Lightwave Logic, Inc. Income Taxes Disclosure

NOTE 9 – INCOME TAXES

 

As discussed in Note 1, the Company utilizes the asset and liability method of accounting for income taxes in accordance with FASB ASC 740.

 

Loss before provision for income taxes for the years ended December 31, 2025 and 2024 was as follows:

Schedule of loss before provision for income taxes
		2025				2024
Domestic		$	(20,313,797	)		$	(22,535,041	)
Foreign			—				—
Loss before income taxes		$	(20,313,797	)		$	(22,535,041	)

 

The income tax (benefit) provision consists of the following:

Schedule of income tax benefit provision
		2025				2024
Current		$	—			$	—
Deferred			(4,364,876	)			(4,219,770	)
Change in valuation allowance			4,364,876				4,219,770
Total		$	—			$	—

 

Upon adoption of ASU 2023-09, Improvements to Income Tax Disclosures, the reconciliation of the statutory federal rate to the Company’s effective income tax rate for the year ended December 31, 2025 was as follows:

Schedule of reconciliation of statutory federal rate to effective income tax rate
		Amount				%
U.S. federal statutory tax rate		$	(4,265,897	)			21.00
State taxes, net of federal benefits
State taxes			(480,058	)			2.36
Change in valuation allowance			480,058				(2.36	)
Change in valuation allowance			3,884,818				(19.12	)
Nontaxable or nondeductible items			86,312				(0.42	)
Other adjustments
Expirations of net operating losses			421,674				(2.08	)
Others			(126,906	)			0.62
Effective tax rate		$	—				0.00

 

The reconciliation of the statutory federal rate to the Company’s effective income tax rate for the year ended December 31, 2024 in accordance with the guidance prior to the adoption of ASU 2023-09 was as follows:

		Amount				%
Income tax benefit at U.S. federal income tax rate		$	(4,732,359	)			21.00
State tax benefit, net of federal tax effect			(762,723	)			3.38
Exercised share-based compensation			(280,090	)			1.24
Other			1,555,403				(6.90	)
Change in valuation allowance			4,219,770				(18.73	)
		$	—				—

 

 

 

 

The components of deferred tax assets as of December 31, 2025 and 2024 are as follows:

Schedule of components of deferred tax assets
		2025				2024
Net operating loss carryforwards			34,183,017				29,736,871
Share-based compensation			5,411,811				4,901,024
Section 174 research and development expenses			3,568,353				4,931,791
Lease liability			633,557				677,244
Others			77,793				113,864
Total deferred tax assets			43,874,531				40,360,794
Valuation allowance			(41,389,874	)			(37,024,998	)
Deferred tax assets net of valuation allowance			2,484,657				3,335,796
Section 481(a) adjustment			(1,490,581	)			(2,264,040	)
Right of use asset			(594,960	)			(647,567	)
Property and Equipment			(399,115	)			(424,188	)
Total deferred tax liabilities			(2,484,657	)			(3,335,796	)
Net deferred tax assets (liabilities)			—				—

 

The valuation allowance for deferred tax assets as of December 31, 2025 and 2024 was $41,389,874 and $37,024,998. The change in the total valuation for the year ended December 31, 2025 was an increase of $4,364,876, and for the year ended December 31, 2024 was an increase of $4,219,770.

 

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which the net operating losses and temporary differences become deductible. Management considered projected future taxable income and tax planning strategies in making this assessment. The value of the deferred tax assets was offset by a valuation allowance, due to the current uncertainty of the future realization of the deferred tax assets.

 

As of December 31, 2025, the Company had federal net operating loss carry forwards of approximately $140,064,567, comprised of federal net operating losses in the amount of approximately $34,755,366 recorded in tax years beginning prior to January 1, 2018 expiring through the year ending December 31, 2037 and federal net operating losses recorded in tax years beginning January 1, 2018 and after in the amount of approximately $105,309,201 which are allowed for an indefinite carryforward period but may be subject to limitations. This amount can be used to offset future taxable income of the Company.

 

The timing and manner in which the Company can utilize operating loss carryforwards in any year may be limited by provisions of the Internal Revenue Code regarding changes in ownership of corporations. Such limitations may have an impact on the ultimate realization of its carryforwards and future tax deductions.

 

The Company follows ASC 740-10, which provides guidance for the recognition and measurement of certain tax positions in an enterprise’s financial statements. Recognition involves a determination of whether it is more likely than not that a tax position will be sustained upon examination with the presumption that the tax position will be examined by the appropriate taxing authority having full knowledge of all relevant information. The adoption of ASC 740-10 did not require an adjustment to the Company’s financial statements.

 

The Company’s policy is to record interest and penalties associated with unrecognized tax benefits as additional income taxes in the statement of operations. As of January 1, 2025, the Company had no unrecognized tax benefits and no charge during 2025, and accordingly, the Company did not recognize any interest or penalties during 2025 related to unrecognized tax benefits. There is no accrual for uncertain tax positions as of December 31, 2025.

 

The Company files U.S. income tax returns and state income tax returns. With few exceptions, the U.S. and state income tax returns filed for the tax years ended on December 31, 2022 and thereafter are subject to examination by the relevant taxing authorities.

 

On July 4, 2025, the U.S. H.R.1, an act to provide for reconciliation pursuant to title II of H. Con. Res. 14. (the “OBBBA”) was enacted. The OBBBA introduces multiple tax law and other legislative changes, including modifications to income tax provisions such as existing 21% corporate income tax rate made permanent, domestic research and development expenses, the restoration of 100% bonus depreciation, changes to Section 163(j) interest limitations, and U.S. taxation of international earnings; the repeal or acceleration of the sunset of certain tax credits under the 2022 Inflation Reduction Act and elimination of certain penalties for violations of certain regulatory credit programs. The Company recognized the effects of the OBBBA provisions in its financial results to the extent they are applicable to the year ended December 31, 2025 and will continue to evaluate the impact of these provisions on its 2026 and subsequent consolidated financial statements.