SharonAI Holdings Inc. Income Taxes Disclosure

Note 4. Income Tax

 

In December 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The amendment improves income tax disclosure requirements by requiring public entities, on an annual basis, to provide disclosure of defined categories in the income tax reconciliation, as well as disclosure of income taxes paid, disaggregated by jurisdiction. This guidance is effective for annual reporting periods in fiscal years beginning after December 15, 2024. As of December 31, 2025, the Company has adopted ASU 2023-09 prospectively and has enhanced its income tax disclosures included herein, to comply with the requirements. The adoption did not have an impact on the Company’s financial statements.

 

Income (loss) before income taxes consists of the following:

 Schedule of Income (Loss) Before Income Taxes

		2025				2024
		For the Years Ended
		December 31,
		2025				2024
United States		$	(5,560,443	)		$	865,102
Foreign			(34,470,812	)			(4,756,192	)
Income (loss) before income taxes		$	(40,031,255	)		$	(3,891,090	)

 

 

The Company is subject to income taxes in U.S. federal, state, and foreign jurisdictions. The provision (benefit) for income taxes in the accompanying consolidated financial statements is comprised of the following:

 Schedule of Provision (Benefit) for Income Taxes

		2025				2024
		For the Years Ended
		December 31,
		2025				2024
Current taxes:
Federal		$	-			$	-
State			-				40,714
Foreign			-				99,299
Total current taxes			-				140,013
Deferred taxes:
Federal			-				-
State			-				-
Foreign			(216,234	)			(107,105	)
Total deferred taxes			(216,234	)			(107,105	)
Income tax expense (benefit)		$	(216,234	)		$	32,908

 

 

A reconciliation of the U.S. federal statutory income tax rate of 21% to the Company’s effective income tax rate, post the adoption of ASU 2023-09, is as follows:

 Schedule of Effective Income Tax Rate

		2025				2024
		For the Years Ended
		2025				2024
Income tax expense (benefit) using U.S. federal statutory rate			21.0	%			21.0	%
State income taxes, net of federal benefit			0.1	%			5.0	%
Foreign tax effects
Australia
Statutory tax rate difference			3.6	%			1.0	%
Fair value loss on convertible notes			-16.2	%			0.0	%
Change in valuation allowance			-9.2	%			0.0	%
Capital loss carryforwards			3.7	%			0.0	%
Other			-0.4	%			0.0	%
Nontaxable or nondeductible items			-0.6	%			0.0	%
Changes in valuation allowance			-1.5	%			-19.0	%
Permanent Difference			0.0	%			-3.0	%
Research and development tax incentive			0.0	%			-5.0	%
Other			0.0	%			0.0	%
Income tax expense (benefit) and effective tax rate			0.5	%			0.0	%

 

For the year ended December 31, 2025, state income taxes in New York and New York City make up the majority (greater than 50%) of the state income taxes, net of federal benefit category.

 

The Company’s effective tax rate for the year ended December 31, 2025 differs from the U.S. statutory rate primarily due to the change in valuation allowance maintained against certain deferred tax assets and the nonrecognition of fair value loss on convertible notes.

 

The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities. These differences are measured using the enacted statutory tax rates that are expected to be in effect for the years in which differences are expected to reverse. Deferred tax assets and liabilities were determined based on the difference between financial statement and tax bases using enacted tax rates in effect for the year in which the differences are expected to reverse.

 Schedule of Deferred Tax Assets and Liabilities

		December 31,				December 31,
		2025				2024
Net operating loss carryforward		$	4,337,890			$	303,257
Unrealized Gain (Loss)			-				293,707
Capitalized transaction costs			1,829,760				77,225
Accrued expenses			36,117				78,878
Stock based compensation			378,290				65,208
Lease liabilities			1,247,725				-
Total deferred tax assets			7,829,782				818,275
Less valuation allowance			(5,283,165	)			(733,310	)
Net deferred tax asset			2,546,617				84,965
Intangibles			-				(412,500	)
Right-of -use asset			(1,785,219	)			-
Other deferred tax liabilities			(761,398	)			-
Total deferred tax liabilities			(2,546,617	)			(412,500	)
Net deferred tax liability		$	-			$	(327,535	)

 

 

The Company’s valuation allowance increased by $4,549,855, primarily as a result of current year losses and an increase in capitalized legal expenses against which a valuation allowance is maintained during the year ended December 31, 2025. In assessing the ability to realize the Company’s net deferred tax assets, management considers various factors including taxable income in carryback years, future reversals of existing taxable temporary differences, tax planning strategies, and future taxable income projections to determine whether it is more likely than not that some portion or all of the net deferred tax assets will not be realized. Management has determined that the uncertainty regarding realizing certain deferred tax assets is sufficient to warrant the need for a valuation allowance against its worldwide net deferred tax assets after consideration of the reversals of existing taxable temporary differences.

 

As of December 31, 2025, the Company had $3,224,739 of federal and $5,939,808 of state net operating loss carryforwards. The federal net operating losses have an indefinite life and can be utilized to offset 80% of future taxable income, while the state net operating losses will begin to expire in 2044. As of December 31, 2025, the Company had Australian net operating loss carryforwards and capital loss carryforwards of $7,198,497 and $6,003,699, respectively, that can be carried forward indefinitely.

 

As of December 31, 2025, the Company had no recorded liabilities for uncertain tax positions. As of December 31, 2025, the Company had no accrued interest or penalties related to uncertain tax positions. The Company’s accounting policy is to recognize interest and penalties related to uncertain tax positions in income tax expense.

 

The Company files income tax returns in the United States, various US state jurisdictions, and Australia. The Company is not currently under examination by the Internal Revenue Service or any other jurisdiction. All tax years remain open to tax examination. To the extent the Company has tax attribute carryforwards, the tax years in which the attribute was generated may be adjusted upon examination by the Internal Revenue Service or other tax authorities to the extent utilized in a future period.

 

The Company has not provided U.S. deferred income taxes or foreign withholding taxes on unremitted earnings of foreign subsidiaries, as such amounts are considered to be indefinitely reinvested. Any accumulated earnings in foreign subsidiaries are primarily utilized to fund working capital requirements as the Group continues to expand operations.

 

The Company did not make any income tax payments (net of refunds received) during the year ended December 31, 2025.