Freight Technologies, Inc. Income Taxes Disclosure

NOTE 11 – INCOME TAXES

 

The components of the provision (benefit) for income taxes for the years ended December 31, 2024 and 2023 are as follows:

SCHEDULE OF COMPONENTS OF INCOME TAX EXPENSE 

		December 31, 2024				December 31, 2023
Current:
Federal			-				-
State			3,305				16,625
Foreign			64,181				88,323
Total Current			67,486				104,948
Deferred:
Federal			-				-
State			-				-
Total Deferred			-				-
Income tax expense			67,486				104,948

 

 

FREIGHT TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

The Company’s provision for income taxes for the years ended December 31, 2024 and 2023 is based on the annual effective tax rate, plus discrete items. The following table presents the provision for income taxes and the effective tax rates for and years ended December 31, 2024 and 2023:

SCHEDULE OF PROVISION AND EFFECTIVE TAX RATES 

		December 31, 2024				December 31, 2023
Loss before income tax provision			(5,533,741	)			(9,222,658	)
Income tax provision			67,486				104,948
Effective tax rate			-1.22	%			-1.14	%

 

For the years ended December 31, 2024 and 2023, the difference between the Company’s effective tax rate and the federal statutory tax rate of 21% relates to permanent differences, state and local income taxes, a net increase in the valuation allowances, and other discrete items.

 

The following is a reconciliation of the income tax at the federal statutory rate to the Company’s provision (benefit) for income taxes for the years ended December 31, 2024 and 2023:

SCHEDULE OF RECONCILIATION EFFECTIVE AND STATUTORY TAX RATE 

		December 31, 2024								December 31, 2023
Income tax expense at federal statutory rate		$	(1,130,444	)			20.43	%		$	(1,936,758	)			21.0	%
State and local income taxes net of federal tax benefit			(37,147	)			0.67	%			(24,108	)			0.2	%
Return to provision adjustments			(520,517	)			9.41	%			(205,230	)			2.2	%
Change in valuation allowance			1,640,303				-29.64	%			1,952,580				-21.2	%
Permanent differences			(436,505	)			7.89	%			(227,266	)			-2.64	%
Earnings of foreign subsidiary			511,792				-9.25	%			457,407				-4.9	%
Foreign taxes			64,181				-1.16	%			88,323				-0.9	%
Other - net		$	(24,177	)			0.44	%			-				-
Income tax expense (benefit)		$	67,486				-1.22	%		$	104,948				-1.14	%

 

At December 31, 2024 and 2023 the Company had federal net operating losses (“NOLs”) in the amount of $40,616,589 and $33,069,147 respectively, which are offset by a valuation allowance. These NOLs expire from 2035 to 2042 or have indefinite lives as follows. Under the Tax Cuts & Jobs Act of 2017 (“TCJA”) and the Coronavirus Aid, Relief, and Economic Security Act of 2020 (“CARES Act”), net operating loss deductions are limited to 80% of taxable income for tax years after December 31, 2020.

 

12/31/2035		$	35,945
12/31/2036			836,622
12/31/2037			1,922,017
Indefinite			37,822,005
Total Federal Net Operating Loss Carryforward		$	40,616,589

 

The tax effects of temporary differences and related deferred tax assets and liabilities are as follows:

SCHEDULE OF DEFERRED TAX ASSET 

		December 31, 2024				December 31, 2023
Accrued expenses		$	-			$	-
Fixed and intangible assets			194,581				173,462
Allowance for doubtful accounts			38,013				53,807
Stock Options			111,125				102,019
Warrant amortization			208,015				208,103
Net operating loss - Federal			8,529,484				6,944,521
Net operating loss - States			266,028				225,032
Deferred tax asset, gross			9,347,246				7,706,944
Less: Valuation allowance			(9,347,246	)			(7,706,944	)
Net deferred tax asset		$	-			$	-

 

 

The Company has a valuation allowance of $9,347,246 and $7,706,944 as of December 31, 2024 and 2023, respectively. The valuation allowance increased by $1,640,303. In making this determination, the Company is required to give significant weight to evidence that can be objectively verified. It is generally difficult to conclude that a valuation allowance is not needed when there is significant negative evidence, such as cumulative losses in recent years. Forecasts of future taxable income are considered to be less objective than past results.

 

Income tax expense is recorded using the asset and liability method. Deferred tax assets and liabilities are recognized for the expected future tax consequences attributable to temporary differences between amounts reported for income tax purposes and financial statement purposes, using current tax rates. A valuation allowance is recognized if it is anticipated that some or all of a deferred tax asset will not be realized. The Company must assess the likelihood that its deferred tax assets will be recovered from future taxable income and, to the extent that the Company believes that recovery is not likely, it must establish a valuation allowance. Significant management judgment is required in determining the provision for income taxes, deferred tax assets and liabilities and any valuation allowance recorded against net deferred tax assets.

 

The Company is subject to taxation in the United States and Mexico. Earnings from non-U.S. activities are subject to local country income tax. None of the Company’s federal, state, or local income tax returns are currently under examination by the United States or respective authorities. The Company’s 2019 to 2022 tax years remain subject to potential examination by the United States and various state and local jurisdictions.