LQR House Inc. Income Taxes Disclosure

14. INCOME TAXES

The Company accounts for income taxes under ASC 740, Income Taxes, using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and operating loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

Income Tax expense

The income tax expense consisted of the following for the years ended December 31, 2025 and 2024:

Effective Tax Rate Reconciliation

The following table reconciles the U.S. federal statutory income tax rate to the Company’s effective income tax rate:

Deferred Tax Assets

The significant components of the Company’s deferred tax assets as of December 31, 2025 and 2024 are as follows:

Net Operating Loss Carryforwards

As of December 31, 2025, the Company had U.S. federal net operating loss carryforwards of approximately $48.1 million. These NOL carryforwards were generated after December 31, 2017 and may be carried forward indefinitely. However, pursuant to the Tax Cuts and Jobs Act of 2017, the utilization of these NOL carryforwards is limited to 80% of taxable income in any given tax year. The Company’s NOL carryforwards may be subject to further annual limitations under Section 382 of the Internal Revenue Code in the event of certain ownership changes.

Valuation Allowance

The following table presents the activity in the Company’s valuation allowance for the years ended December 31, 2025 and 2024:

The Company has recorded a full valuation allowance against its net deferred tax assets as of December 31, 2025 and 2024. Management determined that it is more likely than not that the deferred tax assets will not be realized, based on the Company’s history of cumulative operating losses and the uncertainty regarding the generation of sufficient future taxable income.

Uncertain Tax Positions

The Company had no unrecognized tax benefits as of December 31, 2025 and 2024, and does not anticipate any material changes in unrecognized tax benefits within the next twelve months. The Company’s policy is to recognize interest and penalties related to uncertain tax positions as a component of income tax expense. No interest or penalties were recognized during the years ended December 31, 2025 and 2024.

The Company files income tax returns in the U.S. federal jurisdiction, applicable U.S. state jurisdictions, and Hong Kong.

The Company has evaluated its income tax positions and has determined that it does not have any uncertain tax positions. The Company will recognize interest and penalties related to any uncertain tax positions through its income tax expense.

The Company is subject to taxation in the following jurisdictions:

United States — Federal and State: The Company is subject to U.S. federal corporate income tax at a statutory rate of 21% under the Tax Cuts and Jobs Act of 2017. The Company also determined that California state income tax applies, resulting in a combined blended effective rate of approximately 27.95%. Nevada, the Company’s state of incorporation through March 2, 2026, does not impose a state corporate income tax. Following reincorporation in Delaware on March 2, 2026, the Company may be subject to Delaware state income tax in future periods.

Hong Kong: YHC Online Limited, incorporated in Hong Kong in July 2025, is subject to Hong Kong profits tax at a rate of 8.25% on the first HKD 2,000,000 of assessable profits and 16.5% on profits above that threshold. YHC Online Limited did not generate any taxable income in Hong Kong during the year ended December 31, 2025.

The Company files income tax returns in the U.S. federal jurisdiction, applicable U.S. state jurisdictions, and Hong Kong. The Company is not presently subject to any income tax audit in any taxing jurisdiction. All tax years from 2021 remain open to examination by U.S. federal and applicable state tax authorities, and all periods since YHC Online Limited’s incorporation in July 2025 remain open to examination by Hong Kong tax authorities.