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Note 10 - Income Taxes | 12 Months Ended
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Dec. 31, 2021
Notes to Financial Statements |
Income Tax Disclosure [Text Block] | NOTE 10 - INCOME TAXES The Company accounts for income taxes in accordance with FASB ASC Topic 740, Accounting for Income Taxes, which requires the Company to provide a net deferred tax asset or liability equal to the expected future tax benefit or expense of temporary reporting differences between book and tax accounting and any available operating loss or tax credit carryforwards. The amount of and ultimate realization of the benefits from the deferred tax assets for income tax purposes is dependent, in part, upon the tax laws in effect, the Company’s future earnings, and other future events, the effects of which cannot be determined. In accordance with prevailing accounting guidance, the Company is required to recognize and disclose any income tax uncertainties. The guidance provides a two-step approach to recognizing and measuring tax benefits and liabilities when realization of the tax position is uncertain. The first step is to determine whether the tax position meets the more-likely-than-not condition for recognition and the second step is to determine the amount to be recognized based on the cumulative probability that exceeds 50%. Actual results could differ from these estimates. As of December 31, 2021, the Company had net operating loss carry-forward of approximately $23,172,440 for U.S. federal tax purposes expiring through 2041; approximately $16,039,713 for Danish tax purposes, which do not expire; approximately $472,134 for German tax purposes, which do not expire; approximately $613,426 for Singapore tax purposes, which do not expire and approximately $118,602 for Chinese tax purposes, which expires in 2026. As of December 31, 2021 and December 31, 2020, the Company established a valuation allowance of $5,364,000 and $5,394,000 for the tax components of LiqTech International Inc. and Liqtech NA, respectively; $3,506,000 and $1,682,000 for the tax components of LiqTech Holding, LiqTech Ceramics, LiqTech Water, LiqTech Plastics, LiqTech Emission Control and LiqTech Water Projects, respectively, $132,000 and $143,000 for the tax components of LiqTech Germany, respectively, $104,000 and $113,000 for the tax components of LiqTech Singapore, respectively and $193,000 and $0 for LiqTech China, respectively, as management could not determine that it was more than likely not that sufficient income could be generated by these components to realize the resulting net operating loss carry-forwards and other deferred tax assets of these components. The change in the valuation allowance for the year ended December 31, 2021 was $(30,000), $1,824,000, $(11,000), $(9,000) and $193,000 for the US, Danish, German, Singapore and Chinese components, respectively. The change in the valuation allowance for the year ended December 31, 2020 was $1,549,000, $473,000, $14,000 and $11,000 for the US, Danish, German and Singapore components, respectively. The temporary differences, tax credits and carry forwards gave rise to the following deferred tax asset and liabilities at December 31, 2021 and December 31, 2020:
|  | 2021 |  |  | 2020 |
Excess of tax over financial accounting |  | $ | 708,825 |  |  | $ | 624,154 |
Vacation accrual |  |  | - |  |  |  | 1,971 |
Reserve for excess and obsolete inventory |  |  | 49,615 |  |  |  | 151,288 |
Accrued expenses |  |  | 4,305 |  |  |  | - |
Accrued interest |  |  | 13,125 |  |  |  | - |
Discount amortization |  |  | 175,420 |  |  |  | - |
Deferred compensation |  |  | 52,500 |  |  |  | 49,556 |
Net operating loss carryover |  |  | 9,959,356 |  |  |  | 7,627,046 |
Excess of book over tax depreciation |  |  | (343,294 | ) |  |  | (610,694 | )
Excess of book over tax work in progress |  |  | (587,469 | ) |  |  | (817,131 | )
