Sharplink, Inc. Income Taxes Disclosure

Note 9 – Income Taxes

 

Effective January 1, 2025, the Company adopted ASU 2023-09, Income Taxes: Improvements to Income Tax Disclosures. The amendments in ASU 2023-09 enhance the transparency and decision usefulness of income tax disclosures by requiring, among other things, (i) expanded rate reconciliation disclosures with specified categories presented both in dollar amounts and as a percentage of pretax loss, and (ii) disaggregation of income taxes paid (net of refunds) by federal, state and foreign jurisdictions, including separate disclosure of material jurisdictions.  

 

The disclosures for the year ended December 31, 2024 were prepared in accordance with the income tax disclosure requirements of ASC 740-50 prior to the adoption of ASU 2023-09, and are presented in the format previously required.  Accordingly, the 2024 rate reconciliation and related disclosures reflect the previously required categories and disclosure objectives under the prior guidance and are not required to be reformatted under the new standard.

 

Deferred tax assets and liabilities as of December 31, 2025 and 2024 consisted of the following:

 

 Schedule of Deferred Tax Assets and Liabilities

		December 31, 2025				December 31, 2024
Deferred tax assets
Net operating losses		$	3,041			$	4,942
Research and development tax credit			27				27
Nonqualified stock options			1,357				112
Equipment			-				1
Goodwill			497				585
Section 174 Capitalization			-				158
Intangible assets			788				982
Crypto assets at fair value			133,375				-
Crypto assets at cost			21,297				-
Accrued expenses and other			459				28
Gross deferred tax assets		$	160,841			$	6,835
Valuation Allowance			(160,841	)			(6,835	)
Net deferred tax assets		$	-			$	-

 

As of December 31, 2025 and 2024, the Company maintained a valuation allowance against certain deferred tax assets to reduce the total to an amount management believes is more likely than not to be realized. Realization of deferred tax assets is dependent upon sufficient future taxable income during the periods when deductible temporary differences and carryforwards are expected to be available to reduce taxable income.

 

As of December 31, 2025 and 2024, the Company had a federal net operating loss carryforward of $12,886 and $21,832, respectively, which will be available to offset future taxable income indefinitely.  The Company has net operating loss carryforwards in various states.  The net tax effected value of those state net operating loss carryforwards as of December 31, 2025 and 2024 is $348 and $357 in various states, respectively. The state net operating loss carryfowards will begin to expire in 2034. The Company has also experienced net operating loss carryforwards in Israel and Hong Kong, which it does not expect to benefit from.  The tax value of these foreign carryforward assets is not presented in these financial statements.

 

Income taxes paid are disaggregated by federal, state, and foreign jurisdictions.  Individual jurisdictions are separately disclosed if net payments exceed 5% of total income taxes paid during the period.  No individual state or foreign jurisdiction met this threshold for the year ended December 31, 2025.

 

Cash Taxes Paid (Net of Refunds) in the Current Period

 

Schedule of Effective Income Tax Rate Reconciliation

		December 31, 2025
U.S. Federal		$	400
States *			49
Foreign			-
Total Taxes Paid		$	449

 

*	There are no single states that meet the 5% disaggregation threshold.

 

Pretax loss from continuing operations is disaggregated between U.S. domestic and foreign jurisdictions in accordance with ASU 2023-09 and is presented in the table below for the year ended December 31, 2025.

 

Income Taxes

 

Schedule of Components of Income Tax Expense Benefits

Components of pre-tax income:		December 31, 2025
U.S. Domestic		$	(733,358	)
Foreign			(112	)
Total		$	(733,470	)

  

The provision for income taxes charged to income for the years ended December 31, 2025 and 2024, consist of the following:

 

The components of income tax (benefit) expense from continuing operations consisted of the following:

 

Schedule of Income Tax Expenses Benefits

		December 31, 2025				December 31, 2024
U.S. Federal		$	976			$	-
State			70				-
Foreign			-				-
Total current tax provision from continuing operations		$	1,046			$	-

 

 

No deferred tax expenses or benefit has been recorded due to a full valuation allowance as of December 31, 2026.

