Reborn Coffee, Inc. Income Taxes Disclosure

12.	INCOME TAX

 

Total income tax provision expense consists of the following:

 

For the Years Ended December 31,		2025				2024
Current provision:
Federal		$	75,217			$	-
State			34,063				800
Total current provision			109,279				800
Deferred provision:
Federal			-				-
State			-				-
Total deferred provision			-				-
Total tax provision		$	109,279			$	800

  

A reconciliation of the Company’s effective tax rate to the statutory federal rate is as follows:

 

December 31,		2025				2024
Statutory federal rate			21.00	%			21.00	%
State income taxes net of federal income tax benefit and others			0.08	%			6.98	%
Permanent differences for tax purposes and others			(1.18	)%			0.00	%
Change in valuation allowance			(18.61	)%			(27.98	)%
Effective tax rate			1.29	%			0.00	%

  

The income tax benefit differs from the amount computed by applying the U.S. federal statutory tax rate of 21% and California state income taxes of 0.10% due to the change in the valuation allowance.

 

December 31,		2025				2024
Deferred tax assets:
Net operating loss		$	6,863,965			$	9,461,884
Bad debt reserve			22,586				-
Basis difference in fixed assets			332,510				-
Operating lease liabilities			666,142				-
State taxes			7,153				-
Total Deferred tax assets			7,892,355				9,461,884
Deferred tax liabilities:
Operating lease right-of-use asset			(644,804	)			-
Total Deferred tax liabilities			(644,804	)			-
Net deferred tax assets			7,247,551				9,461,884
Less – valuation allowance			(7,247,551	)			(9,461,884	)
Total deferred tax assets, net of valuation allowance		$	-			$	-

  

The Company uses the liability method of accounting for income taxes as set forth in ASC 740. Under the liability method, deferred taxes are determined based on differences between the financial statement and tax bases of assets and liabilities using enacted tax rates. As of December 31, 2025, the Company had federal and State net operating loss carryforwards of approximately $25.2 million and $17.8 million, respectively. Under the new tax law, the Federal net operating loss arising in tax years ending after December 31, 2017, will be carried forward indefinitely. The Company have pre-tax reform federal net operating loss carryforwards in the amount of approximately $2.0 million as of December 31, 2025. Net operating loss carryforwards arising tax years ending after December 31, 2017, is approximately $23.2 million. The state net operating loss carryforwards will begin to expire in 2042.

As of December 31, 2025 and 2024, the Company maintained full valuation allowance for net operating loss carryforward deferred tax asset. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversals of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. The amount of the deferred tax asset considered realizable, however, could be reduced if estimates of future taxable income are reduced.

 

The Company files a federal income tax return and files tax returns in state and local jurisdictions. The statutes of limitations for its federal income tax returns are open for years 2022 and after, and state and local income tax returns are open for years 2021 and after.

 

The components of income (loss) before income taxes by jurisdiction are as follows:

 

		2025				2024
United states			(8,460,973	)			(4,476,004	)
Foreign			(436,839	)			(329,144	)
Total loss before income taxes			(8,897,812	)			(4,805,148	)

  

Loss before income taxes is derived from operations conducted in the United States and two foreign jurisdictions. Domestic results primarily reflect the Company’s U.S. operations, while foreign income primarily relates to the Company’s international subsidiaries.

 

The Company paid income taxes to the following jurisdictions that individually represent greater than 5 percent of total income taxes paid during the year ended December 31, 2025 and 2024, respectively.

 

		2025				2024
Federal			75,217				1,600
State			34,062
Foreign			-				-
Total tax paid			109,279				1,600