Foxx Development Holdings Inc. Income Taxes Disclosure

Note 21 — Income taxes 

 

The Company’s income tax expenses for years ended June 30, 2025 and 2024 are as follows: 

 

		For the Years Ended June 30,
		2025				2024
Federal
Current		$	40,254			$	12,690
Deferred			—				—
State
Current			36,489				7,138
Deferred			—				—
Total provision for income taxes			76,743				19,828

 

Income tax expense for the years ended June 30, 2025 and 2024 varied from the amount computed by applying the statutory income tax rate to income before taxes. Reconciliations between the expected federal income tax rates using 21% for the years ended June 30, 2025 and 2024 to the Company’s effective tax rate are as follows:

 

		For the Years Ended June 30,
		2025				2024
Federal statutory tax rate			21.0	%			21.0	%
State statutory tax rate, net of deduction on federal tax return			(0.1	)%			4.2	%
Permanent difference			(13.5	)%			(1.7	)%
Others			(1.1	)%			0.9	%
Change in valuation allowance			(7.2	)%			(25.0	)%
Effective tax rate			(0.9	)%			(0.6	)%

 

The Company had a cumulative net operating loss carryforward (“NOL”) for federal, state and foreign income tax purpose of approximately $7.5 million, $2.7 million, and $0.1 million, respectively, as of June 30, 2025. The Company elected 100% allowance on deferred tax asset for the years ended June 30, 2025 and 2024 and incurred approximately $0.7 million and $0.8 million allowance on deferred tax asset, respectively. The Company’s NOL is limited to 80% of the excess of taxable income on federal level, and no limitation on the state level. The Company’s federal NOL and state NOL of approximately $1.4 million will last indefinitely. The state NOL of approximately $1.2 million can be carried for 20 years. The valuation allowance increased by approximately $0.7 million from approximately $2.0 million on June 30, 2024 to approximately $2.7 million on June 30, 2025.

 

The utilization of the Company’s net operating losses may be subject to a U.S. federal limitation due to the “change in ownership provisions” under Section 382 of the Internal Revenue Code and other similar limitations in various state jurisdictions. Such limitations may result in a reduction of the amount of net operating loss carryforwards in future years and possibly the expiration of certain net operating loss carryforwards before their utilization.  

 

The Company’s deferred tax accounts are comprised of the following as of:

 

		June 30, 2025				June 30, 2024
Deferred tax assets
Net operating loss		$	1,721,161			$	1,971,071
Capitalized R&D expense			516,994				70,451
Accrued warranty expense			70,385				7,382
Lease liabilities			236,020				109,903
Allowance for credit losses			195,696				-
Stock-based compensation expenses			166,847				-
Less:  valuation allowance			(2,678,143	)			(2,034,319	)
Total deferred tax assets			228,960				124,488
Deferred tax liabilities:
Depreciation of property and equipment		$	(1,066	)		$	(14,371	)
Right of use assets			(227,894	)			(110,117	)
Total deferred tax liability			(228,960	)			(124,488	)
Total deferred tax accounts, net		$	-			$	-

The Company’s taxes payable consist of the following:

 

		June 30,				June 30,
		2025				2024
Income taxes payable		$	76,743			$	-

 

Uncertain tax positions

 

The Company evaluates each uncertain tax position (including the potential application of interest and penalties) based on the marketing performance and measures the unrecognized benefits associated with the tax positions. As of June 30, 2025 and 2024, the Company did not have any significant unrecognized uncertain tax positions.