Ideal Power Inc. Income Taxes Disclosure

Note 12 — Income Taxes

 

Income taxes are disproportionate to income due to net operating loss carryforwards, which are fully reserved. As of December 31, 2025, the Company has federal net operating loss carryforwards of approximately $94 million. The federal net operating loss carryforward for years prior to 2018 expire from 2031 through 2038. Federal net operating loss carryforwards for year 2018 and thereafter do not expire.

 

Pursuant to Internal Revenue Code Sections 382 and 383, use of the Company’s net operating loss and credit carryforwards may be limited if a cumulative change in ownership of more than 50% occurs within any three-year period since the last ownership change. The Company may have had one or more changes in control under these Sections. However, the Company does not anticipate performing a complete analysis of the limitation on the annual use of the net operating loss and tax credit carryforwards until the time that it projects it will be able to utilize these tax attributes.

 

Management has concluded that it is more likely than not that the Company will not have sufficient foreseeable taxable income within the carryforward period as applicable and permitted by current law to allow for the utilization of certain of the deductible amounts generating the deferred tax assets; therefore, a full valuation allowance has been established to reduce the net deferred tax assets to zero at December 31, 2025 and 2024.

 

The following is a summary of the significant components of the Company’s net deferred income tax assets and liabilities as of December 31, 2025 and 2024:

 

		For the Year Ended December 31,
		2025				2024
Non-current deferred income tax assets and (liabilities):
Net operating loss		$	19,761,000			$	16,049,000
Research and development credit			18,000				18,000
Research and experimental costs			597,000				2,018,000
Accrued compensation and other			20,000				8,000
Depreciation and amortization			7,000				6,000
Exercise of options and warrants			(49,000	)			(49,000	)
Stock based compensation			1,798,000				1,968,000
Intangibles and other			(572,000	)			(561,000	)
Less: valuation allowance			(21,580,000	)			(19,457,000	)
Net non-current deferred tax assets		$	—			$	—

 

 

The Company has applied the provisions of FASB ASC 740, Income Tax, which clarifies the accounting for uncertainty in tax positions. FASB ASC 740 requires the recognition of the impact of a tax position in the financial statements if that position is more likely than not of being sustained on a tax return upon examination by the relevant taxing authority, based on the technical merits of the position. At December 31, 2025 and 2024, the Company had no unrecognized tax benefits.

 

The Company recognizes interest and penalties related to income tax matters in interest expense and operating expenses, respectively. As of December 31, 2025 and 2024, the Company has no accrued interest and penalties related to uncertain tax positions.

 

The Company is subject to tax in the United States (“U.S.”) and files tax returns in the U.S. federal and certain state jurisdictions. The details of income taxes paid, net of refunds received, for the year ended December 31, 2025 are as follows:

 

		2025
U.S Federal		$	—
U.S State and Local
California			800
New Jersey			500
Total U.S. income taxes paid			1,300
Foreign
Foreign income taxes paid			—
Total income taxes paid		$	1,300

 

The Company is generally no longer subject to U.S. federal, state and local income tax examinations by tax authorities for all tax years since inception due to the carryover of unused net operating losses and tax credits. The Company currently is not under examination by any tax authority.

 

The reconciliation between the statutory income tax rate and the effective tax rate is as follows:

 

		For the Year Ended
		December 31,
		2025				2024
Statutory federal income tax rate			(21	)%			(21	)%
State and local income taxes, net of federal income tax effect			—				—
Nontaxable or nondeductible items
Stock based compensation			1				—
Other			—				—
Other adjustments			—				(2	)
Valuation allowance			20				23
			—	%			—	%

  

		For the Year Ended
		December 31,
		2025				2024
Statutory federal income tax rate		$	(2,221,468	)		$	(2,187,741	)
State and local income taxes, net of federal income tax effect			1,300				—
Nontaxable or nondeductible items
Stock based compensation			82,023				11,785
Other			7,228				1,290
Other adjustments			6,798				(172,224	)
Valuation allowance			2,125,419				2,346,890
		$	1,300			$	—