LIQTECH INTERNATIONAL INC Income Taxes Disclosure

NOTE 10 - INCOME TAXES

 

As of December 31, 2025, the Company had net operating loss carry-forwards of approximately $33,101,309 for U.S. federal tax purposes, expiring through 2041, and approximately $34,558,900 for Danish tax purposes, which do not expire.

 

As of December 31, 2025, and December 31, 2024, the Company established a valuation allowance of $8,152,460 and $7,611,000 for the tax components of LiqTech International Inc. and Liqtech NA, respectively; $9,349,631 and $7,795,000 for the tax components of LiqTech Holding, LiqTech Ceramics, LiqTech Water, LiqTech Plastics, LiqTech Emission Control, and LiqTech Water Projects, respectively; and $193,481 and $0 for Nantong JiTRi Liqtech China, respectively, as management could not determine that it was more likely than not that sufficient income could be generated by these components to realize the resulting net operating loss carry-forwards and other deferred tax assets of these components. The change in the valuation allowance for the year ended December 31, 2025, was an increase of $541,107 for the US component, an increase of $1,206,995 for the Danish component, and an increase of $193,481 for the Chinese component. The change in the valuation allowance for the year ended December 31, 2024, was an increase of $511,000, $1,492,000, and $479,000 for the US, Danish, and Chinese components, respectively.

 

The temporary differences, tax credits, and carry-forwards gave rise to the following deferred tax assets and liabilities at December 31, 2025, and 2024:

 

		2025				2024
Excess of tax over financial accounting		$	1,514,935			$	1,588,748
Reserve for excess and obsolete inventories			193,963				266,007
Discount amortization			943,285				853,619
Net operating loss carryover			15,052,469				12,963,223
Excess of book over tax depreciation			(72,734	)			(323,115	)
Valuation allowance			(17,695,572	)			(15,406,442	)
			(63,654	)			(57,960	)
Distributed as:
Long-term deferred tax liability			(63,654	)			(57,960	)
		$	(63,654	)		$	(57,960	)

 

A reconciliation of income tax expense at the federal statutory rate to income tax expense at the Company’s effective rate is as follows for the years ended December 31, 2025, and 2024: 

 

		2025								2024
Computed tax at expected statutory rate		$	(1,806,713	)			21.0	%		$	(2,177,319	)			21.0	%
State and local income taxes, net of federal benefit			-				-				-				-
Non-US income taxed at different rates			(82,558	)			1.0	%			(80,280	)			0.8	%
Non-deductible expenses			1,054				0.0	%			1,259				0.0	%
Change in valuation allowance			1,883,386				(21.9	)%			1,996,655				(19.3	)%
Other			3,377				0.0	%			220,848				(2.1	)%
Income tax benefit		$	(1,454	)			0.0	%		$	(38,837	)			0.4	%

 

The components of income tax benefit from continuing operations for the years ended December 31, 2025, and 2024 consisted of the following:

 

		2025				2024
Current income taxes:
Danish		$	-			$	-
Federal			-				-
State			-				-
Current tax (benefit)		$	-			$	-
Deferred income taxes:
Book in excess of tax depreciation			(295,706	)			(156,342	)
Net operating loss carryover			(1,676,378	)			(2,387,047	)
Valuation allowance			1,796,777				2,477,718
Discount amortization			89,666				129,266
Reserve for obsolete inventories			84,187				(102,432	)
Deferred tax benefit		$	(1,454	)		$	(38,837	)
Total tax benefit		$	(1,454	)		$	(38,837	)

 

Deferred income tax benefit results primarily from the reversal of temporary timing differences between tax and financial statement income. 

 

The Company files Danish, Chinese, U.S. federal, and Minnesota state income tax returns. LiqTech Holding, LiqTech Ceramics, LiqTech Water, LiqTech Plastics, LiqTech Emission Control, and LiqTech Water Projects are generally no longer subject to tax examinations for years prior to 2017 for their Danish tax returns. LiqTech NA is generally no longer subject to tax examinations for years prior to 2017 for U.S. federal and state tax returns.