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,
		2024				2023
U.S.		$	(58,988,309	)		$	(37,106,599	)
Foreign			(747,894	)			(315,688	)
Total loss before income taxes		$	(59,736,203	)		$	(37,422,287	)

 

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 benefit recorded for the years ended December 31, 2024 and December 31, 2023 related to the Company’s deferred foreign taxes. Generally, the Company’s federal returns from 2019 on and state returns from 2018 on, and foreign returns from 2018 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, 2024, the Company had a net operating loss (“NOL”) carryforward for federal, foreign, and state income tax purposes totaling approximately $42.8 million, $15.2 million, and $35.7 million, respectively, available to reduce future taxable income. The federal NOL and certain state NOLs of $28.6 million are carried forward indefinitely subject to a limitation of 80% of taxable income. State NOLs of approximately $15.2 million will begin to expire in 2024 if not utilized, and foreign NOLs of approximately $7.1 million will begin to expire in 2024 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, 2024. 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,
		2024				2023
Deferred tax assets:
Net-operating loss carryforward		$	13,309,416			$	10,214,760
Intangibles			3,887,855				3,349,919
Capitalized research and development			1,001,916				1,171,320
Stock-based compensation			645,113				690,760
Deposit on WraSer APA			854,896				854,896
Accrued compensation			55,193				150,099
License agreement			45,493				49,157
Other			667,065				520,207
Gross deferred tax assets			20,466,947				17,001,118
Valuation allowance			(20,441,833	)			(15,697,701	)
Deferred tax assets, net of allowance		$	25,114			$	1,303,417
Deferred tax liabilities:
Intangible assets			-				(4,345,449	)
Fixed assets			(1,378	)			(2,560	)
Other			(23,736	)			(29,189	)
Total deferred tax liabilities		$	(25,114	)		$	(4,377,198	)
Net deferred tax liability		$	-			$	(3,073,781	)

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 and foreign deferred tax assets in each of the years ended December 31, 2024 and 2023, 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, 2024 and 2023, the valuation allowance increased by approximately $4.7 million and $11.2 million, respectively.

 

The provision for income taxes on earnings subject to income taxes differs from the statutory Federal rate at December 31, 2024 and 2023, due to the following: 

 

		For the Years Ended
		December 31,
		2024				2023
Expected income tax benefit at Federal statutory tax rate		$	(12,488,416	)		$	(7,858,680	)
State and local taxes, net of Federal tax benefit			(339,155	)			(1,192,605	)
Research credits			(37,810	)			—
Foreign NOL expirations			—				315,927
Stock-based compensation			29,088				196,025
Subscription agreement liability			684,390				181,440
Officer’s compensation			—				(126,337	)
Acquisition related costs			10,500				164,073
Goodwill Impairment			6,792,870				—
Permanent items			(244,395	)			55,486
State rate adjustment			—				(23,135	)
Foreign rate differential			7,205				—
Currency translation adjustment			49,773				—
Other			(253,362	)			60,599
Change in valuation allowance			4,744,132				8,214,614
Income tax benefit		$	(1,045,180	)		$	(12,593	)

  

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,
		2024				2023
Beginning balance		$	17,010			$	17,010
Increases related to prior year tax positions			—				—
Increases related to current year tax positions			9,452				—
Ending balance		$	26,462			$	17,010

 

At December 31, 2024 and 2023, the Company’s unrecognized tax benefits were $26,462 and $17,010, 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 and penalties related to uncertain tax positions in income tax expense. As of December 31, 2024 and 2023, there were no accrued interest and penalties associated with uncertain tax positions.