate to company’s effective tax rate
		For the Year Ended June 30, 2025								For the Year Ended June 30, 2024
		Amount				Percent				Amount				Percent
Taxes at federal statutory rate		$	2,893,850				21	%		$	4,169,123				21	%
State and local income taxes		$	978,397				7.1	%		$	1,409,561				7.1	%
Noncontrolling interests		($	657,307	)			(4.6	%)		($	1,049,294	)			(5.3	%)
Valuation Allowance		($	218,390	)			(1.6	%)		($	48,179	)			(0.2	%)
Permanent items – Meals and Entertainment		$	131,956				1.0	%		$	126,719				1.5	%
Other		($	21,701	)			(0.8	%)		$	561,038				2.7	%
Provision for income taxes		($	3,106,805	)			22.8	%		$	5,168,968				26.8	%

  

The Company has, for federal income tax purposes, research and development tax credits and investments tax credits carryforwards aggregating $1,323,000 as of June 30, 2024. The Company will utilize the full amount for the tax return for the year ended June 30, 2025. These credits can only be applied after all net operating losses have been used.

 

 Significant components of the Company’s deferred tax assets and liabilities at June 30, 2025 and 2024 are as follows:

 

Schedule of deferred tax assets and liabilities
		June 30,
		2025				2024
Deferred tax assets:
Allowance for credit losses		$	4,366,361			$	3,969,819
Non-deductible accruals			758,700				758,700
Net operating carryforwards			259,319				396,092
Tax credits			—				1,323,018
Capitalized research and development			960,343				747,407
Right of use assets and lease liabilities			146,934				114,116
Inventories			116,856				106,879
Deferred Tax Assets - gross			6,608,513				7,416,031
Valuation allowance			(259,319	)			(192,776	)
Total deferred tax assets			6,349,194				7,223,255
Property and equipment and depreciation			165,532	)			(267,124	)
Intangibles			(155,627	)			(104,436	)
Total deferred tax liabilities			(321,159	)			(371,560	)
Net deferred tax asset		$	6,028,035			$	6,851,695