TOMI Environmental Solutions, Inc. Income Taxes Disclosure

NOTE 15. INCOME TAXES

The Company accounts for income taxes under the asset and liability method in accordance with ASC 740, Income Taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, measured using enacted tax rates expected to apply when those differences reverse.

As described in Note 2, Summary of Significant Accounting Policies, the Company has adopted ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, for the fiscal years ended December 31, 2025 and 2024, applied on a prospective basis as of January 1, 2025. Because the ASU affects disclosures only, adoption did not affect our Consolidated Statements of Operations or Consolidated Balance Sheets.

The Company recorded no income tax expense or benefit for the years ended December 31, 2025 and 2024 due to operating losses and the establishment of a full valuation allowance against its deferred tax assets.

The Company’s net loss before income tax consisted of:

The Company’s income tax expense (benefit) consisted of:

Cash paid for income taxes, net of refunds was as follows:

State minimum taxes for 2025 and 2024 totaling $1,350 and $800, respectively, are not within the scope of ASC 740, as it is assessed on the privilege of doing business rather than on net income and are classified as a general and administrative expense in the accompanying statements of operations.

Effective Tax Rate Reconciliation

Upon adoption of ASU 2023-09, Improvements to Income Tax Disclosures, the following table reconciles the statutory federal income tax rate to the Company's effective tax rate for the year ended December 31, 2025:

The reconciliation of taxes at the federal statutory rate to our provision for (benefit from) income taxes for the year ended December 31, 2024 in accordance with the guidance prior to the adoption of ASU 2023-09 was as follows:

Components of our deferred income tax assets (liabilities) are as follows:

Net Operating Loss Carryforwards

For income tax purposes in the United States, we had available federal net operating loss carryforwards (“NOL”) as of December 31, 2025 and 2024 of approximately $28,310,000 and $22,434,000 respectively to reduce future federal taxable income. For income tax purposes in the United States, we had available state NOL carryforwards as of December 31, 2025 and 2024 of approximately $25,784,000 and $20,045,000 respectively to reduce future state taxable income. If any of the NOL’s generated prior to 2018 are not utilized, they will expire at various dates through 2037. NOL’s generated after 2017 carry forward indefinitely but are limited to offset 80% of taxable income in any given year. There may be certain limitations as to the future annual use of the NOLs due to certain changes in our ownership.

Valuation Allowance

The Company has established a full valuation allowance against its net deferred tax assets. Management evaluates the realizability of deferred tax assets based on all available evidence, including historical operating results, projections of future taxable income, and the reversal of temporary differences. Based on the Company’s history of operating losses, management has concluded that it is more likely than not that the deferred tax assets will not be realized and has therefore established a full valuation allowance.

Deferred income tax assets and liabilities are determined based on differences between the financial statement reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws in effect when the differences are expected to reverse. The measurement of deferred income tax assets is reduced, if necessary, by a valuation allowance for any tax benefits, which are, on a more likely than not basis, not expected to be realized; in accordance with ASC-740 guidance for income taxes. As of December 31, 2025 and 2024, we recorded valuation allowances of $9,719,000 and $8,692,000, respectively for the portion of the deferred tax assets that we do not expect to be realized. The valuation allowance on our net deferred taxes increased by $1,027,000 during the year ended December 31, 2025, primarily due to U.S. deferred tax assets incurred in the current year that cannot be realized.

Uncertain Tax Positions

We record uncertain tax positions in accordance with ASC 740 on the basis of a two-step process whereby (1) we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is more than 50% likely to be realized upon ultimate settlement with the related tax authority. As of December 31, 2025, and 2024, the management of the Company determined there were no reportable uncertain tax positions. The Company files income tax returns in the U.S. federal jurisdiction and various states, including Maryland, California, and Florida. Tax years 2022 through 2024 remain open to examination by the relevant taxing authorities.