Soluna Holdings, IncSLNH
Soluna Holdings, Inc Income Taxes Disclosure
Income Taxes
Income tax expense (benefit) for each of the years ended December 31 consists of the following:
| (Dollars in thousands) | 2025 | 2024 | ||||||||||||
| Federal | $ | — | $ | — | ||||||||||
| State | 23 | 35 | ||||||||||||
| Deferred | (2,339) | (2,522) | ||||||||||||
| Total | $ | (2,316) | $ | (2,487) | ||||||||||
Deferred income tax expense (benefit) from operations for each of the years ended December 31 consists of the following:
| (Dollars in thousands) | 2025 | 2024 | ||||||||||||
| Deferred tax (benefit) expense | $ | (4,320) | $ | 4,006 | ||||||||||
| Net operating loss carry forward | (1,364) | (8,192) | ||||||||||||
| Valuation allowance | 3,345 | 1,664 | ||||||||||||
| $ | (2,339) | $ | (2,522) | |||||||||||
The Company’s effective income tax rate from operations differed from the Federal statutory rate for each of the years ended December 31 as follows:
| (Dollars in thousands) | 2025 | 2024 | |||||||||||||||||||||
| In USD | Percent | In USD | Percent | ||||||||||||||||||||
| US Federal statutory tax rate | $ | (12,470) | 21 | % | $ | (12,765) | 21 | % | |||||||||||||||
| State and local income tax, net of federal income tax effect | |||||||||||||||||||||||
| Kentucky income tax effect | (581) | 1 | (126) | — | |||||||||||||||||||
| All other states income tax effect | (12) | — | (465) | 1 | |||||||||||||||||||
| State rate adjustment | (117) | — | (271) | — | |||||||||||||||||||
| State NOL adjustment | 760 | (1) | 917 | (1) | |||||||||||||||||||
| Nontaxable or nondeductible items | |||||||||||||||||||||||
| Partnership differential | 1,282 | (2) | (704) | 1 | |||||||||||||||||||
| Stock based compensation | 113 | — | (79) | — | |||||||||||||||||||
| Fair value adjustment of warrants | 4,973 | (8) | — | — | |||||||||||||||||||
| Cancellation of debt income | 0 | — | 6,004 | (10) | |||||||||||||||||||
| Loss on extinguishment of debt | (2,592) | 4 | 1,241 | (2) | |||||||||||||||||||
| Other permanent items | 5 | — | 5 | — | |||||||||||||||||||
| Other Adjustments | |||||||||||||||||||||||
| Expiration of Net Operating Losses | 2,985 | (5) | 718 | (1) | |||||||||||||||||||
| Return to provision adjustments | (5) | — | 1,369 | (2) | |||||||||||||||||||
| Other | (2) | — | 5 | — | |||||||||||||||||||
| Change in valuation allowances | 3,345 | (6) | 1,664 | (3) | |||||||||||||||||||
| Total income tax benefit / Tax rate | $ | (2,316) | 4 | % | $ | (2,487) | 4 | % | |||||||||||||||
Deferred Tax (Liabilities) Assets:
Deferred tax (liabilities) assets are determined based on the temporary differences between the financial statement and tax bases of assets and liabilities as measured by the enacted tax rates. Temporary differences, net operating loss carryforwards and tax credit carryforwards that give rise to deferred tax assets and liabilities are summarized as follows as of December 31:
| (Dollars in thousands) | 2025 | 2024 | ||||||||||||
| Deferred tax assets: | ||||||||||||||
| Accruals and reserves | $ | 229 | $ | 236 | ||||||||||
| Net operating loss | 38,515 | 37,151 | ||||||||||||
| Property, plant and equipment | (1,647) | (1,394) | ||||||||||||
| Stock options | 4,476 | 2,236 | ||||||||||||
| Research and development tax credit | 227 | 227 | ||||||||||||
| Deferred tax assets | 41,800 | 38,456 | ||||||||||||
| Valuation allowance | (41,800) | (38,456) | ||||||||||||
| Deferred tax assets, net of valuation allowance | — | — | ||||||||||||
| Deferred tax liabilities: | ||||||||||||||
| Intangibles | (2,911) | (5,257) | ||||||||||||
| Deferred tax liabilities | (2,911) | (5,257) | ||||||||||||
| Deferred tax liabilities, net | $ | (2,911) | $ | (5,257) | ||||||||||
In connection with the strategic contract pipeline acquired in the Soluna Callisto acquisition as further discussed in Note 5, ASC 740-10-25-51 requires the recognition of a deferred tax impact of acquiring an asset in a transaction that is not a business combination when the amount paid exceeds the tax basis on the acquisition date. As such, the Company is required to adjust the value of the strategic contract pipeline by approximately $10.9 million and this amount will be amortized over the life of the asset.
