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Income Taxes
 12 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
Income Taxes

13. Income Taxes

 

a) The income tax expense for the years ended December 31, 2022 and 2021 is reconciled per the schedule below:

 

   2022   2021 
Loss before income taxes  $(12,534,414)  $(7,897,086)
State income taxes, net of federal benefits   (626,721)   (394,855)
Non-deductible portion of meals and entertainment   41,409    19,899 
Share base compensation   562,530    1,007,220 
Interest and penalty   100,000    - 
Adjusted net loss for tax purposes   (12,457,196)   (7,264,822)
Statutory rate   21%   21%
Income tax benefit   (2,616,011)   (1,525,613)
Increase in valuation allowance   2,616,011    1,525,613 
Provision for income taxes  $-   $- 

 

b) Deferred Income Tax Assets

 

The tax effects of temporary differences that give rise to the deferred income tax assets at December 31, 2022 and 2021 are as follows:

 

   2022   2021 
Net operating loss carry forwards  $4,189,777   $2,358,455 
Amortization   482,691    32,265 
Change in operating lease   (9,964)   16,208 
Share base compensation   4,336,903    3,976,468 
Deferred tax assets, gross   8,999,407    6,383,396 
Deferred tax assets not recognized   (8,999,407)   (6,383,396)
Net deferred tax asset  $-   $- 

 

Deferred income taxes within each jurisdiction on the balance sheets at December 31, 2022 and 2021 are as follows:

 

   2022   2021 
United States  $6,454,407   $4,925,396 
Canada   2,545,000    1,458,000 
Valuation allowance   (8,999,407)   (6,383,396)
Net deferred tax asset  $-   $- 

 

 

Worksport Ltd.

Notes to the Consolidated Financial Statements

December 31, 2022 and 2021

 

13. Income Taxes (continued)

 

c) Cumulative Net Operating Losses

 

The Company has non-capital losses carried forward of approximately $17,997,000 available to reduce future years’ taxable income. These losses will expire as follows:

 

   United States   Canada   Total 
2034  $53,000   $183,000   $236,000 
2035   161,000    368,000    529,000 
2036   868,000    262,000    1,130,000 
2037   1,472,000    59,000    1,531,000 
2038   -    520,000    520,000 
2039   -    193,000    193,000 
2040   -    718,000    718,000 
2041   -    3,000,000    3,000,000 
2042   -    4,100,000    4,100,000 
Non-capital losses carried forward Total  $2,554,000   $9,603,000   $12,157,000 
Never expire  $5,840,000   $-   $5,840,000 

 

These net operating loss carryforwards of approximately $17,997,000 may be offset against future taxable income. No tax benefit from these losses have been reported in the December 31, 2022 consolidated financial statements since the potential tax benefit is offset by a valuation allowance of the same amount.

 

Due to change in ownership provisions of the Tax Reform Act of 1986, net operating loss carryforwards for Federal income tax reporting purposes are subject to annual limitations. Should a change in ownership occur, net operating loss carryforwards may be limited as to use in future years.

 

The Company complies with the provisions of FASB ASC 740 in accounting for its uncertain tax positions. ASC 740 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC 740, the Company may recognize the tax benefit from an uncertain tax position only if it is more-likely-than-not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The Company has determined that the Company has no significant uncertain tax positions requiring recognition under ASC 740.

 

The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses. The Company had no accruals for interest and tax penalties at December 31, 2022 and 2021.

 

The Company does not expect the amount of unrecognized tax benefits to materially change within the next twelve months.

 

The Company is required to file income tax returns in the U.S. and Canadian Federal jurisdictions, as well as the states of New York, New Jersey, and Utah and in the province of Ontario. The Company is no longer subject to income tax examinations by tax authorities for tax years ending before December 31, 2019.