Valuation allowance |  |  | (10,257,162 | ) |  |  | (7,331,357 | )
|  | $ | (224,779 | ) |  | $ | (305,167 | )
Distributed as: |  |  |  |  |  |  |  |
Long-term deferred tax asset |  |  | - |  |  |  | - |
Long-term deferred tax liability |  |  | (224,779 | ) |  |  | (305,167 | )
|  | $ | (224,779 | ) |  | $ | (305,167 | )
A reconciliation of income tax expense at the federal statutory rate to income tax expense at the Company’s effective rate is as follows for the years ended December 31, 2021 and 2020:
|  | 2021 |  |  | 2020 |
Computed tax at expected statutory rate |  | $ | (2,349,899 | ) |  | $ | (2,157,436 | )
State and local income taxes, net of federal benefit |  |  | (1,387 | ) |  |  | (76,055 | )
Non-US income taxed at different rates |  |  | (101,856 | ) |  |  | (35,454 | )
Deferred compensation |  |  | (31,500 | ) |  |  | (52,165 | )
Non-deductible expenses |  |  | 1,565 |  |  |  | 2,243 |
Non-taxable income |  |  | - |  |  |  | (75,562 | )
Change in valuation allowance |  |  | 2,209,294 |  |  |  | 1,918,579 |
Other |  |  | 210,747 |  |  |  | 10,705 |
Income tax expense (benefit) |  | $ | (63,036 | ) |  | $ | (465,145 | )
The components of income tax expense (benefit) from continuing operations for the years ended December 31, 2021 and 2020 consisted of the following:
|  | 2021 |  |  | 2020 |
Current income taxes: |  |  |  |  |  |  |  |
Danish |  | $ | - |  |  | $ | (401,945 | )
Federal |  |  | - |  |  |  | - |
State |  |  | - |  |  |  | - |
Current tax (benefit) |  | $ | - |  |  | $ | (401,945 | )
Deferred income taxes: |  |  |  |  |  |  |  |
Book in excess of tax depreciation |  | $ | (309,719 | ) |  | $ | (419,523 | )
Work in progress |  |  | (174,093 | ) |  |  | (44,862 | )
Net operating loss carryover |  |  | (2,667,221 | ) |  |  | (389,616 | )
Valuation allowance |  |  | 2,811,619 |  |  |  | 844,826 |
Deferred compensation |  |  | 31,500 |  |  |  | (52,165 | )
Accrued interest |  |  | 13,125 |  |  |  | - |
Discount amortization |  |  | 175,420 |  |  |  | - |
Accrued vacation |  |  | 4,305 |  |  |  | (16,707 | )
Reserve for obsolete inventory |  |  | 52,028 |  |  |  | 14,847 |
Deferred tax expense (benefit) |  | $ | (63,036 | ) |  | $ | (63,200 | )
Total tax expense (benefit) |  | $ | (63,036 | ) |  | $ | (465,145 | )
Deferred income tax expense / (benefit) results primarily from the reversal of temporary timing differences between tax and financial statement income. The Company files Danish, Chinese, U.S. federal and Minnesota state income tax returns. LiqTech Holding, LiqTech Ceramics, LiqTech Water, LiqTech Plastics, LiqTech Emission Control and LiqTech Water Projects are generally no longer subject to tax examinations for years prior to 2016 for their Danish tax returns. LiqTech NA is generally no longer subject to tax examinations for years prior to 2016 for U.S. federal and state tax returns.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=121826272&loc=d3e32857-109319 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 11.C) -URI http://asc.fasb.org/extlink&oid=122134291&loc=d3e330215-122817 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 17 -Subparagraph (b) -URI http://asc.fasb.org/extlink&oid=121826272&loc=d3e32809-109319 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SAB TOPIC 6.I.5.Q1) -URI http://asc.fasb.org/extlink&oid=122134291&loc=d3e330036-122817 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 14 -URI http://asc.fasb.org/extlink&oid=121826272&loc=d3e32705-109319 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 270 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6424409&loc=d3e44925-109338 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 30 -Section 50 -Paragraph 2 -Subparagraph (a) -URI http://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331 Reference 9: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08(h)(2)) -URI http://asc.fasb.org/extlink&oid=120395691&loc=d3e23780-122690 + Details
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