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

14. INCOME TAX

 

No provision for federal income taxes has been recorded for the years ended December 31, 2022 and 2021 due to net losses and the valuation allowance established.

 

Significant components of the Company’s deferred tax assets are as follows:

 

    As of December 31,   
    2022     2021 
Deferred tax assets:        
Net operating losses   $3,043,585   $1,791,043 
Tax credits   190,489    3,659 
Intangible assets   66,716    68,564 
Capitalized R&D expenses   1,018,165    
-
 
Fixed assets   37,580    
-
 
Other   272,106    97,945 
Total deferred tax assets   4,628,641    1,961,211 
Valuation allowance   (4,628,641)   (1,934,351)
Net deferred tax assets  $
-
   $26,860 
Deferred tax liabilities:          
Fixed assets    
-
    (26,860)
Net deferred tax assets   $
-
   $(26,860)

 

A reconciliation of the statutory tax rates and the effective tax rates for the years ended December 2022 and 2021 is as follows:

 

   Year Ended December 31, 
   2022   2021 
Federal statutory rate   21.00%   21.00%
State income taxes, net of federal benefit and tax credits   6.86%   5.41%
Change in valuation allowance   (29.06)%   (25.88)%
Permanent differences   1.20%   (0.53)%
Effective tax rate   0.00%   0.00%

 

The Company regularly assesses the need for a valuation allowance against its deferred tax assets. In making that assessment, the Company considers both positive and negative evidence related to the likelihood of realization of the deferred tax assets to determine, based on the weight of available evidence, whether it is more-likely-than-not that some or all of the deferred tax assets will not be realized. In assessing the realizability of deferred tax assets, the Company considers taxable income in prior carryback years, as permitted under the tax law, forecasted taxable earnings, tax planning strategies, and the expected timing of the reversal of temporary differences. This determination requires significant judgment, including assumptions about future taxable income that are based on historical and projected information and is performed on a jurisdiction-by-jurisdiction basis.

 

The Company continues to maintain a full valuation allowance against its net deferred tax assets. During the years ended December 31, 2022 and 2021, management assessed the positive and negative evidence in its operations and concluded that it is more likely than not that its deferred tax assets as of December 31, 2022 and 2021 will not be realized given the Company’s history of operating losses. The valuation allowance against deferred tax assets increased by approximately $2.7 million and $900,000 and during 2022 and 2021, respectively, related mainly to a full valuation allowance recorded against capitalized research expenditures, additional net operating losses and tax credits generated in the year.

 

At December 31, 2022, the Company had federal net operating loss carryforwards of approximately $11.2 million. The Company’s federal net operating losses incurred prior to 2018 totaling $713,000 expire through 2037, while its federal net operating losses incurred in 2018 to 2022 totaling $10.5 million can be carried forward indefinitely.

 

As of December 31, 2022, the Company had post-apportioned state net operating losses of $10.9 million that can generally be carried forward 20 years and will expire at various dates through 2042. As of December 31, 2021, the Company had post-apportioned Massachusetts net operating losses of $6.3 million that can generally be carried forward 20 years and will expire at various dates through 2041.

 

The Tax Cuts and Jobs Act resulted in significant changes to the treatment of research or experimental (“R&E”) expenditures under Section 174. For tax years beginning after December 31, 2021, taxpayers are required to capitalize and amortize all R&E expenditures that are paid or incurred in connection with their trade or business which represent costs in the experimental or laboratory sense. Specifically, costs for U.S. based R&E activities must be amortized over five years and costs for foreign R&E activities must be amortized over 15 years; both using a midyear convention. The Company has implemented this standard on January 1, 2022, noting that the impact on the Company’s consolidated financial statements was immaterial.