Sanara MedTech Inc. Income Taxes Disclosure
NOTE 13 – INCOME TAXES
In accordance with ASU 2023-09, the Company has expanded its income tax disclosures to include (i) disaggregation of state and local income taxes paid by jurisdiction, (ii) the amount of income taxes paid disaggregated by jurisdiction, (iii) a tabular reconciliation of the statutory federal income tax rate to the effective tax rate using both percentages and reporting currency amounts, (iv) specific categories of reconciling items and (v) additional information for reconciling items that exceed the quantitative threshold. The Company adopted ASU 2023-09 retrospectively for the year ended December 31, 2025.
Loss from continuing operations before income tax consists of the following for the periods presented:
| Year Ended | ||||||||
| December 31, | ||||||||
| 2025 | 2024 | |||||||
| Domestic | $ | (393,124 | ) | $ | (1,889,203 | ) | ||
| Foreign | ||||||||
| Loss from continuing operations before income tax | $ | (393,124 | ) | $ | (1,889,203 | ) | ||
Income tax expense for continuing operations consists of the following for the periods presented:
| Year Ended | ||||||||
| December 31, | ||||||||
| 2025 | 2024 | |||||||
| United States Federal Taxes | ||||||||
| Current | $ | $ | ||||||
| Deferred | ||||||||
| State Taxes | ||||||||
| Current | 48,380 | |||||||
| Deferred | ||||||||
| Total income tax expense | $ | $ | 48,380 | |||||
Tax Rate Reconciliation
In accordance with ASU 2023-09, the Company has expanded its effective tax rate reconciliation below to present both dollar amounts and percentages, and to provide greater disaggregation of significant reconciling items, including state and local income taxes and nontaxable or nondeductible items.
A reconciliation of the federal statutory tax rate of 21% to the Company’s effective tax rate for continuing operations was as follows for the periods presented:
| Year
Ended December 31, | ||||||||||||||||
| 2025 | 2024 | |||||||||||||||
| Pre-tax book loss from continuing operations | $ | (393,124 | ) | $ | (1,889,203 | ) | ||||||||||
| Provision at U.S. federal statutory rate | (82,556 | ) | 21.00 | % | (396,733 | ) | 21.00 | % | ||||||||
| State and local income taxes, net of federal income tax effect (1) | % | 48,380 | (2.56 | )% | ||||||||||||
| Change in valuation allowance | (700,113 | ) | 178.09 | % | 794,711 | (42.07 | )% | |||||||||
| Nontaxable or nondeductible items: | ||||||||||||||||
| Fair value adjustments | % | (497,373 | ) | 26.33 | % | |||||||||||
| Share-based compensation | 167,840 | (42.69 | )% | (237,838 | ) | 12.59 | % | |||||||||
| Officer compensation limitation | 400,732 | (101.93 | )% | 74,375 | (3.94 | )% | ||||||||||
| Meals and entertainment | 126,209 | (32.10 | )% | 141,593 | (7.49 | )% | ||||||||||
| NOL carryover adjustments | 122,876 | (31.26 | )% | 97,806 | (5.18 | )% | ||||||||||
| Other | (34,988 | ) | 8.89 | % | 23,459 | (1.24 | )% | |||||||||
| Effective tax rate | $ | % | $ | 48,380 | (2.56 | )% | ||||||||||
| (1) | State taxes comprise minimum and franchise taxes across multiple jurisdictions. |
The Company’s effective income tax rate for the year ended December 31, 2025 was %, compared to 2.56% for the year ended December 31, 2024.
The primary drivers of the change in the effective tax rate in 2025 compared to 2024 were changes in state and local income taxes, changes in the valuation allowance, and changes in nontaxable and nondeductible items, which consisted primarily of officer compensation subject to the limitation under Internal Revenue Code §162(m), meals and entertainment and vesting of restricted stock awards.
All tax years starting with 2021 are open for examination. Since the Company has recorded losses from tax year 2021 onward, such years are considered open until the statute of limitations closes on the year in which losses are utilized. The Company’s 2022 federal tax return was selected for audit and closed in June 2025 with no changes. There are no other federal or state audits open as of December 31, 2025.
