Netcapital Inc. Income Taxes Disclosure

Note 5 – Income Taxes

 

For the fiscal year ended April 30, 2023, the Company recorded no income tax expense, resulting in an effective tax rate of 0%, due to taxable losses incurred during the year.

 

For the fiscal year ended April 30, 2024, the Company recorded an income tax benefit of $2,339,288, representing an effective tax benefit rate of 32%. Included in the benefit is an employee retention credit (“ERC”) of $508,292, available under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The ERC is a refundable tax credit for eligible employers that retained employees during the COVID-19 pandemic.

 

The Company had no material unrecognized tax benefits as of April 30, 2025 and 2024 and does not expect its unrecognized tax benefits to change significantly in the next twelve months. No interest or penalties related to unrecognized tax positions were accrued or recognized during the years ended April 30, 2025 and 2024.

 

The Company is subject to U.S. federal income tax and various state tax jurisdictions. The Company’s tax years ended April 30, 2022 through 2024 remain open to examination by taxing authorities. Earlier periods remain open to the extent of net operating loss or credit carryforwards.

 

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and their respective tax bases. The significant components of the Company’s deferred tax assets and liabilities as of April 30, 2025 and 2024 are as follows:

 

Schedule of Income Taxes

		2025				2024
Deferred tax assets, net:
Net operating loss carry forwards		$	5,937,000			$	2,532,000
Impairment loss on assets			293,000				298,000
Bad debt allowance			80,000				103,000
Stock-based compensation			756,000				595,000
Deferred tax assets			7,066,000				3,528,000
Deferred tax liability:
Unrealized gains			(3,400,000	)			(3,395,000	)
Net deferred tax assets (liabilities)			3,666,000				133,000
Valuation allowance			(3,666,000	)			(133,000	)
Net deferred tax assets (liabilities)		$	—			$	—

 

The Company increased its valuation allowance to $3,666,000 as of April 30, 2025, from $133,000 as of April 30, 2024, due to uncertainty regarding the realization of deferred tax assets, primarily net operating loss carryforwards.