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Income Taxes
 12 Months Ended
Dec. 31, 2023
Income Tax Disclosure [Abstract]  
Income Taxes

17. Income Taxes

 

The Inflation Reduction Act (IRA) was signed into law on August 16, 2022, imposing a 15% corporate alternative minimum tax on adjusted financial statement income and a 1% excise tax on stock repurchases after January 1, 2023. The IRA did not have an impact on the Company’s 2023 or 2022 financial statements.

 

The Tax Cuts and Jobs Act (TCJA) requires taxpayers to capitalize and amortize research and developmental (“R&D”) expenditures undersection 174 for tax years beginning after December 31, 2021 and, therefore, became effective for the Company during the year ended December 31, 2022. The TCJA resulted in the capitalization of R&D costs of $169,315 and $225,466 for tax purposes for the years ended December 31, 2023 and 2022, respectively. The Company is amortizing these costs over 5 years if the R&D was performed in the U.S. and over 15 years if the R&D was performed outside the US. The Company did not recognize a current provision for income taxes for 2023 and 2022 since there were net operating losses reported in both years.

 

Deferred income taxes are provided for temporary differences between the financial reporting basis and the tax basis of the Company’s assets and liabilities. Differences are primarily attributable to net operating loss carryforwards and stock-based compensation. The Company does not reflect any deferred taxes in its financial statements due to a full valuation allowance. The net deferred tax amounts include the following components:

 

   December 31, 2023   December 31, 2022 
Net deferred tax assets - Non-current          
Depreciation  $(15,175)  $(16,098)
Amortization   (14,195)   (19,290)
Accrual to cash   718,893    767,861 
Stock based compensation   3,653,490    3,653,490 
Expected income tax benefit from NOL carry-forwards   6,573,406    3,309,340 
Less valuation allowance   (10,916,419)   (7,695,303)
Deferred tax assets, net of valuation allowance  $—   $— 

 

 

Neuraxis, Inc.

Notes to Financial Statements

 

A reconciliation of the federal statutory income tax rate and the effective income tax rate as a percentage of income before income taxes is as follows:

 

   2023   2022 
         
Federal statutory income tax rate   21.0%   21.0%
State tax rate, net of federal benefit   4.9    4.7 
Nondeductible expenses   —    — 
Nontaxable income   —    — 
Change in valuation allowance on net deferred tax assets   (25.9)   (25.7)
Effective income tax rate   —%   —%

 

The Company had no income tax expense due to the operating loss incurred for the years ended December 31, 2023 and 2022. The Company’s management has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets and has determined that it is more likely than not that the Company will not recognize the benefits of the net deferred tax assets. As a result, the Company recorded a full valuation allowance at December 31, 2023 and 2022. The valuation allowance increased by $3,221,116 and $1,136,470 for the years ended December 31, 2023 and 2022, respectively, primarily due to net operating loss (NOL) carryforwards.

 

On December 31, 2023, the Company had federal and state net operating loss (NOL) carryforwards totaling $28,238,445 and $25,543,000, respectively. These loss carryforwards may be offset against future taxable income. There is no limitation on the number of years to utilize the federal NOL. The federal deduction will be limited to 80% of modified taxable income. The state NOL allows up to 100% of taxable income to be offset and can be carried forward no longer than 20 years after the year of the taxable loss.

 

Federal and state tax laws impose limitations on the utilization of NOLs and credit carryforwards in the event of an ownership change for tax purposes, as defined in Section 382 of the Internal Revenue Code. Accordingly, the Company’s ability to utilize these carryforwards may be limited as a result of an ownership change. Such an ownership change could result in a limitation in the use of the net operating losses in future years and possibly a reduction of the net operating losses available.

 

If not used, the state carryforwards will expire as follows:

 

      
2038  $888,389 
2039  $1,039,949 
2040  $4,457,495 
2041  $2,406,225 
2042  $2,730,141 
2043  $12,915,439