Expion360 Inc. Income Taxes Disclosure

11.    Income Taxes

 

Our losses before income taxes for the years ended December 31, 2025 and 2024 were generated primarily from U.S. operations.

 

We have no current or deferred provision for income taxes from continuing operations for the years ended December 31, 2025 and 2024.

 

The significant differences between the U.S. Federal statutory rate and our effective rate for financial reporting purposes are as follows:

 

Schedule of significant differences between the U.S. Federal statutory rate and our effective rate
	Years Ended December 31,
	2025				2024
Federal statutory tax rate	(21.0	)	%		(21.0	)	%
State taxes, net of federal tax benefit	(5.3	)			(5.1	)
Change in valuation allowance	31.4				22.6
NQSO Comp – Other	—				2.1
EQ Comp – Other	—				0.0
Permanent difference	(0.2	)			—
True-up Adjustment	(4.9	)			1.5
Effective tax rate	—		%		—		%

 

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities are as follows for the year ended December 31, 2025 and 2024.

 

Deferred income tax assets and liabilities consist of the following:

 

		As of December 31,
		2025				2024
Deferred tax assets:
Net Operating Losses		$	8,112,158			$	6,274,519
Stock-based compensation			528,359				170,064
Inventory reserve			143,468				—
Depreciation			12,784				138,334
Other			—				256,179
Subtotal			8,796,769				6,839,096
Valuation allowance			(8,796,769	)			(6,839,096	)
Deferred tax liabilities:			—				—
Net deferred tax asset		$	—			$	—

 

For financial reporting purposes, the Company incurred losses for the years ended December 31, 2025 and 2024 and for each period since inception. Accordingly, no benefit for income taxes has been recorded due to the uncertainty of the realization of any tax assets. At December 31, 2025, the Company had approximately $30,945,899 of federal and state net operating losses.

 

Accrued income taxes as of the end of each year as follows:

 

	As of December 31,
	2025			2024
Current:
Federal	$	—		$	—
State Franchise Fees		150			150

 

A reconciliation between the amount of income tax benefit determined by applying the U.S statutory income tax rate to pre-tax loss is as follows:

 

 

Schedule of reconciliation
		As of December 31,
		2025								2024
Income tax provision at federal statutory rate		$	(1,309,389	)			21.0	%		$	(2,839,422	)			21.0	%
State taxes			(328,013	)			5.3	%			(689,421	)			5.1	%
Stock-based compensation			—				—	%			278,572				(2.1	)%
Permanent difference			(12,326	)			0.2	%			—				—	%
Other			(307,795	)			4.9	%			196,608				-1.5	%
Change in valuation allowance			1,957,673				(31.4	)%			3,053,661				(22.7	)%
Effective tax		$	150				0.0	%		$	—				—	%

 

Tax positions are evaluated in a two-step process. The Company first determines whether it is more likely than not that a tax position will be sustained upon examination. If a tax position meets the more-likely-than-not recognition threshold it is then measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. The aggregate changes in the balance of gross unrecognized tax benefits, which excludes penalties and interest, for the year ended December 31, 2025 is zero.

 

The Company is subject to taxation in the United States and Oregon. There are no ongoing examinations by taxing authorities at this time. The Company’s various tax years 2019 through 2025 remain open for examination by various taxing jurisdictions.

 

The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2025, the Company has not accrued any penalties or interest related to uncertain tax positions.

 

In anticipation of an initial public offering, the Company converted from a limited liability company to a C corporation, a taxable entity, effective November 1, 2021.

 

For the years ended December 31, 2025 and 2024, the Company accrued $150 for state minimum income taxes each year, and did not accrue federal income taxes due to net losses in both years.

 

Since converting to a C corporation, the Company has incurred losses and consequently recorded no provision for state or federal income taxes for the years ended December 31, 2025 and 2024. The Company maintains a full valuation allowance on all deferred tax assets, as it has concluded that it is more likely than not that these assets will not be realized. As of December 31, 2025 and 2024, there were no material unrecognized tax benefits included in the accompanying balance sheets that would, if recognized, affect the effective tax rate.