GameSquare Holdings, Inc. Income Taxes Disclosure

14. Income tax

 

The Company computes taxes using the asset and liability method in accordance with FASB ASC Topic 740, Income Taxes. Under the asset and liability method, the Company determines deferred income tax assets and liabilities based on the differences between the financial reporting and tax bases of assets and liabilities and measure them using currently enacted tax rates and laws. A valuation allowance is provided for deferred tax assets that, based on available evidence, are more likely than not to be realized.

 

The Company’s accounting for deferred taxes involves the evaluation of a number of factors concerning the realizability of its net deferred tax assets. The Company primarily considered such factors as its history of operating losses, the nature of the company’s deferred tax assets, and the timing, likelihood and amount, if any, of future taxable income during the periods in which those temporary differences and carryforwards become deductible. As of December 31, 2025 and 2024, the Company does not believe that it is more likely than not that the deferred tax assets will be realized for the U.S. entities and the foreign entities; accordingly, a full valuation allowance has been established for the U.S. entities and the foreign entities, and no deferred tax asset is shown in the Company’s balance sheet. For the year ended December 31, 2025, the valuation allowance for deferred tax assets decreased by $4.1 million due to NOL write off for inactive foreign entities for 2025.

 

The unrecognized temporary differences of the Company that give rise to significant portions of the Company’s deferred tax assets and liabilities as of December 31, 2025 and 2024 are set forth below:

 Schedule of components of deferred taxes 

		December 31, 2025				December 31, 2024
Deferred tax assets
Charitable Contribution		$	199,198			$	206,308
Fixed Assets			153,716				341,926
Stock Compensation			1,404,442				735,725
Section 163(j) Interest limitation			2,150,199				2,495,754
Capital Gain			650,608				650,608
Unrealized Gain			1,187,301				821,893
Organization Costs			56,061				52,103
Accrued Expenses			3,020,654				2,929,799
Net operating Loss			97,490,319				111,190,694
R&D Credit			196,501				196,501
Lease Liability			489,418				340,825
Section 174 Expenses			24,222				35,396
Loss on dispotion of assets			151,484				-
Investment in Digital Assets			4,783,868				-
Intangibles			2,112,103				890,406
Total deferred tax assets		$	114,070,094			$	120,887,938
Deferred tax liabilities
Intangibles		$	824,745			$	2,986,522
Bad Debt Reserve			202,232				-
Right of use assets			323,205				188,003
Other Adjustment			-				49,132
Deferred tax liabilities		$	1,350,182			$	3,223,657
Valuation Allowance			(113,530,616	)			(117,664,281	)
Net deferred tax assets (liabilities)		$	(810,704	)		$	-

 

The provision for income taxes for the years ended December 31, 2025 and 2024 consisted of the following:

 Schedule of provision for income taxes 

		December 31, 2025				December 31, 2024
		For the year ended
		December 31, 2025				December 31, 2024
Current:
US		$	65,002			$	-
Foreign			43,015				-
Total current tax expense (benefit)		$	108,017			$	-
Deferred:
US		$	-			$	-
Foreign			(44,296	)			-
Total deferred tax expense (benefit)		$	(44,296	)		$	-
Total income tax expense (benefit)		$	63,721			$	-

 

 

The reconciliation between the income tax expense (benefit) calculated by applying statutory rates to net loss before income taxes and the income tax expense (benefit) reported in the consolidated financial statements is as follows:

 Schedule of reconciliation between income tax expense (benefits) 

		December 31, 2025				December 31, 2024
		For the year ended
		December 31, 2025				December 31, 2024
Income (loss) before income taxes		$	(40,036,762	)		$	(48,750,907	)
Statutory income tax rate			21.0	%			21.0	%
Expected income tax (benefit)		$	(8,407,720	)		$	(10,237,690	)
Reconciling items:
Change in valuation allowance			(4,133,665	)			51,434,409
State taxes			65,002				-
Permanent differences			2,977,161				3,093,876
Return to provision			9,645,460				4,306,483
Purchase accounting adjustments			-				(47,300,799	)
Disposal of business units			-				(966,704	)
Other			(82,517	)			(329,575	)
Total income tax expense (benefit)		$	63,721			$	-

 

The Company believes that income tax filing positions will be sustained upon examination and does not anticipate any adjustments that would result in a material adverse effect on the Company’s financial position, results of operations or cash flows. Accordingly, the Company has not recorded any reserves, or related accruals or uncertain income tax positions as of December 31, 2025 or 2024.

 

The Company recognizes interest accrued related to unrecognized tax benefits and penalties in income tax expense. The Company has no accruals for interest and penalties as of December 31, 2025 and 2024.

 

Federal and state tax laws impose significant restrictions on the utilization of net operating loss carryforwards in the event of a change in ownership of the Company, as defined by Internal Revenue Code Section 382 (“Section 382”). As of December 31, 2025, the Company has not performed a formal Section 382 study. However, due to full valuation allowance, any limitation of the utilization of NOL carryovers would not have any impact on the statement of operations. as of December 31, 2025, the Company has net operating loss carryforwards for federal and state income tax purposes of approximately $335.4 million and $244.5 million, respectively. Most of the federal net operating loss carryforwards, if not utilized, will carryforward indefinitely. Some of the state net operating loss carryforwards, if not utilized, will expire beginning in 2030.

 

There are currently no federal, or state income tax audits in progress.