TECOGEN INC.TGEN
TECOGEN INC. Income Taxes Disclosure
Income Taxes
A reconciliation of the federal statutory income tax provision and tax rate to our actual provision and expected tax rate for the years ended December 31, 2025 and 2024 is as follows:
| 2025 | 2024 | |||||||||||||||||||||||||
| Provision | Rate | Provision | Rate | |||||||||||||||||||||||
| Pre-tax book income (loss) | $ | (8,228,728) | $ | (4,651,205) | ||||||||||||||||||||||
| Expected tax at 21% | (1,728,033) | 21.0 | % | (976,753) | 21.0 | % | ||||||||||||||||||||
| Permanent differences: | ||||||||||||||||||||||||||
| Goodwill impairment | 230,606 | (2.8) | % | 45,632 | (1.0) | % | ||||||||||||||||||||
| Intangible amortization | (23,824) | 0.3 | % | (37,003) | 0.8 | % | ||||||||||||||||||||
| Other | 7,310 | (0.1) | % | 5,169 | (0.1) | % | ||||||||||||||||||||
| State taxes: | ||||||||||||||||||||||||||
| Current | 20,615 | (0.3) | % | 22,565 | (0.5) | % | ||||||||||||||||||||
| Deferred | (379,627) | 4.6 | % | (234,928) | 5.1 | % | ||||||||||||||||||||
| Other items: | ||||||||||||||||||||||||||
| Expired net operating losses | 130,882 | (1.6) | % | 324,799 | (7.0) | % | ||||||||||||||||||||
| Change in valuation allowance | 1,846,721 | (22.4) | % | 920,794 | (19.8) | % | ||||||||||||||||||||
| Deferred tax past year true-up's | 15,124 | (0.2) | % | (91,289) | 2.0 | % | ||||||||||||||||||||
| Other | (99,159) | 1.2 | % | 43,579 | (0.9) | % | ||||||||||||||||||||
| Income tax provision | $ | 20,615 | (0.3) | % | $ | 22,565 | (0.5) | % | ||||||||||||||||||
The components of net deferred tax assets recognized in the accompanying consolidated balance sheets at December 31, 2025 and 2024 are as follows:
| 2025 | 2024 | ||||||||||
| Net operating loss carryforwards | $ | 13,698,000 | $ | 12,025,000 | |||||||
| R&D and ITC credit carryforwards | 412,000 | 396,000 | |||||||||
| Accrued expenses and other | 372,000 | 267,000 | |||||||||
| Intangibles | 286,000 | 370,000 | |||||||||
| Leases | (29,000) | — | |||||||||
| Accounts receivable | 102,000 | 76,000 | |||||||||
| Stock options | (102,000) | 486,000 | |||||||||
| Inventory | 343,000 | 279,000 | |||||||||
| Property, plant and equipment | 530,000 | 578,000 | |||||||||
| Other | 1,176,000 | 464,000 | |||||||||
| Deferred tax assets | 16,788,000 | 14,941,000 | |||||||||
| Valuation allowance | (16,788,000) | (14,941,000) | |||||||||
| Deferred tax assets, net | $ | — | $ | — | |||||||
At December 31, 2025, we had approximately $46,509,000 of federal net operating loss carryforwards ("NOL") of which $245,000 expired as of December 31, 2025, $20,509,658 expire beginning in 2024 through 2039 and $25,999,342 have an indefinite carryforward. In addition, we have $35,705,000 of state net operating losses, expiring at various dates starting in 2026 through 2043.
The Tax Cuts and Jobs Act was enacted on December 22, 2017. A significant provision of the act was to reduce the statutory federal tax rate from 34% to 21%. During 2025, our valuation allowance increased by $1,847,000 and $130,882 of net operating loss carryforwards expired. This increase is affected by the absorption of deferred tax attributes associated with its acquisition of American DG Energy, Inc. along with permanent book to tax differences and provision to return adjustments.
In accordance with the provisions of the Income Taxes topic of the Codification, we have evaluated the positive and negative evidence bearing upon the realizability of our deferred tax assets, which are comprised principally of net operating losses. Management has determined that it is more likely than not that we will not recognize the benefits of federal and state deferred tax assets and, as a result, a full valuation allowance has been established for 2024 and 2025, respectively.
Utilization of the NOL and research and development credit carryforwards are subject to a substantial annual limitation due to ownership changes, as provided by Section 382 of the Internal Revenue Code of 1986, as well as similar state provisions. Ownership changes may limit the amount of NOL and tax credit carryforwards that can be utilized to offset future taxable income and tax, respectively. In general, an ownership change, as defined by Section 382, results from transactions increasing the ownership of certain shareholders or public groups in the stock of a corporation by more than 50 percentage points over a three-year period.
We acquired American DG Energy, Inc. during 2017, by acquiring 100 percent of the company's stock. Accordingly, utilization of their consolidated and/or separately computed NOL and/or tax credit carryforwards will be subject to an annual limitation under Internal Revenue Code Section 382. Any such limitation may result in expiration of a portion of the NOL or tax credit carryforwards before utilization. The extent of the limitation, and related allocation and impact upon the NOL and credit carryforwards has been determined to be $391,940 per year for a 20 year period at the ADGE level. However, we have sufficient pre-merger NOLs to offset anticipated taxable income for the taxable year ended December 31, 2025 and do not expected to be limited in NOL utilization for the period.
A full valuation allowance has been provided against our loss carryforwards and, if an adjustment is required under Section 382, it would be offset by a corresponding adjustment to the valuation allowance. Thus, there would be no impact to the balance sheet or statement of operations if an adjustment were required.
We have not recorded any amounts for unrecognized tax benefits as of December 31, 2025 or 2024.
We file tax returns as prescribed by the tax laws of the jurisdiction in which we operate. In the normal course of business, we are subject to examination by federal and state jurisdictions, where applicable. There are currently no pending tax examinations. Our tax returns from tax year 2022 are still open for examination for both federal and state jurisdictions.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 19, 2026 | Showing above |
| 2024 | Mar 18, 2025 | |
| 2023 | Mar 25, 2024 | |
| 2022 | Mar 23, 2023 | |
| 2021 | Mar 10, 2022 | |
| 2020 | Mar 18, 2021 | |
| 2019 | Mar 12, 2020 | |
| 2018 | Mar 29, 2019 | |
| 2017 | Mar 21, 2018 | |
| 2016 | Mar 23, 2017 | |
| 2015 | Mar 30, 2016 | |
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.