MDB Capital Holdings, LLC Income Taxes Disclosure

14. Income Taxes

 

The Company is a limited liability company treated as a partnership for federal and state income tax purposes, with the exception of the state of Texas, in which income tax liabilities and/or benefits of the Company are passed through to its unitholders. Limited liability companies are subject to Texas margin tax. Additionally, the Company’s subsidiaries, Public Ventures, MDB Management, PatentVest, and M1 are Subchapter C-corporations subject to federal and state income taxes. As such, with the exception of the state of Texas and certain subsidiaries, the Company is not a taxable entity; it does not directly pay federal and state income taxes and recognition has not been given to federal and state income taxes for the operations of the Company, except as set forth in the tables below. Amounts recognized for income taxes are reported in “income tax expense (benefit)” on the consolidated statements of operations. 

 

 

The Company’s taxable income or loss, which may vary substantially from the net income or net loss reported on the consolidated statements of operations, is includable in the federal and state income tax returns of each unitholder.

 

Income tax expense (benefit) (including Subchapter C-corporations) consisted of the following (in thousands):

   Schedule of Income Taxes Expenses (benefit) 

		Years Ended December 31,
		2025				2024
Current taxes
Federal		$	-			$	1
State			11				1
Deferred taxes
Federal			-				-
State			-				-
Total		$	11			$	2

 

Total cash taxes paid net of refunds received in 2025 was $0.

 

As of December 31, 2025, the Company had approximately $23.3 million and $0.1 million of net operating loss carryforwards for U.S. federal and Florida income tax purposes, respectively. These net operating losses may be carried forward indefinitely

 

Effective for the year ended December 31, 2025, the Company adopted ASU 2023-09-Improvements to Income Tax Disclosures, prospectively. The reconciliation of income tax expense (including Subchapter C-corporations) computed at the U.S. federal statutory income tax rate of 21% to the recognized income tax expense for the year ended December 31, 2025, presented in accordance with the disclosure requirements of ASU 2023-09-Improvements to Income Tax Disclosures, is as follows (in thousands):

 Schedule of Federal Statutory Tax Rate to The Effective Tax Rate 

		Year Ended December 31, 2025
		Amount				Rate
U.S Federal statutory income rate		$	(4,463	)			21.00	%
State, net of federal tax benefit			9				(0.04	)%
Nontaxable or nondeductible items
Income/loss excluded from nontaxable entities			944				(4.44	)%
Permanent differences
Permanent differences
Meals and entertainment			7				(0.04	)%
Stock options			614				(3.06	)%
Equity award vesting			248				(1.24	)%
Modification of equity awards			2,194				(10.95	)%
Return-to-provision adjustments			(44	)			0.22	%
Other
Other
Valuation allowance			502				(2.52	)%
Effective rate		$	11				(0.05	)%

 

A reconciliation of the federal statutory tax rate to the effective tax rate (including Subchapter C-corporations) for the year ended December 31, 2024 and 2024 is as follows:

 

		Year Ended December 31, 2024
		Amount				Rate
U.S Federal statutory income rate		$	2,453				21.00	%
State, net of federal tax benefit			(246	)			(2.11	)%
Income/loss excluded from nontaxable entities			(8,009	)			(68.57	)%
Permanent differences			641				5.49	%
Return-to-provision adjustments			5				0.04	%
Other			192				1.65	%
Valuation allowance			4,966				42.52	%
Effective rate		$	2				0.02	%

 

 

Significant components of the deferred tax assets and liabilities (including Subchapter C-corporations) were as follows (in thousands):

 Schedule of Deferred Tax Assets and Liabilities

		Years Ended December 31,
		2025				2024
Deferred tax assets:
Start-up expenditures		$	4			$	13
Organizational expenditures			14
Sec 174 – Research and development costs			-				3
Stock compensation			1,795				2,524
Lease liability			128				149
Property and equipment principally due to differences in depreciation			2				3
Bonus expense			14				-
Charitable contribution carryforwards			1				1
Impairment expense			53				11
Intangible Assets			51				38
Net operating loss carryforwards			4,890				3,781
Valuation allowance			(6,625	)			(6,124	)
Total deferred tax assets		$	327			$	399
Deferred tax liabilities:
Right-of-use asset		$	(115	)		$	(135	)
Investment securities			(212	)			(264	)
Total deferred tax liabilities		$	(327	)		$	(399	)
Net deferred tax assets/(liabilities)		$	-			$	-

 

Net deferred tax assets and liabilities were classified on the consolidated balance sheets as follows (in thousands):

 

		Years Ended December 31,
		2025				2024
Deferred tax assets		$	327			$	399
Deferred tax liabilities			(327	)			(399	)
Other noncurrent assets/(liabilities)		$	-			$	-

 

In assessing the realizability 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 those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. At December 31, 2025, based on projections of future taxable income for the periods in which the deferred tax assets are deductible, a valuation allowance of approximately $6.6 million was recorded for tax carry forwards and attributes to reduce the net deferred tax assets to an amount that is more likely than not to be recognized. The amount of deferred tax assets considered realizable could be reduced in the future if estimates of future taxable income during the carry forward period are reduced.

 

In accordance with the applicable accounting standards, the Company recognizes only the impact of income tax positions that, based on their merits, are more likely than not to be sustained upon audit by a taxing authority. To evaluate its current tax positions in order to identify any material uncertain tax positions, the Company developed a policy of identifying and evaluating uncertain tax positions that considers support for each tax position, industry standards, tax return disclosures and schedules and the significance of each position. It is the Company’s policy to recognize interest and penalties, if any, related to unrecognized tax benefits in income tax expense. The Company had no material uncertain tax positions at December 31, 2025 and December 31, 2024. The tax years 2022 – 2025 remain open to examination for federal income tax purposes.