Usio, Inc. Income Taxes Disclosure

Note 11. Income Taxes

 

Deferred tax assets and liabilities are recorded based on the difference between financial reporting and tax basis of assets and liabilities and are measured by the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. Deferred tax assets are computed with the presumption that they will be realizable in future periods when taxable income is generated. Predicting the ability to realize these assets in future periods requires judgment by management. GAAP prescribes a recognition threshold and measurement attribute for a tax position taken or expected to be taken in a tax return. Income tax benefits that meet the “more likely than not” recognition threshold are recognized.

 

The Company has recognized a deferred tax asset of approximately $4.5 million recorded net of a valuation allowance of approximately $2.9 million. Management considered the realizability of this asset in light of historical operating results and forecasted results, and determined that more likely than not that the Company will have taxable income in the future, and elected to increase the valuation allowance by approximately $247,000 in 2025, and decreased the valuation allowance by $3.6 million during 2024. The Company reviews the assessment of the deferred tax asset and valuation allowance on an annual basis or more often when events indicate that a change to the valuation allowance  may be warranted. If applicable, the Company would recognize interest expense and penalties related to uncertain tax positions in interest expense. As of December 31, 2025, the Company had not accrued any interest or penalties related to uncertain tax provisions.

 

Significant components of the Company’s deferred tax asset are as follows at December 31:

 

		2025				2024
Deferred tax assets:
Net operating loss carryforwards		$	4,526,228			$	4,582,000
Depreciation and amortization			1,270,120				1,296,000
Non-cash compensation			1,366,031				1,119,000
Processing losses			164,837				188,394
Other			111,865				61,000
Total			7,439,081				7,246,394
Valuation allowance			(2,912,853	)			(2,665,954	)
Deferred tax asset, net		$	4,526,228			$	4,580,440

 

At  December 31, 2025, the Company had available net operating loss carryforwards ("NOLs") of approximately $21.6 million. NOLs generated during or prior to 2017 are available to offset taxable income of future periods and expire 20 years after the loss was generated. NOLs generated after 2017 do not expire. Our ability to use our NOLs before they expire (to the extent they are subject to expiration) will be dependent on our ability to generate taxable income, and the NOLs could expire before we generate sufficient taxable income.

 

Pursuant to Sections 382 and 383 of the Internal Revenue Code ("IRC"), federal and state tax laws impose significant restrictions on the utilization of net operating loss and other tax carryforwards in the event of a change in ownership of the Company. The Company does not expect IRC Sections 382 and 383 to significantly impact the utilization of its NOLs and other tax carryforwards. If we were to experience an "ownership change," as determined under Section 382 of the IRC, our ability to offset taxable income arising after the ownership change with NOLs arising prior to the ownership change would be limited, possibly substantially. An ownership change would establish an annual limitation on the amount of our pre-change NOLs we could utilize to offset our taxable income in any future taxable year to an amount generally equal to the value of our stock immediately prior to the ownership change multiplied by the long-term tax-exempt rate. In general, an ownership change will occur if there is a cumulative increase in our ownership of more than 50 percentage points by one or more "5% shareholders" (as defined in the IRC) at any time during a rolling three-year period.

 

The schedule below outlines when the Company's NOLs for 2017 and prior years were generated and the year they  may expire.

 

Tax Year End Generated		NOL				Expiration
2006		$	1,350,961				2026
2007			1,740,724				2027
2008			918,960				2028
2009			835,322				2029
2010			429,827				2030
2013			504,862				2033
2016			474,465				2036
2017			1,267,336				2037
Total		$	7,522,457

 

 

As of  December 31, 2025, the Company had NOLs totaling approximately $14.0 million that were generated after 2017, which do not expire and can be carried forward to future years to offset taxable income. The schedule below outlines when the Company's NOLs for 2018 and later years were generated.

 

Tax Year End Generated		NOL
2018		$	4,410,916
2019			2,730,461
2020			2,272,315
2022			3,609,279
2025			1,013,889
Total		$	14,036,860
Total NOLs		$	21,559,317

 

The tax provision for federal and state income tax is as follows for the years ended December 31:

 

		2025				2024
Current provision:
Federal		$	—			$	—
State			458,599				449,227
			458,599				449,227
Deferred provision:
Federal expense (benefit)			54,212				(3,076,440	)
Expense (benefit) for income taxes		$	512,811			$	(2,627,213	)

 

The reconciliation of federal income tax expense (benefit) computed at the U.S. federal statutory tax rates to total income tax expense (benefit) is as follows for the years ended December 31:

 

		For the Year Ended
		2025								2024
		Amount				Rate				Amount				Rate
Income tax (benefit) at 21%		$	(419,901	)			21.0	%		$	142,440				21.0	%
Change in valuation allowance			246,899				(12.3	)%			(3,576,665	)			(527.3	)%
Permanent and other differences			227,214				(11.4	)%			458,460				67.6	%
State taxes			458,599				(22.9	)%			348,552				51.4	%
Income tax expense (benefit)		$	512,811				(25.6	)%		$	(2,627,213	)			(387.3	)%