Innovative Eyewear Inc Income Taxes Disclosure

NOTE 4 – INCOME TAXES

 

The Company accounts for income taxes under an asset and liability approach that recognizes deferred tax assets and liabilities based on the difference between the financial statement carrying amounts and the tax bases of assets and liabilities, using enacted tax rates in effect in the years in which the differences are expected to reverse (i.e., when taxes are actually paid or recovered).

 

The Company assesses the realizability of its net deferred tax assets on an annual basis. A valuation allowance is established when it is more likely than not that all or a portion of a deferred tax asset will not be realized. A review of all relevant available positive and negative evidence is considered, including the Company’s current and past performance, the market environment in which the Company operates, length of carryback and carryforward periods, and existing contracts that will result in future profits.

 

After reviewing all relevant available evidence, the Company has recorded a full valuation allowance against its deferred tax assets as of December 31, 2025 and 2024.

 

On July 4, 2025, the United States enacted budget reconciliation bill H.R. 1, referred to as the One Big Beautiful Bill Act (“OBBBA”). The OBBBA includes a broad range of tax reform provisions, including extending and modifying various provisions of the 2017 Tax Cuts and Jobs Act and expanding certain incentives in the 2022 Inflation Reduction Act while accelerating the phase-out of other incentives. The OBBBA has multiple effective dates, with certain provisions effective in 2025 and other provisions effective in 2026 and subsequent years. OBBBA provisions include the restoration of the current deductibility for domestic research expenditures beginning in 2025, with transition options for previously capitalized amounts. OBBBA’s changes to the deductibility of domestic research and experimental expenditures decreased our deferred tax asset position as a change in tax law is accounted for in the period of enactment.

 

 

The effective tax rate on income/(loss) before income taxes for the year ended December 31, 2025 differed from the U.S. federal statutory tax rate for the following reasons:

 

Schedule of effective tax rate on income/(loss) before income taxes
		Amount				Percent
U.S. federal statutory tax rate		$	1,594,150				21.00	%
State and local income taxes, net of federal (national) income tax expense (a)			78,243				1.04	%
Nontaxable or nondeductible items
Restricted Stock Units (RSUs)			(67,171	)			-0.91	%
Other			(15,789	)			-0.21	%
Other			(4,736	)			-0.09	%
Changes in valuation allowance			(1,584,697	)			-20.83	%
Effective tax rate		$	-				0.00	%

 

(a)

State taxes in Florida made up the majority (greater than 50%) of the tax effect in this category.

 

The effective tax rate on income/(loss) before income taxes for the year ended December 31, 2024 differed from the U.S. federal statutory tax rate for the following reasons:

 

Schedule of reconciliation of federal statutory tax rate
		2024
Income tax benefit at the statutory federal rate		$	1,630,968
State income tax benefits, net of federal benefit			68,365
Change in valuation allowance and other items			(1,699,333	)
Total		$	-

 

The Company’s effective tax rate for the years ended December 31, 2025 and 2024 was 0%, primarily due to the changes in the full valuation allowance on net deferred tax assets.

 

Cash Paid for Income Taxes

For the year ended December 31, 2025, the Company did not make any cash payments for income taxes as it generated net operating losses during the period. The Company did, however, incur and pay non–income-based taxes.

 

Deferred Tax Assets and Liabilities

The components of the Company’s net deferred tax assets (liabilities) at December 31, 2025 and 2024 are as follows:

 

Schedule of deferred tax assets and liabilities
		2025				2024
Deferred tax assets:
Net operating losses – federal		$	5,510,579			$	3,929,930
Net operating losses – state			315,322				247,869
Stock-based compensation			1,056,131				1,022,605
Accrued expenses			15,922				-
Research and development expenses			150,475				283,969
Other			13,712				19,546
Total deferred tax assets			7,062,141				5,503,919
Deferred tax liabilities:
Depreciation and amortization			(6,994	)			(33,469	)
Total deferred tax liabilities			(6,994	)			(33,469	)
Valuation Allowance			(7,055,147	)			(5,470,450	)
Total net deferred tax assets		$	-			$	-

 

At December 31, 2025, the Company had federal net operating loss carryforwards of $26,240,853 and state net operating loss carryforwards of $14,071,375, both of which may be carried forward indefinitely. A company’s ability to utilize a portion of its net operating loss carryforwards to offset future taxable income may be subject to certain limitations under Section 382 of the Internal Revenue Code due to changes in the equity ownership of the Company. The Company has not completed a formal Section 382 analysis. In addition, future changes in ownership as defined in Section 382 of the Internal Revenue Code could put limitations on the availability of the net operating loss carryforwards.

 

Unrecognized Tax Benefits

The Company follows a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken, or expected to be taken, in a tax return. The Company recognizes a benefit from its tax positions only if it is more likely than not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. Any interest and penalties accrued related to uncertain tax positions are recorded in tax expense.

 

As of December 31, 2025 and 2024, the Company did not record any uncertain tax position related to the utilization of certain federal net operating losses. As of December 31, 2025 and 2024, The Company has no liability for unrecognized tax benefits. Additionally, the Company has no pending or on-going audits in any tax jurisdiction.

 

The Company’s tax returns for the years ended 2022 – 2025 remain subject to examination by the Internal Revenue Service for U.S. federal income tax purposes and by the applicable state taxing authorities in Florida.