Valuation Allowance:
The Company believes that the accounting estimate for the valuation of deferred tax assets is a critical accounting estimate because judgment is required in assessing the likely future tax consequences of events that have been recognized in our financial statements or tax returns. The Company based the estimate of deferred tax assets and liabilities on current tax laws and rates and, in certain cases, business plans and other expectations about future outcomes.
As a result of its assessment in 2025, the Company increased its valuation allowance against its deferred tax assets. The increase in the valuation allowance caused incremental tax expense of $3.3 million to be recognized in 2025. The increase of the valuation allowance was based upon the uncertainty surrounding the Company’s projected future taxable income, causing the Company to evaluate what portion of the Company’s deferred tax assets it believes are more likely than not to be realized. The Company has determined that it will not generate sufficient levels of pre-tax earnings in the future to realize the deferred tax assets relating to net operating loss carryforwards and research and development credit carryforwards recorded on the balance sheet as of December 31, 2025. Taking into consideration existing levels of permanent differences, non-deductible expenses and the reversal of significant temporary differences, the Company has determined that all other deferred tax assets recorded on the balance sheet as of December 31, 2025, will not be fully realized.
The valuation allowance on December 31, 2025 and 2024 was $41.8 million and $38.5 million, respectively. Activity in the valuation allowance for deferred tax assets is as follows as of December 31:
| (Dollars in thousands) | 2025 | 2024 | ||||||||||||
| Valuation allowance, beginning of year | $ | 38,456 | $ | 36,791 | ||||||||||
| Net operating (loss) income | 1,364 | 8,200 | ||||||||||||
| Property, plant and equipment | (253) | (7,171) | ||||||||||||
| Stock options | 2,240 | 673 | ||||||||||||
| Research and development credit | — | — | ||||||||||||
| Accrued expenses | (7) | (37) | ||||||||||||
| Valuation allowance, end of year | $ | 41,800 | $ | 38,456 | ||||||||||
Net operating losses:
As of December 31, 2025, the Company has unused Federal net operating loss carryforwards of approximately $171.0 million after reducing the total by $14.2 million which expired in 2025. Of what is remaining, $33.9 million will begin to expire in 2026 and the remainder being carried forward indefinitely.
The Company’s and/or its subsidiaries’ ability to utilize their net operating loss carryforwards may be significantly limited by Section 382 of the IRC of 1986, as amended, if the Company or any of its subsidiaries undergoes an “ownership change” as a result of changes in the ownership of the Company’s or its subsidiaries’ outstanding stock pursuant to the exercise of the warrants or otherwise.
Unrecognized tax benefits:
The Company has unrecognized tax benefits of $0 and $0 thousand as of December 31, 2025 and 2024, respectively.
Additionally, the Company does not have uncertain tax positions that it expects will increase or decrease within twelve months of this reporting date. The Company recognizes interest and penalties related to uncertain tax positions as a component of tax expense. The Company did not recognize any interest or penalties in 2025 or 2024.
The Company files income tax returns, including returns for its subsidiaries, with federal and state jurisdictions. The Company is no longer subject to IRS or state examinations for any periods prior to 2021, although carryforward attributes that were generated prior to 2023 may still be adjusted upon examination by the IRS if they either have been or will be used in a future period.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 30, 2026 | Showing above |
| 2024 | Mar 31, 2025 | |
| 2023 | Apr 1, 2024 | |
| 2022 | Mar 31, 2023 | |
| 2021 | Mar 31, 2022 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.