SYNTEC OPTICS HOLDINGS, INC. Income Taxes Disclosure

Note 9 Income Taxes

 

Following is a summary of the components giving rise to the income tax benefit for the years ended December 31:

 Schedule of Income Tax (benefit) Provision

		2024				2023
Current:
Federal		$	-			$	407,485
State			-				72,557
Total current income taxes			-				480,042
Non - current:
Federal		$	(514,832	)		$	(1,199,214	)
State
Deferred Tax (Benefit) Provision			(514,832	)			(1,199,214	)
Total		$	(514,832	)		$	(719,172	)

 

Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financing reporting purposes and the amount used for income tax purposes. Significant components of our deferred tax assets and liabilities are as follows as of December 31:

 Schedule of Tax Deferred Tax Assets And Liabilities

		2024				2023
Deferred Tax Assets (Liabilities):
NYS Investment Tax Credit		$	1,565,784			$	1,402,438
MA R&D Credit			684,621				628,371
Lease Liability			434,052				-
Allowance for Current Expected Credit Losses			24,602				55,732
Net Operating Loss			241,766				-
Unamortized Startup Costs			400,371				476,876
Amortization on Intangibles			700				777
Section 174 Capitalization			1,032,715				1,100,698
Inventory Reserve			105,610				73,857
Accrued Management Fees			-				-
Accrued Vacation			15,003				16,905
Business Interest Limitation			134,976				-
Valuation Allowance			(2,250,405	)			(2,030,809	)
Deferred Tax Assets			2,389,795				1,724,845
Deferred Tax Liabilities:			-				-
Right of Use Asset			(456,550	)			-
Depreciation			(1,493,303	)			(1,799,735	)
Deferred Tax Liabilities:			(1,949,853	)			(1,799,735	)
Deferred Tax Assets (Liabilities), Net		$	439,942			$	(74,890	)

 

The provision for income taxes differs from the amount of income tax determined by applying the applicable U.S. statutory federal income tax rate to income from continuing operations before income taxes as follows for the year ended December 31:

 Schedule of Reconciliation of Effective Tax Rate

		2024				2023
Statutory Income Tax Rate			21.00	%			21.00	%
Increase (Decrease) In Tax Provision Resulting From:
State Income Taxes, Net of Federal Benefit			0.00	%			11.79	%
Federal Special Deductions			(0.80	)%			(7.05	)%
Federal Credits			0.00	%			(39.28	)%
Federal Tax Prior Year (Over) Under Accrual			0.00	%			(20.05	)%
State Tax Rate Change			0.00	%			18.22	%
State Tax Credits			8.65	%			(29.33	)%
State Deferred Taxes			0.00	%			(15.62	)%
Change in Valuation Allowance			(8.65	)%			(25.32	)%
Transaction Costs			0.00	%			2.49	%
Pass Through Entity			0.29	%			25.09	%
Other, Net			(0.22	)%			0.87	%
Effective Tax Rate			20.28	%			(57.20	)%

 

The tax returns of the Company are open for three years from the date of filing. At the report date, the statute of limitations for federal and state tax returns are open for the Company for 2023, 2022, and 2021.

 

The Company has federal and state net operating loss carryforwards totaling approximately $1.151 million at December 31, 2024. Under the provisions of the Internal Revenue Code, the net operating loss and tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities. Net operating loss and tax credit carryforwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant shareholders over a three-year period in excess of 50 percent, as defined under Sections 382 and 383 of the Internal Revenue Code, respectively, as well as similar state provisions. This could limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities. The amount of the annual limitation is 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 Company has evaluated and concluded that section 382 was not triggered.

 

 

SYNTEC OPTICS HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2024 AND 2023

 

Note 9 Income Taxes - Continued

 

The Company has significant deferred tax assets as a result of temporary differences between the taxable income on its tax return and U.S. GAAP income, federal and state R&D tax credit carry forwards. A deferred tax asset generally represents future tax benefits to be received when temporary differences previously reported in the consolidated financial statements become deductible for income tax purposes, or when tax credit carry forwards are utilized on the Company tax returns. The Company assesses the realizability of its deferred tax assets and the need for a valuation allowance based on the guidance provided in current financial accounting standards.

 

Significant judgment is required in determining the realizability of the Company’s deferred tax assets. The assessment of whether valuation allowances are required considers, among other matters, the nature, frequency and severity of any current and cumulative losses, forecasts of future profitability, the duration of statutory carry forward periods, the Company’s experience with loss carry forwards not expiring unused and tax planning alternatives. In analyzing the need for valuation allowances, the Company first considered its history of cumulative operating results for income tax purposes over the past several years in each of the tax jurisdictions which it operates, its recent financial performance, statutory carry forward periods and tax planning alternatives. In addition, the Company considered both its near-term and long-term financial outlook. After considering all available evidence (both positive and negative), the Company concluded that recognition of a valuation allowance was required in the amount of $2,250,405 and $2,030,809 at December 31, 2024 and 2023, respectively.

 

New York state corporate tax reform has resulted in the reduction of the business income base rate for qualified manufacturers in New York State to 0% beginning in 2014 for Syntec. At December 31, 2024, the Company has $1,565,784 of New York State investment tax credit carryforwards, expiring in various years through 2037. The credits cannot be utilized unless the New York state tax rate is no longer 0%, and as such, the Company has recorded a valuation allowance against the full amount of these credit carryforwards (net of the federal benefit). In addition, the Company has approximately $684,621 of Massachusetts State Research and Development credit carryforwards, expiring in various years through 2037 that the Company has recorded a valuation allowance against.