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Note 9 - Income Taxes
 12 Months Ended
Dec. 31, 2024
Notes to Financial Statements  
Income Tax Disclosure [Text Block]

NOTE 9 - INCOME TAXES

 

As of December 31, 2024, the Company had net operating loss carry-forwards of approximately $30,953,048 for U.S. federal tax purposes, expiring through 2041, and approximately $28,209,222 for Danish tax purposes, which do not expire.

 

As of December 31, 2024, and December 31, 2023, the Company established a valuation allowance of $7,611,000 and $7,100,000 for the tax components of LiqTech International Inc. and Liqtech NA, respectively; $7,795,000 and $6,303,000 for the tax components of LiqTech Holding, LiqTech Ceramics, LiqTech Water, LiqTech Plastics, LiqTech Emission Control, and LiqTech Water Projects, respectively; and $0 and $479,000 for LiqTech China, respectively, as management could not determine that it was more likely than 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, 2024, was an increase of $511,000 for the US component, an increase of $1,492,000 for the Danish component, and a decrease of $479,000 for the Chinese component. The change in the valuation allowance for the year ended December 31, 2023, was an increase of $590,000, $1,077,000, and $9,000 for the US, Danish, and Chinese components, respectively.

 

The temporary differences, tax credits, and carry-forwards gave rise to the following deferred tax assets and liabilities at December 31, 2024, and 2023:

 

  

2024

  

2023

 

Excess of tax over financial accounting

 $1,588,748  $1,454,389 

Reserve for excess and obsolete inventories

  266,007   190,841 

Discount amortization

  853,619   724,353 

Net operating loss carryover

  12,963,223   11,580,458 

Excess of book over tax depreciation

  (323,115)  (359,917)

Excess of book over tax work in progress

  -   190,196 

Valuation allowance

  (15,406,442)  (13,881,379)
  $(57,960) $(101,059)

Distributed as:

        

Long-term deferred tax asset

  -   - 

Long-term deferred tax liability

  (57,960)  (101,059)
  $(57,960) $(101,059)

 

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, 2024, and 2023: 

 

  

2024

  

2023

 

Computed tax at expected statutory rate

 $(2,177,319) $(1,843,244)

State and local income taxes, net of federal benefit

  -   (1,177)

Non-US income taxed at different rates

  (80,280)  (44,279)

Non-deductible expenses

  1,259   5,399 

Change in valuation allowance

  1,996,655   1,755,013 

Other

  220,848   (77,919)

Income tax benefit

 $(38,837) $(206,207)

 

The components of income tax benefit from continuing operations for the years ended December 31, 2024, and 2023 consisted of the following:

 

  

2024

  

2023

 

Current income taxes:

        

Danish

 $-  $(148,668)

Federal

  -   - 

State

  -   - 

Current tax (benefit)

 $-  $- 
         

Deferred income taxes:

        

Book in excess of tax depreciation

  (156,342)  (386,673)

Work in progress

  -   (442,964)

Net operating loss carryover

  (2,387,047)  (402,448)

Valuation allowance

  2,477,718   1,128,197 

Discount amortization

  129,266   84,190 

Reserve for obsolete inventories

  (102,432)  (37,841)

Deferred tax benefit

 $(38,837) $(57,539)

Total tax benefit

 $(38,837) $(206,207)

 

Deferred income tax 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 2017 for their Danish tax returns. LiqTech NA is generally no longer subject to tax examinations for years prior to 2017 for U.S. federal and state tax returns.