INCOME TAXES

12 Months Ended

Dec. 31, 2025

NOTE 9: INCOME TAXES

As of December 31, 2025, the Company had net operating loss carry forwards that may be available to reduce future years’ taxable income.

Income before provision for income taxes consisted of the following:

	2025			2024
	For the year ended December 31,
	2025			2024
U.S.	$	(21,447,994	)	$	(15,577,092	)
Foreign		600,800			556,663
Total income before provision for income taxes	$	(20,847,194	)	$	(15,020,429	)

The provision for income taxes on earnings from continuing operations consisted of the following:

SCHEDULE OF INCOME TAX PROVISION

	2025		2024
	For the year ended December 31,
	2025		2024
Current:	$		$
Federal		-		-
State		1,716		1,700
Foreign		-		-
Total Current	$	1,716	$	1,700
Deferred:
Federal		-		-
State		-		-
Foreign		-		-
Total Deferred		-		-
Income tax expense	$	1,716	$	1,700

The reconciliation of federal statutory income tax rate to our effective tax rate after the adoption of ASU 2023-09 is as follows:

	For the year ended December 31, 2025

U.S. Federal Statutory Tax Rate		(4,374,816	)	21.0	%
State and Local Income Taxes, Net of Federal Income Tax Effect*		1,356		0.0	%
Permanent differences
Permanent differences,Percent
Foreign Tax Effects		(126,168	)	0.6	%
Changes in Valuation Allowances		4,077,647		(19.6	)%
Stock-based compensation
Stock-based compensation, percent
Nontaxable or Nondeductible items:
Change in fair value of convertible notes		242,218		(1.2	)%
Other		385,207		(1.8	)%
Other Adjustments		(203,728	)	1.0	%
Effective Tax Rate	$	1,716		0.0	%

*	State taxes in California made up the majority (greater than 50%) of the tax effect in this category.

	For the year ended December 31, 2024

U.S. Federal Statutory Tax Rate		(3,154,290	)	21.0	%
State and local taxes, net of federal tax benefit		(11,768	)	0.1	%
Permanent differences		230,890		(1.5	)%
Change in valuation allowance		2,454,200		(16.3	)%
Stock-based compensation		482,045		(3.2	)%
Other		623		0.0	%
Income tax expense	$	1,700		0.1	%

The significant components of deferred income taxes were as follows:

SCHEDULE OF NET DEFERRED TAX ASSETS

	2025			2024
Deferred tax assets:
Net operating losses	$	57,370,722		$	53,447,116
Capitalized R&D		2,289,605			2,959,591
Stock-based compensation		1,070,010			288,756
Accruals		6,945			249,495
Operating lease liabilities		-			17,760
Other		435			616
Total gross deferred tax assets		60,737,717			56,963,334

Deferred tax liabilities:
Right-of-use asset		-			(17,340	)
Gross deferred tax liabilities		-			(17,340	)

Gross deferred tax assets		60,737,717			56,945,994
Valuation Allowance		(60,737,717	)		(56,945,994	)
Net deferred tax asset/(liabilities)	$	-		$	-

Deferred income tax assets and liabilities are recorded for differences between the financial statement and tax basis of the assets and liabilities that will result in taxable or deductible amounts in the future based on enacted laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

ASC 740 requires that the tax benefit of net operating losses, temporary differences and credit carryforwards be recorded as an asset to the extent that management assesses that realization is “more likely than not.” Realization of the future tax benefits is dependent on the Company’s ability to generate sufficient taxable income within the carryforward period. Because of the Company’s recent history of operating losses, management believes that recognition of the deferred tax assets arising from the above-mentioned future tax benefits is currently not likely to be realized and, accordingly, has provided a full valuation allowance for the years ended December 31, 2025 and 2024. The net change in total valuation allowance for the years ended December 31, 2025 and 2024 was an increase of $3.8 million and increase of $2.5 million respectively.

At December 31, 2025, the Company has United States federal and state net operating loss (NOL) carryforwards of $54.6 million and $8.1 million, respectively. The federal NOL carryforwards generated in pre-2018 tax years of $0.8 million will begin to expire in 2036 while federal NOLs generated after 2017 of $53.8 million will carry forward indefinitely. The state NOL carryforwards of $8.1 million will begin to expire in 2035 unless previously utilized. At December 31, 2025, the Company also had Israel NOL carryforwards of $197.2 million. The Israel NOLs carry forward indefinitely.

The Company’s ability to utilize its net operating losses may be limited under Section 382 and 383 of the Internal Revenue Code. The limitations apply if an ownership change, as defined by Section 382, occurs. Generally, an ownership change occurs when certain shareholders increase their aggregate ownership by more than 50 percentage points over their lowest ownership percentage in a testing period (typically three years). Although the Company has not undergone a Section 382 analysis, it is possible that the utilization of the net operating losses could be substantially limited. Additionally, U.S. tax laws limit the time during which these carryforwards may be utilized against future taxes. As a result, the Company may not be able to take full advantage of these carryforwards for federal and state tax purposes. Future changes in stock ownership may also trigger an ownership change and, consequently, a Section 382 limitation.

The Company recognizes the benefit of tax positions taken or expected to be taken in its tax returns in the consolidated financial statements when it is more likely than not that the position will be sustained upon examination by authorities. Recognized tax positions are measured at the largest amount of benefit that is greater than 50% likely of being realized upon settlement. As of December 31, 2025 and 2024 the Company has not recorded any unrecognized tax benefits.

The Company records interest related to unrecognized tax benefits in interest expense and penalties in general and administrative expenses. As of December 31, 2025 and 2024, the Company recorded no accrued interest and penalties related to unrecognized tax benefits.

The Company files U.S. federal and various state income tax returns and is subject to the examination for tax years back to 2022 and 2021 for federal and state purposes, respectively, and its NOLs dating back to inception are subject to adjustment by the taxing authorities if claimed on future tax filings for which the statute remain open to examination. The Company also files Israeli tax returns and is subject to examination for tax years back to 2021. The Company is not currently under audit by the Internal Revenue Service or other similar national, state and local authorities.

- Definition

The entire disclosure for income tax.

+ References

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+ Details

Indaptus Therapeutics, Inc. 10-K