SOLESENCE, INC. Income Taxes Disclosure

(8) Income Taxes

 

Our net income tax provision, including both current and deferred, related to U.S. federal and state income taxes, is $73. Our current federal and deferred tax expenses are zero.

 

As further described in Recently Adopted Pronouncements, the Company has elected to prospectively adopt the guidance in ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Taxes Disclosures, or ASU 2023-09. The following table is a reconciliation of the U.S. federal statutory rate of 21% to the Company's effective rate for the year ended December 31, 2025 in accordance with the guidance in ASU No. 2023-09:

 

		2025
Income tax credit at statutory rates		$	392
Nondeductible or nondeductible items
Permanent tax deduction stock options exercised			(271	)
Other nontaxable or nondeductible			3
Recorded tax credits			(167	)
State income tax, net of federal benefits			59
Other
Expiration of net operating losses and credits			968
Stock based compensation true-up			207
Section 174 true-up			167
R&D credit true-up			(153	)
Miscellaneous			1
Change in valuation allowance			(1,133	)
		$	73

 

State taxes in Illinois made up the majority of the tax effect in this category and the supplemental cash flow information in the Consolidated Statement of Cash Flows.

 

The following table is a reconciliation of the U.S. federal statutory rate of 21% to the Company's effective rate for the year ended December 31, 2024, in accordance with the guidance prior to the adoption of ASU 2023-09:

 

		2024
Income tax credit at statutory rates		$	937
Under accrual of income taxes			(1	)
Nondeductible expenses			5
Recorded tax credits			(116	)
Permanent tax deduction stock options exercised			(27	)
State income tax, net of federal benefits			179
Expiration of net operating losses and credits			332
Effect of change in deferred tax rate			49
Expiration of stock options			46
Other			(39	)
Change in valuation allowance			(1,138	)
		$	227

 

 

 

The approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets (before allocation of valuation allowances) is as follows:

 

		As of December 31,
		2025				2024
Approximate effect of deferred tax liabilities:
Excess tax depreciation		$	(420	)		$	(496	)
ASC 842 operating lease asset			(1,798	)			(1,938	)
Total approximate tax effect of deferred tax liabilities			(2,218	)			(2,434	)
Approximate effect of deferred tax assets:
Net operating loss carryforwards		$	9,266			$	10,218
163(j) Business interest limitation carryforwards			114				—
Inventory and other allowances			29				764
Excess book amortization			—				60
174 research and experimental expenditures			682				1,053
Share-based compensation			688				788
Tax credits			509				189
ASC 842 Operating Lease Liability			2,355				2,520
Other accrued costs			1,142				292
Total approximate tax effect of deferred tax assets			14,785				15,884
Less: valuation allowance			(12,567	)			(13,450	)
Total approximate tax effect on temporary differences		$	—			$	—

 

The valuation allowance decreased approximately $1.0 million and $1.1 million for the years ended December 31, 2025 and 2024, respectively (net of approximately $5.4 million and $8.1 million for the years ended December 31, 2025 and 2024, respectively, for expiring net operating loss carryforwards and credits) due principally to the change in the net operating loss carryforward and uncertainty as to whether future taxable income will be generated prior to the expiration of the carryforward period. Under the Internal Revenue Code, certain ownership changes, including the prior issuance of preferred stock and our public offering of common stock, may subject us to annual limitations on the utilization of our net operating loss carryforward. As of December 31, 2025, it has been determined that we are not subject to annual limitations on the utilization of our net operating loss carryforward.

 

We have federal net operating loss carryforwards for tax purposes of approximately $36.9 million on December 31, 2025. $30.7 million expire between 2026 and 2038. All net operating loss carryforwards generated after January 1, 2018 do not expire. Therefore, $6.2 million in net operating losses generated since January 1, 2018 do not expire. We have Illinois net loss deduction carryforwards for tax purposes of approximately $18.5 million on December 31, 2025. Due to the provisions of Illinois Public Act 102-0669 signed November 16, 2021, Illinois net loss deductions expire between 2029 and 2039.

 

Tax years that remain subject to examination by major tax jurisdictions are open for years subsequent to 2021. Years with NOLs remain subject to examination until 3 years after the NOL is used or until the NOL expires.