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Income Taxes
 9 Months Ended
Sep. 30, 2024
Income Tax Disclosure [Abstract]  
Income Taxes

Note 12 – Income Taxes

 

Provision (benefit) for Income Taxes and Effective Income Tax Rate

 

   September 30, 2024   September 30, 2023 
Federal          
Current  $135,000   $- 
Deferred   2,835,000    - 
Total provision (benefit)  $2,970,000   $- 
           
State          
Current  $-   $- 
Deferred   -    - 
Total provision (benefit)  $-   $- 

 

 

SURGEPAYS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2024

 

A reconciliation of the provision for income taxes to the amount computed by applying the statutory federal income tax rate of 21% to income before provision for income taxes for the nine months ended September 30, 2024 and 2023, respectively, is approximately as follows:

 

   September 30, 2024   September 30, 2023 
Federal income tax expense (benefit) - 19.64%  $(5,096,000)  $893,000 
State income tax expense (benefit) - 6.5% - net of federal effect   (1,552,000)   296,000 
Non-deductible items   1,388,000    - 
Subtotal   (5,260,000)   1,189,000 
Change in valuation allowance   8,230,000    (1,189,000)
Income tax expense (benefit)  $2,970,000   $- 
           
Effective tax rate   -12.92%   0.00%

 

Deferred Tax Assets and Liabilities

 

As of September 30, 2024 and December 31, 2023, respectively, the significant components of deferred tax assets and liabilities is as follows:

 

   September 30, 2024   December 31, 2023 
Deferred Tax Assets          
Reserve for uncollectible accounts  $3,000   $5,000 
Stock based compensation   178,000    - 
Net operating loss carryforwards   8,077,000    3,844,000 
Total deferred tax assets   8,258,000    3,849,000 
Less: valuation allowance   (8,037,000)   (790,000)
Net deferred tax assets   221,000    3,059,000 
           
Deferred Tax Liabilities          
Depreciation   52,000    224,000 
Amortization   165,000    - 
Net deferred tax liabilities   217,000    224,000 
           
Deferred income taxes - net  $-   $2,835,000 

 

 

SURGEPAYS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2024

 

Deferred tax assets and liabilities are computed by applying the federal and state income tax rates in effect to the gross amounts of temporary differences and other tax attributes, such as net operating loss carry forwards. In assessing if the deferred tax assets will be realized, the Company considers whether it is more likely than not that some or all of these deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the period in which these deductible temporary differences reverse. As a result of historic losses, the Company has recorded a full valuation allowance as of September 30, 2024.

 

As of September 30, 2024, the Company had federal and state net operating loss carryforwards of approximately $32,000,000 and $28,000,000, respectively. The federal net operating losses carry forward indefinitely, and accordingly have not been reserved. The state net operating losses will expire between the years ending December 31, 2036 and 2038. The state net operating losses have been fully reserved as management does not believe that it is probable that the losses will be utilized before their expiration.

 

During the nine months ended September 30, 2024, the valuation allowance increased by approximately $7,247,000. The total valuation allowance results from the Company’s estimate of its future recoverability of its net deferred tax assets.

 

The Company is in the process of analyzing their NOL and has not determined if the Company has had any change of control issues that could limit the future use of these NOL’s. As of December 31, 2023, all federal NOL carryforwards that were generated after 2017 may only be used to offset 80% of taxable income and are carried forward indefinitely.

 

The Company follows the provisions of ASC 740, which requires the computations of current and deferred income tax assets and liabilities only consider tax positions that are more likely than not (defined as greater than 50% chance) to be sustained if the taxing authorities examined the positions. There are no significant differences between the tax provisions represented in the accompanying consolidated financial statements and that reported in the Company’s income tax returns. The Company is subject to U.S. Federal and State income tax examination by taxing authorities for the years after December 31, 2020.

 

The Company files corporate income tax returns in the United States and State of Tennessee jurisdictions. Due to the Company’s net operating loss posture, all tax years are open and subject to income tax examination by tax authorities. The Company’s policy is to recognize interest expense and penalties related to income tax matters as tax expense. At September 30, 2024 and December 31, 2023, respectively, there are no unrecognized tax benefits, and there were no significant accruals for interest related to unrecognized tax benefits or tax penalties.