SOCKET MOBILE, INC. Income Taxes Disclosure

NOTE 9 — Income Taxes

 

The Company's entire pretax income / (loss) for the years ended December 31, 2025 and December 31, 2024 was from its U.S. domestic operations.

 

 

SOCKET MOBILE, INC.

NOTES TO FINANCIAL STATEMENTS 

 

The components of income taxes for the periods ended December 31, 2025 and 2024 are as follows: 

 

		Years Ended December 31,
		2025				2024
Current:
Federal		$	—			$	—
State			—				—
Total Current			—				—
Deferred:
Federal			7,906,000				(470,000	)
State			2,757,000				(81,000	)
Total Deferred			10,663,000				(551,000	)
Total income tax expense (benefit)		$	10,663,000			$	(551,000	)

  

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

 

		Years Ended December 31,
		2025				2024
Income at US statutory rate			21.0	%			21.0	%
State taxes, net of federal benefit			12.7	%			2.9	%
Valuation allowance			-311.6	%			0.6	%
Stock compensation			-1.8	%			2.4	%
Tax credits			-1.1	%			-0.6	%
Other			-6.2	%			-6.5	%
Provision for taxes			-287.0	%			19.7	%

 

The principal components of deferred tax assets and (liabilities) are as follows for the period ended:

 

		December 31,
Deferred tax assets:		2025				2024
Net operating loss carryforwards		$	6,931,000			$	6,189,000
Tax credits			845,000				879,000
Accruals & reserves			962,000				1,092,000
Lease liabilities			639,000				786,000
Depreciation			(126,000	)			(98,000	)
Share-based compensation			171,000				160,000
Capitalized Research Costs			3,169,000				2,805,000
Total deferred tax assets			12,591,000				11,813,000
Valuation allowance			(12,015,000	)			(430,000	)
Net deferred tax assets			576,000				11,383,000
Deferred tax liabilities:
Amortization			8,000				8,000
ROU assets			(584,000	)			(728,000	)
Net deferred tax asset (liability)		$	—			$	10,663,000

 

 

 

SOCKET MOBILE, INC.

NOTES TO FINANCIAL STATEMENTS

 

The Company has not generated taxable income in any jurisdiction over the prior 12 quarters. Based on the weight of available evidence, including the Company’s recent cumulative losses, management concluded that it is more-likely-than-not that the Company’s deferred tax assets will not be realized. Accordingly, as of December 31, 2025, the Company recorded a full valuation allowance against its deferred tax assets.

 

As of December 31, 2025, the Company had U.S. Federal net operating loss carryforwards of $24.8 million which includes $15.6 million that expire at various dates from 2026 through 2033, and $9.3 million that have an unlimited carryforward period. As of December 31, 2025, the Company had state net operating loss carryforwards of $24.5 million that will expire at various dates from 2029 through 2044.

 

As of December 31, 2025, the Company had U.S. Federal research and development credit carryforwards of $0.4 million that begin to expire at various dates through 2043. As of December 31, 2025, the Company had state research and development credit carryforwards of $0.6 million that have an unlimited carryforward period. 

 

The future realization of the Company's net operating loss carryforwards and other tax attributes may also be limited by the change in ownership rules under the U.S. Internal Revenue Code Section 382. Under Section 382, if a corporation undergoes an ownership change (as defined), the corporation’s ability to utilize its net operating loss carryforwards and other tax attributes to offset income may be limited. The Company has not completed a study to assess whether an ownership change has occurred or whether there have been multiple ownership changes.

The following table summarizes the activity related to the Company's unrecognized tax benefits:

 

		Amount
Balance as of January 1, 2023		$	1,009,000
Increases (decreases) for current year tax provisions			13,000
Increases (decreases) for prior year tax provisions			(25,000	)
Decreases for expiration of statute of limitations			—
Settlements			—
Balance as of December 31, 2024			997,000
Increases (decreases) for current year tax provisions			24,000
Increases (decreases) for prior year tax provisions			(30,000	)
Decreases for expiration of statute of limitations			—
Settlements			—
Balance as of December 31, 2025		$	991,000

 

 

 

 

SOCKET MOBILE, INC.

NOTES TO FINANCIAL STATEMENTS

 

The Company files income tax returns in the U.S. federal jurisdiction and in California, and therefore subject to tax examination by couple taxing authorities. The Company is not currently under examination, and is not aware of any issues under review that could result in significant payments, accruals or material deviation from its tax positions. To the extent the Company has tax attribute carryforwards, the tax years in which the attribute was generated may still be adjusted upon examination by the Internal Revenue Service and state tax authorities to the extent utilized in a future period. As of December 31, 2025, the tax years from 2020 to present remain open to examination by relevant taxing jurisdictions to which the Company is subject. However, to the extent the Company utilizes net operating losses from years prior to 2020, the statute remains open to the extent of the net operating losses or other credits that are utilized.

 

The calculation and assessment of the Company's tax exposures generally involve the uncertainties in the application of complex tax laws and regulations for federal and state jurisdictions. A tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation, on the basis of the technical merits. As of December 31, 2025, and 2024, the Company had approximately $1.0 million of unrecognized tax benefits for both years. In addition, the Company believes it is reasonably possible that its unrecognized tax benefits will not change significantly within the next twelve months. Additionally, as of December 31, 2025, and 2024, the Company has not accrued any interest and penalties related to its uncertain tax positions. The Company has elected to recognize accrued interest and penalties, if any, related to uncertain tax positions in tax expense in its financial statements.