INVO Fertility, Inc. Income Taxes Disclosure
Note 16 – Income Taxes
The provision for income taxes consists of the following for the years ended December 31, 2024, and 2023:
| December 31 | ||||||||
| 2024 | 2023 | |||||||
| Federal income taxes: | ||||||||
| Current | $ | $ | ||||||
| Deferred | (860 | ) | ||||||
| Total federal income taxes | (860 | ) | ||||||
| State income taxes: | ||||||||
| Current | (22,913 | ) | 29,735 | |||||
| Deferred | (1,089 | ) | ||||||
| Total state income taxes | (22,913 | ) | 28,646 | |||||
| Total income taxes | $ | (22,913 | ) | $ | 27,786 | |||
The effective income tax rate is lower than the U.S. federal and state statutory rates primarily because of the valuation allowance and, to a lesser extent, permanent items. A reconciliation of the 2024 and 2023 federal statutory rate as compared to the effective income tax rate is as follows:
| December 31 | ||||||||||||||||
| 2024 | 2023 | |||||||||||||||
| Pre-Tax Book Income at Statutory Rate | $ | (1,910,126 | ) | 21.00 | % | $ | (1,519,296 | ) | 21.00 | % | ||||||
| State Tax Expense (Benefit), net | (23,256 | ) | 0.26 | % | 23,719 | -0.33 | % | |||||||||
| Permanent Items | (25,607 | ) | 0.28 | % | 226,420 | -3.13 | % | |||||||||
| True-Ups | 95,878 | -1.05 | % | (1,949 | ) | 0.03 | % | |||||||||
| Change in Federal Valuation Allowance | (2,305,412 | ) | 25.35 | % | 1,298,892 | -17.95 | % | |||||||||
| True up of Basis in Intangible | 4,145,610 | -45.58 | % | 0.00 | % | |||||||||||
| Total Expense (Benefit) | $ | (22,913 | ) | 0.25 | % | $ | 27,786 | -0.38 | % | |||||||
Deferred income taxes reflect the net effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax. Significant components of the deferred tax assets and liabilities as of December 31, 2024 and 2023, are as follows:
| December 31 | ||||||||
| 2024 | 2023 | |||||||
| Deferred tax assets: | ||||||||
| Accrued Compensation | $ | 547,423 | $ | 195,584 | ||||
| Amortization of Discount Notes Payable | 148,536 | 154,349 | ||||||
| Lease (ASC 842) | 550,070 | 1,210,592 | ||||||
| Charitable Contributions | 2,628 | 2,771 | ||||||
| Stock Option Expense | 236,573 | 140,699 | ||||||
| Restricted Stock Unit | 64,216 | 265,038 | ||||||
| Net Operating Losses | 11,086,843 | 10,255,137 | ||||||
| Org Costs | 81,255 | |||||||
| -IRC Sec. 174 Expense | 204,864 | |||||||
| Investment in HRCFG INVO, LLC | 123,013 | (272,459 | ) | |||||
| Equity in earnings - Positib | 15,801 | (24,054 | ) | |||||
| Deferred Revenue | 111,649 | |||||||
| Gross deferred tax assets | 12,886,752 | 12,213,777 | ||||||
| Deferred tax liabilities: | ||||||||
| Fixed Assets | (144,055 | ) | (18,733 | ) | ||||
| ROU Lease (ASC 842) | (519,898 | ) | (1,177,701 | ) | ||||
| Trademark Amortization | (4,711,792 | ) | (5,858 | ) | ||||
| Deferred Revenue | (47 | ) | ||||||
| Tax Amortization of Org Cost | (24,912 | ) | ||||||
| Gain/Loss on sale of assets | (2,561 | ) | ||||||
| Gross deferred tax liability | (5,375,745 | ) | (1,114,418 | ) | ||||
| Less: valuation allowance | (7,511,007 | ) | (11,099,358 | ) | ||||
| Net deferred tax liability | $ | $ | ||||||
The Company recorded a full valuation allowance against its net deferred tax asset at December 31, 2024 and 2023 totaling $7.3 million and $11.1 million, respectively.
As of December 31, 2024, the Company has federal net operating loss carryforwards of approximately $44.4 million. Of that amount, $9.5 million will expire, if not utilized, in various years beginning in 2029 and which are also subject to the limitations of IRC §382. The remaining carryforward amount of $29.7 million, has no expiration period and can be applied to 80% of taxable income per year in future periods.
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.