Income Taxes Paid
The table below presents the income taxes paid related to continuing operations for the periods presented:
| Year Ended | ||||||||
| December 31, | ||||||||
| 2025 | 2024 | |||||||
| Federal | $ | $ | ||||||
| State | 25,488 | 19,273 | ||||||
| Total | $ | 25,488 | $ | 19,273 | ||||
Income taxes paid (net of refunds) exceeded 5% of total income taxes paid (net of refunds) related to continuing operations in the following jurisdictions:
| Year Ended | ||||||||
| December 31, | ||||||||
| 2025 | 2024 | |||||||
| States | ||||||||
| Texas | $ | 25,488 | $ | 19,273 | ||||
Deferred Income Taxes
In accordance with ASU 2023-09, the Company provides a net deferred tax asset or liability equal to the expected future tax benefit or expense of temporary reporting differences between book and tax accounting and any available operating loss or tax credit carryforwards.
After applying the provisions of Section 382 of the Internal Revenue Code, the unexpired net operating loss (“NOL”) carryforward at December 31, 2025 was approximately $59.1 million, of which, approximately $26.5 million, generated in 2017 and prior, will expire between 2025 and 2037. Under the Tax Cuts and Jobs Act, the NOL generated from 2018 through 2025, of approximately $32.6 million, will have an indefinite carryforward period but can generally only be used to offset 80% of taxable income in any particular year. The Company may be subject to certain limitations in its annual utilization of NOL carryforwards to off-set future taxable income pursuant to Section 382 of the Internal Revenue Code, which could result in NOLs expiring unused.
The components of the deferred income tax assets and liabilities consisted of the following:
| As of December 31, | ||||||||
| 2025 | 2024 | |||||||
| Deferred tax assets | ||||||||
| Net operating loss carryforwards | $ | 13,385,937 | $ | 12,907,965 | ||||
| Research and development costs | 2,213,731 | 3,006,029 | ||||||
| Stock compensation expense | 509,029 | 789,373 | ||||||
| Accrued expenses | 7,330 | |||||||
| Lease liability | 542,404 | 389,882 | ||||||
| Contingent liability | 57,367 | 221,065 | ||||||
| Acquisition liability | 43,222 | 112,722 | ||||||
| Bad debt and other reserves | 331,192 | 287,900 | ||||||
| Inventory reserves | 149,521 | 130,605 | ||||||
| Interest expense carryforwards | 1,737,593 | |||||||
| Depreciation and amortization | 1,796,856 | |||||||
| Other temporary differences | 806,394 | 1,049,365 | ||||||
| Total deferred tax assets | 21,573,246 | 18,902,236 | ||||||
| Deferred tax liabilities | ||||||||
| Depreciation and amortization | (5,683,259 | ) | ||||||
| Right of use assets | (506,691 | ) | (353,763 | ) | ||||
| Contingent liability | (38,308 | ) | ||||||
| Other temporary differences | (159,455 | ) | (294,608 | ) | ||||
| Valuation allowance (1) | (20,907,100 | ) | (12,532,298 | ) | ||||
| Net deferred tax asset | $ | $ | ||||||
| (1) | The change in valuation allowance does not equal the change in valuation allowance related to the effective tax rate because the deferred tax assets and liabilities associated with THP remain with Sanara Surgical for income tax purposes. |
The Company has established a valuation allowance of $20.9 million and $12.5 million as of December 31, 2025 and 2024, respectively, against our net deferred tax assets. The Company determines the valuation allowance on deferred tax assets by considering both positive and negative evidence in order to ascertain whether it is more likely than not that deferred tax assets will be realized. A 100% valuation allowance has been provided for all deferred tax assets, as the ability of the Company to generate sufficient taxable income in the future is uncertain.
The $8.4 million net increase in the valuation allowance during 2025 was primarily driven by the increase in net operating losses and interest expense carryforwards and the decrease in depreciation and amortization basis for GAAP purposes.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 24, 2026 | Showing above |
| 2024 | Mar 25, 2025 | |
| 2023 | Mar 25, 2024 | |
| 2022 | Mar 20, 2023 | |
| 2021 | Mar 31, 2022 | |
| 2020 | Mar 30, 2021 | |
| 2019 | Mar 26, 2020 | |
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.