INCOME TAXES

12 Months Ended

Dec. 31, 2024

NOTE 13. INCOME TAXES

Prior to the legal reorganization on September 13, 2024, HCMC included certain Carve-out entities in its consolidated tax reporting within the respective entity’s tax jurisdiction, and as a result, these entities did not file separate tax returns. Accordingly, the income tax provision reflected in these carve-out basis financial statements was determined using a method consistent with the standalone basis, as if the Carve-out business had been a separate taxpayer. As of December 31, 2024, all amounts related to the Company’s tax positions are recognized on the carve-out Balance Sheet. Income taxes are accounted for under the asset and liability method.

The Company did not have tax expense (benefit) at the U.S. statutory rate to the actual tax expense (benefit) reflected in the accompanying statement of operations:

	2024			2023
	Year Ended December 31,
	2024			2023

U.S. federal statutory rate	$	(1,704,209	)	$	(2,330,862	)
State and local taxes, net of federal benefit		(351,765	)		(482,302	)
Change in valuation allowance		2,051,899			2,810,101
True-up & deferred adjustment		-			-
Other permanent items		4,075			2,509
Change in tax rate		-			-
Other		-			554
Total income tax benefit	$	-		$	-

As of December 31, 2024 and 2023, the Company’s deferred tax assets and liabilities consisted of the effects of temporary differences attributable to the following:

	2024			2023
	Year Ended December 31,
	2024			2023
Deferred tax assets:
Net operating losses	$	18,918,516		$	16,766,937
Unrealized loss on investment		38,030			37,692
Accrued Expenses and Deferred Income		174,687			-
Charitable contribution		7,933			7,933
Stock based compensation		2,593,511			2,885,422
Net book value of intangible assets		5,841			5,133
UNICAP 263a Adjustment		16,860			-
ASC 842 - Lease Accounting		77,152			75,080
Total deferred tax assets		21,832,530			19,778,197

Deferred tax liabilities:
Net book value of fixed assets		(10,539	)		(8,106	)
Total deferred tax liabilities		(10,539	)		(8,106	)

Net deferred tax assets		21,821,991			19,770,091
Valuation allowance		(21,821,991	)		(19,770,091	)
Net deferred tax assets	$	-		$	-

In assessing the 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 generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. After consideration of all of the positive and negative evidence available, management has determined that a valuation allowance is required at December 31, 2024 and 2023 to reduce the deferred tax assets to amounts that are more likely than not to be realized. The Company’s valuation increased by approximately $2,052,00 and $2,810,00 for the tax years ended 2024 and 2023, respectively. Should the factors underlying management’s analysis change, future valuation adjustments to the Company’s net deferred tax assets may be necessary.

At December 31, 2024 the Company had U.S. federal and state net operating loss carryforwards (“NOLs”) of $77.7 million and $59.9 million, respectively. Federal NOLs of $46.3 million expire beginning in 2030 through 2037 and $31.3 million do not expire and are subject to 80% of taxable income under Internal Revenue Code Section 172. Florida state NOLs of $36.3 million expire beginning in 2030 through 2037 and $23.5 million do not expire and maybe subject to income limitations under State statute. Utilization of our NOLs may be subject to an annual limitation under section 382 and similar state provisions of the Internal Revenue Code due to changes of ownership that may have occurred or that could occur in the future, as defined under the regulations.

On August 16, 2022, the Inflation Reduction Act of 2022 (“IRA”) was signed into law. Among other provisions, the IRA includes a 15% corporate alternative minimum tax on applicable corporations and 1% excise tax on stock repurchases made after December 31, 2022. The IRA is not expected to have a material impact on the consolidated financial statements.

The Company files a federal income tax return and income tax return in Florida and the Company is generally no longer subject examinations by federal and Florida tax authorities for years before 2021.

- Definition

The entire disclosure for income tax.

+ References

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+ Details

Healthier Choices Management Corp. 10-K