GIFTIFY, INC. Income Taxes Disclosure

10. Income Taxes

 

No federal tax provision has been provided for the years ended December 31, 2025 and 2024, due to the losses incurred during the periods. Reconciled below is the difference between the income tax rate computed by applying the U.S. federal statutory rate and the effective tax rates for the respective period:

 

Schedule of Income Tax Effective Tax Rate 

		Year Ended December 31, 2025				Year Ended December 31, 2024
U.S. federal statutory tax rate		$	(21.0	)%		$	(21.0	)%
State income taxes, net of federal tax benefit			(5.1	)%			(6.4	)%
Change in valuation allowance			26.1	%			27.4	%
Effective tax rate		$	0.0	%		$	0.0	%

 

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. Significant components of the Company’s deferred tax assets as of December 31, 2025 and 2024 are summarized below.

 

Schedule of Deferred Tax Assets and Liabilities 

		Year Ended December 31, 2025				Year Ended December 31, 2024
Deferred tax assets
Net operating loss carry forwards		$	8,375,000			$	7,763,000
Share-based compensation			6,604,000				4,941,000
Limitation on the deduction of interest			1,953,000				2,695,000
Operating lease liability			297,000				397,000
Property and equipment			62,000				74,000
Gross deferred taxes			17,291,000				15,870,000
Less: valuation allowance			(17,291,000	)			(15,870,000	)
Total deferred tax assets		$	-			$	-
Deferred tax liabilities
Intangible assets and goodwill			(323,000	)			(738,000	)
Operating lease right-of-use asset			(285,000	)			(385,000	)
Total deferred tax liabilities			(608,000	)			(1,123,000	)
Net deferred tax liability		$	(608,000	)		$	(1,123,000	)

 

 

In assessing the potential realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets depends on the Company generating future taxable income in the periods in which those temporary differences become deductible. As of December 31, 2025 and 2024, management was unable to determine if it is more likely than not that the Company’s deferred tax assets will be realized and has therefore recorded an appropriate valuation allowance against deferred tax assets at such dates.

 

As of December 31, 2025, the Company has available net operating loss carry forwards for federal and state income tax purposes of approximately $35,145,000 and $18,938,000. Federal net operating losses of approximately $9,876,000 were incurred before 2018 and carry forward for 20-years. They will begin to expire, if unutilized, beginning after the year ending December 31, 2034. The remaining Federal Net Losses of approximately $25,269,000 were incurred after 2017 and carry forward indefinitely, but the deductions for these net operating loss carry forwards are limited to 80% of taxable income. The state net operating loss carry forwards, depending on the state, are from 12 to 20 years and expire in tax years ending after December 31, 2032 through 2045. The ability to utilize net operating loss carry forwards to offset future income may be limited under the Internal Revenue Code after significant ownership changes.