Rank One Computing Corp Income Taxes Disclosure

Note 9 – Income Taxes

 

 The components of income tax expense for the year ended December 31, 2025 and 2024 are as follows: 

 

		2025				2024
Current Income Tax expense:
Federal		$	(131,076	)		$	131,076
State			(54,564	)			55,464
Total current income tax expense/(benefit)			(185,640	)			186,540
Deferred Income Tax expense (benefit):
Federal			636,831				(625,427	)
State			163,888				(161,590	)
Total deferred income tax expense/(benefit)			800,719				(787,017	)
Total income tax expense/(benefit)		$	615,079			$	(600,477	)

  

Although the Company generates a portion of its revenue from international customers, all operations are conducted in the United States, and accordingly all pre-tax income (loss) is domestic, with no foreign pre-tax income (loss) for the periods presented.

 

As discussed in Note 2, the Company changed its tax status from S-Corporation to C-Corporation effective for 2024. Accordingly, the net deferred tax asset at the date that the termination election was filed of approximately $500,219 has been recorded through a credit to the deferred tax provision.

 

Interest and penalties related to income tax liabilities are included in ‘Income tax expense (benefit)’ in the statements of income. 

 

The provision for income taxes differs from the amount computed by applying the statutory federal income tax rate to income before the provision for income taxes. The sources and effects of the differences for the years ended December 31, 2025 and 2024 are as follows:

 

		2025				2024
Pre-Tax Income (Loss)		$	(2,061,767	)			(1,298,155	)
U.S. Federal Statutory Tax Rate			(432,866	)			(272,613	)
State and Local Income Taxes, Net of Federal Income Tax Effect			(42,344	)			(13,185	)
Effect of Changes in Tax Status			214,377				(489,795	)
Tax Credits			(88,079	)			(88,619	)
Nontaxable or Nondeductible Items			-				209,529
Valuation Allowance			958,342				-
Rate Changes			(2,279	)			(9,976	)
Other Adjustments			7,928				64,182
Total Tax		$	615,079			$	(600,477	)

		2025				2024
U.S. Federal Statutory Tax Rate			21.00	%			21.00	%
State and Local Income Taxes, Net of Federal Income Tax Effect			2.05	%			1.02	%
Effect of Changes in Tax Status			(10.40	)%			37.73	%
Tax Credits			4.27	%			6.83	%
Nontaxable or Nondeductible Items			-	%			(16.14	)%
Valuation Allowance			(46.49	)%			-%
Rate Changes			0.11	%			0.77	%
Other Adjustments			(0.38	)%			(4.95	)%
Total Tax			(29.84	)%			46.26	%

 

Significant components of the Company’s net non-current deferred tax assets and liabilities are as follows:

 

		2025				2024
Deferred Tax Assets
Bad Debts		$	40,654			$	15,049
Non Qualified Stock Options			26,534				25,988
ROU Liability			306,270				368,543
Impact of Section 174 research & experimental expenditures			-				994,473
Research & Development Credit			176,158				-
Deferred Revenue			347,661				-
Charitable Contributions			346				-
Net Operating Loss			857,779				-
Deferred Tax assets			1,755,402				1,404,053
Less: Valuation Allowance			(958,342	)			-
Deferred tax assets		$	797,060			$	1,404,053
Deferred tax liabilities
Section 481(a) method-change adjustment		$	(470,997	)		$	-
Accrual to Cash Adjustment			-				(172,003	)
Depreciation			(66,216	)			(103,151	)
ROU Asset			(273,550	)			(341,882	)
Deferred tax liabilities			(810,763	)			(617,036	)
Net deferred tax asset (liability)		$	(13,703	)		$	787,017

  

In assessing the ability to realize deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon generation of future taxable income during the periods in which those temporary differences become deductible. Based on historic, current, and forecasted results, management believes it is not more likely than not that the Company will realize the benefits of all of its deferred tax assets. The increase in the valuation allowance during the year is $958,342. 

 

As of December 31, 2025, the Company has U.S. federal net operating loss carryforwards of $3,418,359 all of which can be carried forward indefinitely.

 

The Company has various state net operating loss carryforwards. The determination of the state net operating loss carryforwards is dependent upon apportionment percentages and state laws that can change from year to year and impact the amount of such carryforwards. The carryforward period of these losses varies by state. 

 

Management does not believe that there are significant uncertain tax positions in 2025 or 2024, and no interest or penalties related to uncertain tax positions have been recognized in 2025.

 

As of December 31, 2025, the Company has U.S. federal research and developmental credits carryforwards of $176,158. These credits will start to expire from 2044.

On July 4, 2025, President Trump signed the One Big Beautiful Bill Act into law, which permanently restores immediate expensing for domestic research and experimentation costs, along with 100% bonus depreciation and the business interest expense limitation. Because the Company had already deducted all previously capitalized Section 174 costs under the transition rules available for the 2024 tax year, no deferred tax assets related to those cumulative capitalized costs remain as of the enactment date. Under ASC 740, the effects of enacted tax law changes on deferred tax balances must be recognized in the period of enactment; however, because the Company has no remaining Section 174-related deferred tax balances, the impact of this legislation is limited to prospective application for new R&D expenditures incurred after 2025. The Company is evaluating any remaining implications of the new law on its future tax position and disclosures. 

 

The net operating loss (“NOL”) and tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities. NOL and tax credit carryforwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant stockholders over a three-year period in excess of 50%, as defined under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended (the “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 annual limitation amount is determined based on the Company’s value immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years.