TruGolf Holdings, Inc. Income Taxes Disclosure

NOTE 21 – INCOME TAXES

 

The Company adopted ASU 2023-09 on January 1, 2025, on a prospective basis. Accordingly, the enhanced income tax disclosures required under the new standard are presented only for the year ended December 31, 2025. Prior period amounts have not been recast and are therefore not comparable.

 

Components of Income Tax Expense (Benefit)

 

The components of income tax expense (benefit) from continuing operations for the years ended December 31, 2025 and 2024, are as follows:

 SCHEDULE OF COMPONENTS OF INCOME TAX EXPENSE (BENEFIT)

		December 31, 2025				December 31, 2024
Current income tax expense (benefit):
Federal		$	—			$	—
State			—				—
Foreign			—				—
Total current income taxes		$	—				—
Deferred income tax expense (benefit):
Federal		$	2,758,300			$	1,878,000
State			591,300				406,800
Foreign			—				—
Total deferred income taxes			3,349,600				2,284,800
Change in valuation allowance			(3,349,600	)			(2,284,800	)
Income tax expense (benefit)		$	—			$	—

 

The Company recorded no current or deferred income tax expense for the years ended December 31, 2025 and 2024, primarily due to losses and a full valuation allowance on deferred tax assets.

 

Enhanced Disclosures (ASU 2023-09 – 2025)

 

Effective Tax Rate Reconciliation (2025)

 

The following is a reconciliation of the statutory federal income tax rate applied to pre-tax net loss compared to the income taxes in the statement of operations for the year ended December 31, 2025.

 

In accordance with ASU 2023-09, reconciling items greater than 5% of the statutory tax rate are presented separately. Amounts below this threshold are aggregated within “Other.” The 2025 reconciliation below is not presented on a comparable basis with prior periods due to the adoption of ASU 2023-09.

 SCHEDULE OF RECONCILIATION OF THE STATUTORY FEDERAL INCOME TAX RATE

		Amount				% of Pretax Income
Income tax benefit at statutory U.S. federal rate (21%)		$	(3,150,608	)			(21.00	%)
State income taxes, net of federal benefit			(682,632	)			(4.55	%)
Stock-based compensation
Non-deductible derivative liability change
Change in valuation allowance			3,349,600				22.32	%
Other (1)			483,640				3.23	%
Income tax expense (benefit)		$	—				0.00	%

 

(1)	Includes equity-based compensation and other individually immaterial items.

 

 

Income Taxes Paid (Disaggregated) – 2025

 SCHEDULE OF DISAGGREGATED OF INCOME TAXES PAID

(in dollars)		Amount
U.S. federal		$	—
U.S. state			—
Foreign			—
Total income taxes paid		$	—

 

Legacy Disclosures (ASC 740 – 2024)

 

The following is a reconciliation of the statutory federal income tax rate applied to pre-tax net loss compared to the income taxes in the statement of operations as of December 31, 2024.

 

Deferred Income Taxes

 

Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The following table sets forth deferred income tax assets and liabilities as of the date shown:

 SCHEDULE OF DEFERRED INCOME TAX ASSETS AND LIABILITIES

		December 31, 2025				December 31, 2024
Deferred tax assets:
Net operating losses		$	3,762,600			$	1,628,300
Stock compensation expense			2,700				132,400
Accrued expenses			10,100				162,700
Extinguishment of debt			1,508,900				66,600
Depreciation			9,500				18,900
Amortization			279,900				179,100
Allowance for doubtful accounts			188,900				188,900
Deferred tax assets			5,762,600				2,376,900
Deferred tax liabilities
Prepaid expenses			(129,200	)			(28,700	)
Other			-				(64,400	)
Deferred tax liabilities			(129,200	)			(93,100	)
Valuation allowance			(5,633,400	)			(2,283,800	)
Net deferred tax asset/(liability)		$	—			$	—

 

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized.  The ultimate realization of deferred tax assets is dependent upon the generation of future rewrite taxable income during the periods in which the net operating losses and temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and projections for future taxable income over periods in which the deferred tax assets are deductible. Management believes it is more likely than not that the Company will not realize the benefits of these deductible differences. A valuation allowance has been applied to the amount of deferred tax assets management expects will be unrealized.

 

 

The Company’s policy is to record interest and penalties associated with unrecognized tax benefits as additional income taxes in the statement of operations. As of January 1, 2025, the Company had no unrecognized tax benefits and no charge during 2025, and accordingly, the Company did not recognize any interest or penalties during 2025 related to unrecognized tax benefits. There is no accrual for uncertain tax positions as of December 31, 2025.

 

The Company has federal net operating loss carryforwards of $15,258,608 and $6,580,951 as of December 31, 2025 and 2024, respectively. $15,258,608 of the federal net operating loss has an indefinite carry forward period. The Company has State net operating loss carryforwards totaling $15,530,991 and $6,853,334 at December 31, 2025 and 2024. The Company has various state net operating loss carryforwards. The determination of the state net operating loss carryforwards is dependent upon apportionment percentages and state laws that can change from year to year and impact the amount of such carryforwards. If such net operating loss carryforwards are not utilized, they will begin to expire in 2031.

 

The following table sets for the tax years subject to examination for the major jurisdictions where the Company conducted business in the prior years and as of December 31, 2025.

 SCHEDULE OF INCOME TAX EXAMINATION

Federal		2024 to 2025
Utah		2024 to 2025
Tax years		2024 to 2025

 

Federal and state laws impose substantial restrictions on the utilization of NOL carryforwards in the event of an ownership change for income tax purposes, as defined in Section 382 of the Internal Revenue Code (“IRC”). Pursuant to IRC Section 382, annual use of the Company’s NOL carryforwards may be limited in the event a cumulative change in ownership of more than 50% occurs within a three-year period. The Company has not completed an IRC Section 382 analysis regarding the limitation of NOL carryforwards.

 

However, it is possible that past ownership changes will result in the inability to utilize a significant portion of the Company’s NOL carryforward that was generated prior to any change of control. The Company’s ability to use its remaining NOL carryforwards may be further limited if the Company experiences an IRC Section 382 ownership change in connection with future changes in the Company’s stock ownership.

 

The Tax Cuts and Jobs Act (“TCJA”) requires taxpayers to capitalize and amortize research and experimental expenditures under IRC Section 174 for tax years beginning after December 31, 2021. This rule became effective for the Company during the year ended December 31, 2022 and resulted in the capitalization of research and development costs of $3,231,490 and $2,745,033 during the years ended December 31, 2025 and 2024, respectively. Before the TCJA, businesses have had the option of deducting Section 174 expenses in the year incurred or capitalizing and amortizing the costs over five years. The Company will amortize these costs for tax purposes over five years if the research and development was performed in the U.S. and over 15 years if research and development was performed outside the U.S.