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Income Taxes
 12 Months Ended
Dec. 31, 2022
Income Taxes  
Income Taxes

Note 11 - Income Taxes

 

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets as of December 31, 2022 and 2021 are summarized below.

 

 

 

2022

 

 

2021

 

Net operating loss carryforward

 

$(17,251,804)

 

$(14,200,629)

Stock based compensation

 

 

-

 

 

 

28,720

 

Fair value of options

 

 

311,958

 

 

 

346,869

 

Total deferred tax assets

 

 

(16,939,846)

 

 

(13,825,040)

Valuation allowance

 

$16,939,846

 

 

$13,825,040

 

Net deferred tax asset

 

$-

 

 

$-

 

 

In assessing the potential realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the Company attaining future taxable income during the periods in which those temporary differences become deductible. As of December 31, 2022 and 2021, management was unable to determine if it is more likely than not that the Company’s deferred tax assets will be realized, and has therefore recorded an appropriate valuation allowance against deferred tax assets at such dates.

The Company has not completed its evaluation of net operating loss (“NOL”) utilization limitations under Internal Revenue Code, as amended (the “Code”), Section 382/383, change of ownership rules. If the Company has had a change in ownership, the NOL’s would be limited as to the amount that could be utilized each year, or possibly eliminated, based on the Code, as amended.

 

No federal or state/local tax provision has been provided for the years ended December 31, 2022 and 2021 due to the losses incurred during such periods. Reconciled below is the difference between the income tax rate computed by applying the U.S. federal statutory rate and the effective tax rate for the years ended December 31, 2021 and 2020.

 

 

 

2022

 

 

2021

 

U.S. federal statutory income tax

 

 

-21.00%

 

 

-21.00%

State tax, net of federal tax benefit

 

 

-5.80%

 

 

-5.80%

Stock based compensation

 

 

0.00%

 

 

0.00%

Change in valuation allowance

 

 

26.80%

 

 

26.80%

Effective tax rate

 

 

0.00%

 

 

0.00%

 

At December 31, 2022, the Company has available net operating loss carryforwards for federal and state income tax purposes of approximately $65.2 million, of which $16 million will begin to expire in 2028 through 2038.

 

ENDRA Life Sciences Canada Inc., the Company’s wholly-owned subsidiary which was incorporated in 2017, is subject to income taxes in the jurisdictions in which it operates, Canada, at a current rate of approximately 26.6 percent for 2022. Significant judgment is required in determining the provision for income tax. There are many transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain. The Company recognizes liabilities for anticipated tax audit issues based on its current understanding of the tax law. Where the final tax outcome of these matters is different from the carrying amounts, such differences will impact the current and deferred tax provisions in the period in which such determination is made.

 

ENDRA Life Sciences Canada Inc.’s operations were not material for tax purposes as of December 31, 2022 and 2021 and therefore the entity had no significant impact on the year-end 2022 and 2021 tax provision. Generally, all expenses relating to research & development that are incurred in Canada are the responsibility and owned by the United States parent company, since it is the owner of all of the Company’s intangibles.