Worksport Ltd Income Taxes Disclosure

8. Income Taxes

 

The Company adopted ASU 2023-09 on a prospective basis as of January 1, 2025, which resulted in additional income tax disclosures for the rate reconciliation and related to income taxes paid for 2025. Given that the Company elected to adopt ASU 2023-09 prospectively, the 2024 rate reconciliation is not disaggregated in accordance with 2023-09 and the income taxes paid is not presented by jurisdiction.

 

The following table summarizes disaggregated loss from continuing operations before income tax expense:

 Schedule of Disaggregated Loss from Continuing Operations Before Income Tax Expense

		Domestic				Foreign				Total
Loss before income tax expense from continuing operations
Federal		$	(10,934,578	)		$	-			$	(10,934,578	)
State			(1,712,911	)			-				(1,712,911	)
Foreign			-				(6,704,808	)			(6,704,808	)
Total continuing operation		$	(12,647,489	)		$	(6,704,808	)		$	(19,352,297	)

 

Income tax expense (benefit) from continuing operations or the fiscal year ended December 31, 2025 consisted of the following:

 Schedule of Income Tax Expense (benefit) from Continuing Operations

		Current				Deferred				Total
2025
Federal		$	-			$	(2,042,695	)		$	(2,042,695	)
State			-				(516,688	)			(516,688	)
Foreign			-				(1,641,617	)			(1,641,617	)
		$	-			$	(4,201,000	)		$	(4,201,000	)
Valuation allowance			-				4,201,000				4,201,000
Income tax expense		$	-			$	-			$	-

 

The provision for income taxes for the fiscal year ended December 31, 2025 differed from the amount computed by applying the federal statutory income tax rate due to:

Schedule of Statutory U.S Federal Income Tax Rate

		Amount				Percent
U.S. Federal Statutory Income Tax and Rate		$	(2,656,369	)			(21.0	)%
Federal statutory income tax rate
State and Local Income Taxes, Net of Federal Income Tax Effect (1)			(364,757	)			(0.5	)%
Foreign Tax Effects			(1,641,617	)			(2.1	)%
Changes in Unrecognized Tax Benefits
Share compensation			345,850				0.5	%
Other			19,201				0.0	%
Tax Credits
Income tax benefit
Research and Development Tax Credit			(40,000	)			(0.00	)%
Nontaxable and nondeductible items
Share Based Compensation			131,152				0.2	%
Other			5,539				0.0	%
Changes in Valuation Allowance			4,201,000				22.9	%
Effective Tax Rate		$	-				0.0	%

 

(1)

State taxes in Florida, New York, New Jersey and Massachusetts make up the majority (more than 50%) of the tax effect of this category.

 

 

Worksport Ltd.

Notes to the Consolidated Financial Statements

December 31, 2025 and 2024

 

8. Income Taxes (continued)

 

Income taxes paid (net or refunds) consisted of the following:

 Schedule Of Income Taxes Paid (Net or Refunds)

		2025
Federal		$	-
State			2,420
Foreign			-
Total income taxes paid			2,420

 

Income taxes paid (net of refunds) was $62 for the year ended December 31, 2024.

 

 

The tax effects of temporary differences that give rise to the deferred income tax assets at December 31, 2025 and 2024 are as follows:

Schedule of Deferred Income Tax Assets 

		2025				2024
Net operating loss carry forwards		$	13,618,000			$	10,029,000
Differences in basis of depreciation of property and equipment			417,000				465,000
Share based compensation			2,012,000				1,352,000
Research and development credit			180,000				180,000
Deferred tax asset, gross			16,227,000				12,026,000
Deferred tax assets not recognized			(16,227,000	)			(12,026,000	)
Net deferred tax asset		$	-			$	-

 

Deferred income taxes within each jurisdiction on the balance sheets at December 31, 2025 and 2024 are as follows:

Schedule of Deferred Income Taxes Within Each Jurisdiction 

		2025				2024
United States		$	10,118,000			$	7,488,000
Canada			6,109,000				4,538,000
Deferred income taxes			16,227,000				12,026,000
Valuation allowance			(16,227,000	)			(12,026,000	)
Net deferred tax asset		$	-			$	-

 

The Company has non-capital losses carried forward of approximately $58,867,000 available to reduce future years’ taxable income. These losses will expire as follows:

Schedule of Cumulative Non-capital Losses 

		United States				Canada				Total
2034		$	53,000			$	183,000			$	236,000
2035			161,000				368,000				529,000
2036			868,000				262,000				1,130,000
2037			1,472,000				59,000				1,531,000
2038			-				520,000				520,000
2039			-				193,000				193,000
2040			-				718,000				718,000
2041			-				2,854,000				2,854,000
2042			-				3,771,000				3,771,000
2043							2,686,000				2,686,000
2044			-				5,032,000				5,032,000
2045			-				6,197,000				6,197,000
Non-capital losses carried forward Total		$	2,554,000			$	22,843,000			$	25,397,000
Never expire		$	33,470,000			$	-			$	33,470,000

 

 

Worksport Ltd.

Notes to the Consolidated Financial Statements

December 31, 2025 and 2024

 

8. Income Taxes (continued)

 

Realization of deferred tax assets is dependent, in part, upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers projected future taxable income, tax planning strategies and carryback opportunities in making its assessment of the recoverability of tax assets. Net operating loss carryforwards of approximately $58,867,000 may be offset against future taxable income. No tax benefit from these losses have been reported in the December 31, 2025 consolidated financial statements since the potential tax benefit is offset by a valuation allowance of the same amount.

 

Due to change in ownership provisions of the Tax Reform Act of 1986, net operating loss carryforwards for Federal income tax reporting purposes are subject to annual limitations. Should a change in ownership occur, net operating loss carryforwards may be limited as to use in future years.

 

The Company complies with the provisions of ASC 740 in accounting for its uncertain tax positions. ASC 740 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC 740, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The Company has determined that the Company has no significant uncertain tax positions requiring recognition under ASC 740.

 

The Company does not expect the amount of unrecognized tax benefits to materially change within the next twelve months.

 

The Company is subject to income taxes in the U.S. and in various states and foreign jurisdictions. Tax regulations with each jurisdiction are subject to the interpretation of the related tax laws and regulations and require the application of significant judgment. The Company is no longer subject to U.S. federal, state, and local income tax examinations by tax authorities for tax years ending before December 31, 2020 in the U.S. The Company is no longer subject to non-U.S. income tax examinations by tax authorities for tax years ending before December 31, 2014.