INNO HOLDINGS INC. Income Taxes Disclosure
Note 15 — Income taxes
United States
On December 22, 2017, the President of the United States signed into law H.R.1, formerly known as the Tax Cuts and Jobs Act (the “Tax Legislation”). The Tax Legislation significantly revised the U.S. tax code by (i) lowering the U.S. federal statutory income tax rate from 35% to 21%, (ii) implementing a territorial tax system, (iii) imposing a one-time transition tax on deemed repatriated earnings of foreign subsidiaries, (iv) requiring a current inclusion of global intangible low taxed income of certain earnings of controlled foreign corporations in U.S. federal taxable income, (v) creating the base erosion anti-abuse tax regime, (vi) implementing bonus depreciation that will allow for full expensing of qualified property, and (vii) limiting deductibility of interest and executive compensation expense, among other changes. The Company has computed its tax expenses using the new statutory rate effective on January 1, 2018 of 21%.
Other provisions of the new legislation include, but are not limited to, limiting deductibility of interest and executive compensation expense. These additional items have been considered in the income tax provision for the years ended September 30, 2025 and 2024.
Texas imposes a franchise tax that applies to most business entities that are formed or qualified to do business, or which are otherwise doing business, in Texas. Under the Texas franchise tax, a 0.75% tax is imposed for the years ended September 30, 2025 and 2024 on the Company’s taxable margin that is apportioned to Texas. Taxable margin is generally defined as revenues less certain costs.
Hong Kong
Lear and Baymax are incorporated in Hong Kong. Under the two-tiered profits tax rates regime in Hong Kong, the first HK$2 million of profits of the qualifying group entity will be taxed at 8.25%, and profits above HK$2 million will be taxed at 16.5%. Lear and Baymax had no taxable income for the periods presented; therefore, no provision for income taxes is required.
The income tax provision for the years ended September 30, 2025 and 2024 consisted of the following:
For the Years Ended September 30, | ||||||||
| 2025 | 2024 | |||||||
| Current: | ||||||||
| Federal | $ | $ | ||||||
| State | 800 | 800 | ||||||
| Total current income tax provision | 800 | 800 | ||||||
| Deferred: | ||||||||
| Federal | (3,036,147 | ) | (1,532,244 | ) | ||||
| State | ||||||||
| Increase/(decrease) in valuation allowance | 3,036,147 | 1,532,244 | ||||||
| Total deferred taxes | ||||||||
| Total provision for income taxes | $ | 800 | $ | 800 | ||||
The deferred tax asset as of September 30, 2025 and 2024 consisted of the following:
For the Years Ended September 30, | ||||||||
| 2025 | 2024 | |||||||
| Net operating loss | $ | 3,036,147 | $ | 1,493,981 | ||||
| Depreciation | (47,602 | ) | ||||||
| Unearned revenue | 72,917 | |||||||
| Investment in Passthrough Entities | 8,542 | |||||||
| Others | 4,406 | |||||||
| Total deferred tax assets | 3,036,147 | 1,532,244 | ||||||
| Less: valuation allowance | (3,036,147 | ) | (1,532,244 | ) | ||||
| $ | $ | |||||||
The company has U.S. federal net operating loss carry forwards of approximately $3.9 million and $4.1 million for the years ended September 30, 2025 and 2024, respectively. The operating losses do not expire. The company also has Hong Kong net operating loss carry forwards of approximately $356 thousand and $0 for the years ended September 30, 2025 and 2024, respectively. The operating losses do not expire.
Valuation Allowance
We periodically assess whether it is more likely than not whether we will generate sufficient taxable income to realize our deferred tax assets and establish a valuation allowance if it’s we deem that will not likely be able to realize the benefit associated with our deferred tax assets. We consider all available positive and negative evidence and make certain assumptions to make this determination. We review our deferred tax liabilities, historical earnings, history of cycles of earnings and losses within our industry, our business environment and the potential to generate current and future earnings. We cannot determine at this time when we will be able to generate sufficient taxable income to realize our deferred tax assets. We therefore have recorded a full valuation allowance against our net deferred tax assets.
The Company is subject to U.S. federal income tax as well as state income tax in certain jurisdictions. The tax years 2021 to 2025 remain open to examination by the major taxing jurisdictions to which the Company is subject. The following is a reconciliation of income tax expenses at the effective rate to income tax at the calculated statutory rates:
For the Years Ended September 30, | ||||||||
| 2025 | 2024 | |||||||
| Statutory tax rate | ||||||||
| Federal | 21.00 | % | 21.00 | % | ||||
| State (net of federal benefit) | (0.02 | )% | ||||||
| Foreign tax rate differential | (0.24 | )% | ||||||
| Net effect of state income tax deduction and other permanent differences | (20.77 | )% | (21.00 | )% | ||||
| Effective tax rate | (0.01 | )% | (0.02 | )% | ||||
As of September 30, 2025 and 2024, the outstanding income tax payable was $800 and $, respectively.
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.