 

The effective income tax rate reconciliation for the year ended December 31, 2025 is presented in accordance with ASU 2023-09 and includes reconciling items required to be separately disclosed if they meet a quantitative threshold of 5% or more of the amount computed by multiplying pretax loss by the applicable U.S. federal statutory income tax rate. Reconciling items below the disclosure threshold are aggregated within “Other”.  The Company’s effective tax rate for the year ended December 31, 2025 differs from U.S. federal statutory rate primarily due to changes in valuation allowances recorded against deferred tax assets and non-deductible expenses.  The Company continues to maintain a full valuation allowance against certain deferred tax assets as realization is more likely than not based on current evidence.

 

Schedule of Effective Tax Rate

		Amount				% of Pretax Loss
(Dollars)		December 31, 2025
		Amount				% of Pretax Loss
U.S. Federal Statutory Tax Rate		$	(154,028	)			21.0	%
Domestic State and Local Income Taxes, Net of Federal Income Tax Effect (a)			55				0.0	%
Changes in Valuation Allowances			149,316				-20.4	%
Nontaxable or Nondeductible Items
Non-deductible executive compensation			1,944				-0.3	%
Non-deductible warrants			3,440				-0.5	%
Other			3				0.0	%
Other Adjustments
Stock based compensation			334				-0.1	%
Other			(18	)			0.0	%
Total income tax expense		$	1,046				-0.1	%

 

(a)

State taxes in Florida made up the majority (greater than 50%) of the tax effect in this category.

 

A reconciliation between the effective tax rate on income from continuing operations and the statutory tax rate is as follows for December 31, 2024:

 

(Percentages)		December 31, 2024
Income tax benefit at federal statutory rate			21.0	%
State and local income taxes net of federal tax benefit			2.1	%
Meals and entertainment, non-deductible expenses and tax-exempt income			-0.1	%
Officer’s life insurance			-0.1	%
Club Dues			-0.1	%
Incentive stock option expense			-0.7	%
Equity reversal			0.9	%
Nondeductible debt expenses			-1.5	%
Financial statement true up			0.1	%
Miscellaneous other adjustments			-0.8	%
Change in valuation allowance			-21.0	%
Provision for income tax expenses (benefit)			-0.2	%

 

The Company files income tax returns in the U.S. federal jurisdiction and various other states. The Company is generally not subject to U.S. federal, state and local income tax examinations by tax authorities for years before 2022. However, due to its net operating losses in 2018 and forward, the IRS and state authorities could adjust its carryforward assets back to 2018. The Company also files income tax returns in Israel, Hong Kong and other foreign jurisdictions. The Company has insignificant activities in these foreign jurisdictions and does not expect to benefit from its carryforward assets.

 

The Company follows the authoritative guidance on accounting for and disclosure of uncertainty in tax positions which requires us to determine whether a tax position of the Company is more likely than not to be sustained upon examination, including resolution of any related appeals of litigation processes, based on the technical merits of the position. For tax positions meeting the more likely than not threshold, the uncertain tax benefit amount recognized in the financial statements is reduced to the largest benefit that has a greater than 50% likelihood of being realized upon the ultimate settlement with the relevant taxing authority. Interest and penalties related to uncertain tax positions are included in the provision for income taxes in the consolidated statements of operations. In accordance with the Discontinued Operations (See Note 14), management performed an evaluation of the technical merits of the Israeli Controlled Foreign Corporate Rules to determine the taxability of the gain from the Sale of Business from an Israeli tax perspective. This analysis also considered the results of the U.S. income tax. Management determined that the technical merits for uncertain tax exposure resulting from the gain for Israeli tax purposes did not exceed the more-likely-than-not threshold and has not recorded any income tax liability at December 31, 2024. Management’s determination is based on known facts and circumstances and requires judgement of a complex set of rules and regulations. If facts and circumstances change, such as closing, liquidating or selling of the businesses’ equity that is remaining, including events outside the Company’s control, this could have a material impact on management’s determination.

 

The Company’s uncertain tax position balance from continuing operations is $0 at December 31, 2025 and 2024, respectively. In the event the Company records an uncertain tax position, it’s policy is to include interest and penalties in the computation of unrecognized tax benefits.