Note 9 - Income Taxes

12 Months Ended

Dec. 31, 2024

Notes to Financial Statements

Income Tax Disclosure [Text Block]

Note 9. Income Taxes

Deferred tax assets and liabilities are recorded based on the difference between financial reporting and tax basis of assets and liabilities and are measured by the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. Deferred tax assets are computed with the presumption that they will be realizable in future periods when taxable income is generated. Predicting the ability to realize these assets in future periods requires judgment by management. GAAP prescribes a recognition threshold and measurement attribute for a tax position taken or expected to be taken in a tax return. Income tax benefits that meet the “more likely than not” recognition threshold are recognized.

The Company has recognized a deferred tax asset of approximately $4.6 million recorded net of a valuation allowance of approximately $2.7 million. Management considered the realizability of this asset in light of historical operating results and forecasted results, and determined that more likely than not that the Company will have taxable income in the future, and elected to decrease the valuation allowance by approximately $3.6 million during 2024. The Company reviews the assessment of the deferred tax asset and valuation allowance on an annual basis or more often when events indicate that a change to the valuation allowance  may be warranted. If applicable, the Company would recognize interest expense and penalties related to uncertain tax positions in interest expense. As of December 31, 2024, the Company had not accrued any interest or penalties related to uncertain tax provisions.

Significant components of the Company’s deferred tax assets are as follows at December 31:

	2024			2023
Deferred tax assets:
Net operating loss carryforwards	$	4,582,000		$	4,686,000
Depreciation and amortization		1,296,000			1,137,000
Non-cash compensation		1,119,000			1,649,000
Processing losses		188,394			175,673
Other		61,000			124,000
Total		7,369,306			8,169,281
Valuation Allowance		(2,665,954	)		(6,267,673	)
Deferred tax asset	$	4,580,440		$	1,504,000

At  December 31, 2024, the Company had available net operating loss carryforwards of approximately $21.8 million. Net operating loss carryforwards ("NOLs") generated during or prior to 2017 are available to offset taxable income of future periods and expire 20 years after the loss was generated. Net operating loss carryforwards generated after 2017 do not expire. Our ability to use our NOLs during this period will be dependent on our ability to generate taxable income, and the NOLs could expire before we generate sufficient taxable income.

Pursuant to Sections 382 and 383 of the Internal Revenue Code ("IRC"), federal and state tax laws impose significant restrictions on the utilization of net operating loss and other tax carryforwards in the event of a change in ownership of the Company. The Company does not expect IRC Sections 382 and 383 to significantly impact the utilization of its NOLs and other tax carryforwards. If we were to experience an "ownership change," as determined under Section 382 of the IRC, our ability to offset taxable income arising after the ownership change with NOLs arising prior to the ownership change would be limited, possibly substantially. An ownership change would establish an annual limitation on the amount of our pre-change NOLs we could utilize to offset our taxable income in any future taxable year to an amount generally equal to the value of our stock immediately prior to the ownership change multiplied by the long-term tax-exempt rate. In general, an ownership change will occur if there is a cumulative increase in our ownership of more than 50 percentage points by one or more "5% shareholders" (as defined in the IRC) at any time during a rolling three-year period.

The schedule below outlines when the Company's net operating losses for 2017 and prior years were generated and the year they  may expire.

Tax Year End	NOL		Expiration
2005	$	1,275,415		2025
2006		1,350,961		2026
2007		1,740,724		2027
2008		918,960		2028
2009		835,322		2029
2010		429,827		2030
2013		504,862		2033
2016		474,465		2036
2017		1,267,336		2037
Total	$	8,797,872

As of  December 31, 2024, there are NOLs totaling approximately $13.0 million that have been generated since 2017 that do not expire, and can be carried forward to future years to offset taxable income. The schedule below outlines when the Company's net operating losses for 2018 and later years were generated.

Tax Year End	NOL
2018	$	4,410,916
2019		2,730,461
2020		2,272,315
2022		3,609,279
Total	$	13,022,971
Total loss carryforwards	$	21,820,843

The tax provision for federal and state income tax is as follows for the years ended December 31:

	2024			2023
Current provision:
Federal	$	—		$	—
State		449,227			292,524
		449,227			292,524
Deferred provision:
Federal expense (benefit)		(3,076,440	)		—
Expense (benefit) for income taxes	$	(2,627,213	)	$	292,524

The reconciliation of federal income tax expense (benefit) computed at the U.S. federal statutory tax rates to total income tax expense (benefit) is as follows for the years ended December 31:

	2024			2023
Income tax (benefit) at 21%	$	142,440		$	(38,342	)
Change in valuation allowance		(3,576,665	)		(1,361,228	)
Permanent and other differences		458,460			1,399,570
State taxes		348,552			292,524
Income tax expense (benefit)	$	(2,627,213	)	$	292,524