KIDZ AI Inc. Income Taxes Disclosure
Note 8. Income Taxes
The Company had nil income tax provision for the year ended December 31, 2025 and 2024.
|
| For the year ended December 31, |
| |||||
|
| 2025 |
|
| 2024 |
| ||
Deferred income tax expense |
| $ | - |
|
| $ | - |
|
Current income tax expense |
|
| - |
|
|
| - |
|
Total |
| $ | - |
|
| $ | - |
|
The Company has the following deferred tax assets (liabilities) as of December 31 2025 and 2024:
|
| As of December 31, 2025 |
|
| As of December 31, 2024 |
| ||
Net operating loss carryforwards |
| $ | 1,768,511 |
|
| $ | 965,019 |
|
Change in fair value of crypto assets |
|
| 328,686 |
|
|
| - |
|
Change in fair value of convertible debt |
|
| 169,618 |
|
|
| - |
|
Impairment loss on intangible assets |
|
| 306,748 |
|
|
| - |
|
Other expense temporary difference |
|
| 2,813 |
|
|
| 2,813 |
|
Total deferred tax assets |
|
| 2,576,376 |
|
|
| 967,833 |
|
Deferred tax liability- Depreciation |
|
| (2,263 | ) |
|
| (2,263 | ) |
Allowance |
|
| (2,574,113 | ) |
|
| (965,570 | ) |
Net deferred tax liability |
| $ | - |
|
| $ | - |
|
The Company evaluated the recoverable amounts of deferred tax assets, and provided a valuation allowance to the extent that future taxable profits will not be available against which the net operating loss and temporary differences can be utilized. A valuation allowance is provided against deferred tax assets when the Company determines that it is more likely than not that the deferred tax assets will not be utilized in the future. In making such determination, the Company considered factors including future taxable income exclusive of reversing temporary differences and tax loss carry forwards. The Company has provided a valuation allowance for the net deferred tax asset as it is not more likely than not that the asset will be realized.
The provision for income taxes differs from the amounts computed by applying the federal statutory rate as follows for the periods ended December 31, 2025 and 2024:
|
| December 31, 2025 |
|
| December 31, 2024 |
| ||
Federal statutory rate |
|
| 21.0 | % |
|
| 21.0 | % |
Nondeductible expense |
|
| 1.6 | % |
|
|
|
|
Valuation allowance |
|
| (22.6 | )% |
|
| (21.0 | ) |
|
|
|
|
|
|
|
|
|
Effective income tax rate |
|
| 0.0 | % |
|
| 0.0 | % |
The effective tax rate for the year ended December 31, 2025 and 2024 is less than the statutory rate primarily as a result of the valuation allowance for net deferred tax assets.
No uncertain tax benefits have been recorded for the year ended December 31, 2025 and 2024.
On March 27, 2020, the “Coronavirus Aid, Relief and Economic Security (CARES) Act” (the “Act”) was signed into law. The Act includes provisions relating to refundable payroll tax credits, deferment of the employer portion of certain payroll taxes, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. The Company analyzed the provisions of the Act and determined there was no significant impact to its income taxes for the periods presented.
As of December 31, 2025, Classover NJ and Classover Holdings, Inc. has approximately $7,678,957 and $742,524 in federal net operating loss carryforwards, respectively. These loss carryforwards have an indefinite life.
The Company’s tax years 2022 and forward generally remain subject to examination by federal and state tax authorities.
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.