Nexalin Technology, Inc. Income Taxes Disclosure

NOTE 9 — INCOME TAXES

 

The Company identifies its federal and Texas state tax returns as its major tax jurisdictions. Federal and state income tax returns for the years 2022 through 2024 remain subject to examination. Management believes that the Company’s tax positions and deductions would be sustained upon examination and does not anticipate any adjustments that would materially affect its financial position. Accordingly, no liabilities for uncertain tax positions have been recorded.

 

As of December 31, 2025, the Company had approximately $31,700,000 of federal net operating loss (NOL) carryforwards for tax reporting purposes (not tax effected). Approximately $7,100,000 will expire in 2027, with the remaining amounts having indefinite carryforward. Under the Tax Cuts and Jobs Act of 2017, certain future carryforwards do not expire. The Company did not have any Federal, state or foreign tax credit carryforwards as of December 31, 2025. The Company has not performed a formal Section 382/383 analysis; however, management believes that its ability to utilize these NOLs and tax credit carryforwards in future periods may be subject to annual limitations due to ownership change provisions under the Internal Revenue Code, which could significantly limit the realization of deferred tax assets.

 

The Company evaluated recently enacted tax legislation, including provisions commonly referred to as the “One Big Beautiful Bill,” which include changes to corporate alternative minimum tax, GILTI, and research and development credits. Based on the Company’s current fully reserved net operating losses, management does not expect these legislative changes to have a material effect on the Company’s consolidated financial statements for the year ended December 31, 2025.

 

The following table summarizes income before income taxes, as of December 31,:

 

Schedule of provision for income tax
		2025				2024
Domestic		$	(8,221,263	)		$	(7,607,182	)
Foreign			-				-
Total		$	(8,221,263	)		$	(7,607,182	)

 

The Company’s income tax expense (benefit) is as follows as of December 31,:

 

Schedule of income tax expense
		2025				2024
U.S. Federal
State		$	-			$	-
Foreign			-				-
Current income tax expense (benefit)			-				-
U.S. Federal
State			-				-
Foreign			-				-
Deferred income tax expense (benefit)			-				-
Total income tax expense (benefit)		$	-			$	-

 

No cash income tax payments were made during December 31, 2025 and 2024, respectively.

 

 

The Company’s deferred tax assets, liabilities, and valuation allowances as of December 31, 2025 and 2024 are summarized as follows:

 

Deferred tax assets, liabilities
		Year Ended December 31,
		2025				2024
Deferred tax assets:
Net operating loss carryforwards		$	6,589,000			$	4,999,000
R&D costs			-				376,000
Accrued bonus			84,000				50,000
Stock-based compensation			589,000				323,000
Total deferred tax assets			7,262,000				5,748,000
Valuation allowance			(7,262,000	)			(5,748,000	)
Net deferred tax assets		$	-			$	-

 

We recorded a valuation allowance in the full amount of our net deferred tax assets since realization of such tax benefits has been determined by our management to be less likely than not. The valuation allowance increased by approximately $1,514,000 and $1,830,000 during the years ended December 31, 2025 and 2024, respectively.

 

The reconciliation of the U.S. Federal statutory tax rate to the effective income tax rate for the year ended December 31, 2025 is as follows:

 

Schedule of effective income tax rate reconciliation
		December 31, 2025
Statutory Federal rates		$	(1,726,000	)			21.00	%
Increase (decrease) in income tax rate resulting from:
Nondeductible/nontaxable items
Stock compensation			88,000				(1.07	)
Other nondeductible/nontaxable items			6,000				(0.07	)
State and local income taxes, net of federal taxes			-				-
Other, net
Net operating loss true up			97,000				(1.18	)
Accrued expense true up			21,000				(0.26	)
Valuation allowance			1,514,000				(18.42	)
Effective income tax rate		$	-				-	%

 

The deferred true ups were related to adjustments in the treatment of prior year accrued bonus and stock based compensation expenses.

 

A reconciliation of the statutory Federal income tax rate and effective rate for the year ended December 31, 2024 of the provision for income taxes is as follows:

 

		2024
Federal statutory blended income tax rates			21	%
State statutory income tax rate, net of federal benefit			-
Non-deductible R&D costs			-
Permanent differences			3
Change in valuation allowance			(24	)
Other			-
Effective tax rate			-	%