Algorhythm Holdings, Inc. Income Taxes Disclosure

Note 14 – Income Taxes

 

The Company’s loss before income taxes for the years ended December 31, 2025 and 2024 is as follows:

 Schedule of Loss Before Income Taxes

		December 31, 2025				December 31, 2024
		Year ended
		December 31, 2025				December 31, 2024
United States		$	(14,513,000	)		$	(24,414,000	)
Foreign			(2,012,000	)			47,000
Loss before income taxes		$	(16,525,000	)		$	(24,367,000	)

 

The Company did not have any provision for income taxes for the years ended December 31, 2025 and 2024.

 

The Company’s net deferred tax assets as of December 31, 2025 and 2024 are as follows:

 Schedule of Deferred Tax Assets and Liabilities

		December 31, 2025				December 31, 2024
NOL Federal carryforward		$	6,491,000			$	4,085,000
State NOL carryforward			2,235,000				1,426,000
Inventory differences			-				355,000
Impairment of goodwiIll - SemiCab, Inc.			614,000				674,000
Stock option compensation expense			197,000				179,000
Intangibles			136,000				253,000
ROU liability			-				14,000
Section 163(j)			853,000				694,000
Allowance for doubtful accounts			31,000				40,000
Warrant liability			1,687,000				-
Reserve for estimated returns			-				476,000
Accrued vacation			-				19,000
Deferred tax assets gross			12,244,000				8,215,000
Less: valuation allowance			(12,209,000	)			(8,039,000	)
Deferred tax asset			35,000				176,000
Depreciable and amortizable assets			-				(39,000	)
ROU asset			-				(14,000	)
Warrant liability			-				(92,000	)
Prepaid expenses			(35,000	)			(31,000	)
Deferred tax liability			(35,000	)			(176,000	)
Net deferred tax		$	-			$	-

 

The Company recognizes federal, state and foreign current tax liabilities or assets based on its estimate of taxes payable to or refundable by tax authorities in the current fiscal year. The Company also recognizes federal, state and foreign deferred tax liabilities or assets based on the Company’s estimate of future tax effects attributable to temporary differences and carryforwards. The Company records a valuation allowance to reduce any deferred tax assets by the amount of any tax benefits that, based on available evidence and judgment, are not expected to be realized.

 

 

ALGORHYTHM HOLDINGS, INC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2025 and 2024

 

The Company performed an analysis in accordance with the provisions of ASC 740, which requires an assessment of both positive and negative evidence when determining whether it is more likely than not that deferred tax assets are recoverable. The analysis performed to assess the realizability of the deferred tax assets included an evaluation of the pattern and timing of the reversals of temporary differences and the length of carryback and carryforward periods available under the applicable federal, state and foreign laws; and the amount and timing of future taxable income. The Company evaluated the realizability of its deferred tax assets as of December 31, 2025 and 2024 in accordance with accounting principles generally accepted in the United States of America and concluded that a valuation allowance against all of the Company’s deferred tax assets was necessary based upon the Company’s conclusions regarding, among other considerations, the Company’s recent history of losses and projected losses for fiscal year 2026 and in the future.

 

The Company’s income tax expense differs from the amount computed due to the application of the U.S. federal statutory tax rate of 21% to loss before income taxes as follows:

 Schedule of Effective Income Tax Rate Reconciliation

		Amount				%
		Pre- ASU 2023-09 Adoption
		Year ended December 31, 2025
		Amount				%
U.S. Federal statutory income tax rate			(3,471,000	)			21.0	%
State and local income taxes, net of federal benefit			(1,075,000	)			6.5	%
Permanent differences:			-
Meals & Entertainment			6,000				0.0	%
Permanent difference gain on sale of SMH			(233,000	)			1.4	%
Foreign tax rate differential			601,000				(3.6	)%
Change in valuation allowance			4,170,000				(25.2	)%
Other			(45,000	)			0.3	%
Income tax loss		$	(47,000	)			0.3	%

 

		Pre- ASU 2023-09 Adoption
		Year ended December 31, 2024
Expected tax expense (benefit)		$	(5,117,000	)
State income taxes, net of federal income tax effect			(1,574,000	)
Permanent differences			(441,000	)
Permanent difference loss on issuance of warrants			2,441,000
Tax rate differential on foreign earnings			13,000
Change in valuation allowance			4,428,000
Other			250,000
Actual tax (benefit) provision		$	-

 

At December 31, 2025, the Company had federal tax net operating loss carryforwards in the amount of $30,911,000 that begin to expire in the year 2026. The net operating loss carryforward is subject to an IRS Section 382 limitation that limited the amount available to use beginning in fiscal 2020 to $150,000 per year. In addition, the Company had state tax net operating loss carryforwards in the amount of $36,908,000 that will begin to expire in 2026. These tax net operating loss carryforwards may be subject to further adjustment based on future changes in ownership.

 

At December 31, 2025, the Company evaluated the realizability of its deferred tax assets in accordance with GAAP and concluded that a valuation allowance of $12,209,000 against deferred tax assets is necessary. The change in valuation allowance increased $4,170,000 to $12,209,000 as of December 31, 2025 from $8,039,000 as of December 31, 2024. The recognition of the remaining net deferred tax asset and corresponding tax benefit is based upon the Company’s conclusions regarding, among other considerations, the Company’s current and anticipated customers, contracts and product introductions, and recent operating results.

 

 

ALGORHYTHM HOLDINGS, INC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2025 and 2024

 

The Company’s policy is to recognize interest or penalties related to income tax matters in the provision for income taxes. The Company currently has no liabilities recorded for accrued interest or penalties and does not have any liabilities recorded related to uncertain tax positions.