Onconetix, Inc. Income Taxes Disclosure

Note 12 — Income Taxes

 

The components of loss before income taxes are as follows:

 

		For the Years Ended December 31,
		2025				2024
U.S.		$	(14,454,877	)		$	(58,988,309	)
Foreign			423,060				(747,894	)
Total loss before income taxes		$	(14,031,817	)		$	(59,736,203	)

 

The Company’s major tax jurisdictions are the United States, Switzerland, and various state jurisdictions, and the Company does not have any pending tax audits. The income tax provision (benefit) recorded for the years ended December 31, 2025 and December 31, 2024 related to the Company’s deferred foreign taxes. Generally, the Company’s federal returns from 2020 on and state returns from 2019 on, and foreign returns from 2019 on, are subject to examination by the United States, state, and foreign tax authorities; however, to the extent allowed by law, tax authorities have the ability to adjust the Company’s carryforwards of unutilized net operating losses and research and development credits for all years.

At December 31, 2025, the Company had a net operating loss (“NOL”) carryforward for federal, foreign, and state income tax purposes totaling approximately $55.2 million, $14.2 million, and $36.0 million, respectively, available to reduce future taxable income. The federal NOL and certain state NOLs of $25.1 million are carried forward indefinitely subject to a limitation of 80% of taxable income. Foreign NOLs and state NOLs of approximately $14.2 million and $11.0 million, respectively will begin to expire in 2025 if not utilized.

 

The NOL carry forward is subject to review and possible adjustment by the Internal Revenue Service and state tax authorities. Under the Internal Revenue Code (“IRC”) Sections 382 and 383, annual use of the Company’s net operating loss carryforwards and research credit carryforwards to offset taxable income and tax, respectively, may be limited based on cumulative changes in ownership. The Company has not completed an analysis to determine whether any such limitations have been triggered as of December 31, 2025. The amount of the annual limitation, if any, will be determined based on the value of the Company immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years.

 

The tax effects of the temporary differences and carryforwards that give rise to deferred tax assets and liabilities consist of the following:

 

		As of December 31,
		2025				2024
Deferred tax assets:
Net-operating loss carryforward		$	15,628,885			$	13,309,416
Intangibles			3,530,546				3,887,855
Capitalized research and development			214,455				1,001,916
Stock-based compensation			371,669				645,113
Deposit on WraSer APA			83,296				854,896
Accrued compensation			—				55,193
License agreement			41,085				45,493
Other			251,723				667,065
Gross deferred tax assets			20,121,659				20,466,947
Valuation allowance			(20,111,374	)			(20,441,833	)
Deferred tax assets, net of allowance		$	10,285			$	25,114
Deferred tax liabilities:
Intangible assets			—				—
Fixed assets			(701	)			(1,378	)
Other			(9,584	)			(23,736	)
Total deferred tax liabilities		$	(10,285	)		$	(25,114	)
Net deferred tax liability		$	—			$	—

 

The Company has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets. The Company has recorded a valuation allowance against its United States federal and state deferred tax assets, as well as a portion of its foreign deferred tax assets in each of the years ended December 31, 2025 and 2024, because the Company’s management believes that it is more likely than not that these assets will not be realized. During the years ended December 31, 2025 and 2024, the valuation allowance decreased by approximately $0.3 million and $4.7 million, respectively.

The provision for income taxes on earnings subject to income taxes differs from the statutory Federal rate at December 31, 2025 and 2024, due to the following: 

 

		For the Years Ended
		December 31,
		2025								2024
US federal statutory income tax rate		$	(2,946,792	)			21.00	%		$	(12,488,416	)			21.00	%
Domestic state and local taxes, net of federal effect
Income tax effect			362,123				(2.58	)%			(339,155	)			0.57	%
State rate adjustment			117,931				(0.84	)%			—				0.00	%
Foreign tax effects:
Switzerland
Expiration of Swiss NOLs			578,270				(4.12	)%			—				0.00	%
Foreign rate differential			11,765				(0.08	)%			7,205				(0.01	)%
Currency translation adjustment			—				0.00	%			49,773				(0.08	)%
Statutory to GAAP adjustments			(253,552	)			1.81	%			—				0.00	%
Change in Swiss valuation allowance			(283,805	)			2.02	%			710,982				(1.20	)%
Tax credits:
Research credits			—				0.00	%			(37,810	)			0.06	%
Nontaxable or nondeductible items:
Goodwill impairment			2,417,520				(17.23	)%			6,792,870				(11.42	)%
Stock compensation			57				0.00	%			29,088				(0.05	)%
Warrant liability fair value adjustment			(3,125,007	)			22.27	%			—				0.00	%
Loss on extinguishment of debt			1,130,791				(8.06	)%			—				0.00	%
Loss on issuance of preferred stock			771,609				(5.50	)%			—				0.00	%
Acquisition related costs			—				0.00	%			10,500				(0.02	)%
Subscription agreement liability			466,281				(3.32	)%			684,390				(1.15	)%
Other permanent items			41,211				(0.29	)%			(244,395	)			0.41	%
Other adjustments
Return to provision adjustments:
WraSer deposit receivable write-off			769,517				(5.48	)%			—				0.00	%
Other return to provision adjustments			(20,569	)			0.15	%			—				0.00	%
Other, net			9,829				(0.07	)%			(253,362	)			0.43	%
Change in domestic valuation allowance			(46,654	)			0.33	%			4,033,150				(6.78	)%
Income tax provision (benefit)		$	525				0.01	%		$	(1,045,180	)			1.75	%

 

Under U.S. GAAP, the impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Additionally, U.S. GAAP provides guidance on derecognition, classification, interest and penalties, accounting for interim periods, disclosure, and transition.

 

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows: 

 

		For the Years Ended December 31,
		2025				2024
Beginning balance		$	26,462			$	17,010
Decreases related to prior year tax positions			(8,749	)			—
Increases related to current year tax positions			—				9,452
Ending balance		$	17,713			$	26,462

 

At December 31, 2025 and 2024, the Company’s unrecognized tax benefits were $17,713 and $26,462, respectively. Due to the existence of the valuation allowance, future changes in the Company’s unrecognized tax benefits will not impact the effective tax rate. The Company does not expect its unrecognized tax benefits to change significantly over the next 12 months.

 

The Company’s policy is to recognize interest expense and penalties related to uncertain tax positions as a component of income tax expense. As of December 31, 2025 and 2024, there were no accrued interest and penalties associated with uncertain tax positions.