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NOTE 9 — Income Taxes
 12 Months Ended
Dec. 31, 2023
Income Tax Disclosure [Abstract]  
NOTE 9 — Income Taxes

NOTE 9 — Income Taxes

 

The Company's entire pretax income / (loss) for the years ended December 31, 2023 and December 31, 2022 was from its U.S. domestic operations.

 

The components of income taxes for the periods ended December 31, 2023 and 2022 are as follows:

 

                 
    Years Ended December 31,
    2023   2022
Current:        
Federal   $ —     $ —  
State     —       —  
       Total Current     —       —  
Deferred:                
Federal     (967,300 )     (313,000 )
State     (476,700 )     (395,000 )
       Total Deferred   $ (1,444,000 )   $ (708,000 )
Income tax benefit   $ (1,444,000 )   $ (708,000 )

 

 

SOCKET MOBILE, INC.
NOTES TO FINANCIAL STATEMENTS

 

A reconciliation of the statutory federal income tax rate to the Company's effective tax rate is as follows:

 

                 
    Years Ended December 31,
    2023   2022
  Income at US statutory rate     21.0 %     21.0 %
  State taxes, net of federal benefit     13.9 %     62.6 %
  Valuation allowance     0.5 %     18.1 %
  Stock compensation     -0.8 %     -11.2 %
  Tax credits     0.3 %     -21.1 %
  Other     8.6 %     44.8 %
  Provision for taxes     42.8 %     114.1 %

 

The principal components of deferred tax assets and (liabilities) are as follows for the period ended:

 

                 
    December 31,
Deferred tax assets:   2023   2022
  Net operating loss carryforwards   $ 6,201,000     $ 5,906,000  
  Tax credits     891,000       901,000  
  Accruals & reserves     1,118,000       951,000  
  Lease liabilities     920,000       1,043,000  
  Depreciation     12,000       45,000  
  Share-based compensation     229,000       190,000  
  Capitalized Research Costs     2,078,000       1,105,000  
     Total deferred tax assets     10,449,000       10,141,000  
  Valuation allowance     (446,000 )     (464,000 )
     Net deferred tax assets     11,003,000       9,677,000  
Deferred tax liabilities:                
  Amortization     (29,000 )     (11,000 )
  ROU assets     (864,000 )     (996,000 )
Net deferred tax asset (liability)   $ 10,110,000     $ 8,670,000  

 

As of December 31, 2023, the Company had U.S. Federal net operating loss carryforwards of $21.7 million which includes $16.0 million that expire at various dates from 2025 through 2033, and $6.8 million that have an unlimited carryforward period. As of December 31, 2023, the Company had state net operating loss carryforwards of $23.6 million that will expire at various dates from 2029 through 2040.

 

As of December 31, 2023, the Company had U.S. Federal research and development credit carryforwards of $0.4 million that begin to expire at various dates through 2043. As of December 31, 2023, the Company had state research and development credit carryforwards of $0.6 million that have an unlimited carryforward period.

 

 

SOCKET MOBILE, INC.
NOTES TO FINANCIAL STATEMENTS

 

As of December 31, 2023, the Company is in a net deferred tax asset position. The deferred tax assets consist principally of net operating loss carryforwards. The future realization of the tax benefits from existing temporary differences and tax attributes ultimately depends on the existence of sufficient taxable income. In assessing the realization of the deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company also considers past operating results, projected future taxable income, and tax planning strategies in making this assessment. As of December 31, 2023, after consideration of all available evidence, both positive and negative, the Company continues to maintain a valuation allowance against the Company's deferred tax assets for U.S. Federal R&D tax credits because they are more likely than not to expire unused. The net change in the total valuation allowance for the years ended December 31, 2023 and 2022 was a decrease of $200,000 for both years, respectively.

 

On August 9, 2022 and August 16, 2022, the Creating Helpful Incentives to Produce Semiconductors (CHIPS) and the Inflation Reduction Act (IRA) were signed into law by the US President, respectively. The new legislation contains many tax provisions, however none had an impact to the Company's financials.

  

The future realization of the Company's net operating loss carryforwards and other tax attributes may also be limited by the change in ownership rules under the U.S. Internal Revenue Code Section 382. Under Section 382, if a corporation undergoes an ownership change (as defined), the corporation’s ability to utilize its net operating loss carryforwards and other tax attributes to offset income may be limited. The Company has not completed a study to assess whether an ownership change has occurred or whether there have been multiple ownership changes.

 

The following table summarizes the activity related to the Company's unrecognized tax benefits:

 

           
    Amount
Balance as of January 1, 2021   $ 1,153,000  
Increases (decreases) for current year tax provisions     23,000  
Increases (decreases) for prior year tax provisions     (160,000 )
Decreases for expiration of statute of limitations     —    
Settlements     —    
Balance as of December 31, 2022     1,016,000  
Increases (decreases) for current year tax provisions     24,000  
Increases (decreases) for prior year tax provisions     (31,000 )
Decreases for expiration of statute of limitations     —    
Settlements     —    
Balance as of December 31, 2023   $ 1,009,000  

 

The Company files income tax returns in the U.S. federal jurisdiction and in California, and therefore subject to tax examination by couple taxing authorities. The Company is not currently under examination, and is not aware of any issues under review that could result in significant payments, accruals or material deviation from its tax positions. To the extent the Company has tax attribute carryforwards, the tax years in which the attribute was generated may still be adjusted upon examination by the Internal Revenue Service and state tax authorities to the extent utilized in a future period. As of December 31, 2023, the tax years from 2020 to present remain open to examination by relevant taxing jurisdictions to which the Company is subject. However, to the extent the Company utilizes net operating losses from years prior to 2020, the statute remains open to the extent of the net operating losses or other credits that are utilized.

 

 

SOCKET MOBILE, INC.
NOTES TO FINANCIAL STATEMENTS

 

The calculation and assessment of the Company's tax exposures generally involve the uncertainties in the application of complex tax laws and regulations for federal and state jurisdictions. A tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation, on the basis of the technical merits. As of December 31, 2023 and 2022, the Company had $1.0 million and $1.0 million, respectively, of unrecognized tax benefits. Of the $1.0 million at December 31, 2023, $1.0 million if recognized would impact the effective tax rate. In addition, the Company believes it is reasonably possible that its unrecognized tax benefits will not change significantly within the next twelve months. As of December 31, 2023 and 2022, the Company has not accrued any interest and penalties related to its uncertain tax positions. The Company has elected to recognize accrued interest and penalties, if any, related to uncertain tax positions in tax expense in its financial statements.