INCOME TAXES

12 Months Ended

Dec. 31, 2023

INCOME TAXES

INCOME TAXES

NOTE 12 — INCOME TAXES

As of December 31, 2023 and December 31, 2022, the Company had $36,240,561and $27,456,044, respectively, of undistributed ordinary income.⁽¹⁾ Undistributed capital gains were $757,268 and $1,150,000 for the periods ended December 31, 2023 and December 31, 2022, respectively. Undistributed qualified dividends were $0 and $48,171 for the periods ended December 31, 2023 and December 31, 2022, respectively. All of the undistributed ordinary income and capital gains as of December 31, 2023 will have been distributed within the required period of time such that the Company will not be subject to U.S. federal income tax for the year ended December 31, 2023. We will be subject to a 4% nondeductible U.S. federal excise tax on our undistributed income to the extent we did not distribute an amount equal to at least 98% of our net ordinary income plus 98.2% of our capital gain net income attributable to the period. The Company has accrued $1,399,689 and $1,118,153 of U.S. federal excise tax for the tax years ended December 31, 2023 and December 31, 2022, respectively, independent of prior year adjustments. See Note 1 for further discussion of tax expense in each year.

Ordinary dividend distributions from a RIC do not qualify for the reduced maximum tax rate on qualified dividend income from domestic corporations, except to the extent that the RIC received the income in the form of qualifying dividends from domestic corporations and qualified foreign corporations. The tax character⁽²⁾ of distributions paid in the years ended December 31, 2023 and 2022 was as follows:

	December 31, 2023		December 31, 2022
Ordinary income	$	35,032,563	$	22,279,384
Qualified dividends		48,171		525,313
Distributions of long-term capital gains(2)		446,746		3,789,693
Total distributions paid to common stockholders(3)	$	35,527,480	$	26,594,390

(1) The Company’s taxable income for each period is an estimate and will not be finally determined until the Company files its tax return for each year. Therefore, final taxable income earned in each period, and the undistributed ordinary income and capital gains for each period carried forward for distribution in the following period, may be different than this estimate.

(2) Distributions of long-term capital gains of $446,746 and $3,789,693 as of December 31, 2023 and December 31, 2022, respectively, differ from distributions of net capital gains on the Consolidated Statement of Changes in Net Assets because certain prepayment gains are characterized differently for tax reporting purposes. The qualified dividend amount in 2023 and 2022, respectively, represents the completion of a distribution of qualified dividends derived from qualified dividends received by the Company from a portfolio company in 2022 and 2021, respectively, for tax purposes.

(3) Total distributions paid to common stockholders of $36,698,834 and $26,594,390 as of December 31, 2023 and December 31, 2022, respectively, differ from the total distributions from net investment income and net realized capital gains on the Consolidated Statement of Changes in Net Assets because the amount of dividends attributable to 2023 and 2022, respectively, for tax reporting purposes are on an amount paid basis. The Company recorded dividends payable for distributions accrued, but not yet paid, on the Consolidated Statement of Assets and Liabilities in the amount of $0 and $1,171,059 as of December 31, 2022 and December 31, 2021, respectively, which were recognized in the following year for tax purposes.

Listed below is a reconciliation of “Net increase in net assets resulting from operations” to taxable income and total distributions declared to common stockholders for the years ended December 31, 2023, 2022, and 2021:

	2023		2022		2021
Net increase in net assets resulting from operations (includes net investment income, realized gain (loss), unrealized appreciation (depreciation) and taxes)	$	17,533,167	$	14,491,784	$	33,572,872
Net change in unrealized (appreciation) depreciation		(2,785,648)		17,536,190		6,928,160
Income tax provision		(2,860,890)		213,214		2,446,352
Loss on debt extinguishment						539,250
Pre-tax expense (income), loss (gain) reported at Taxable Subsidiaries, not consolidated for tax purposes		20,172,550		1,392,247		(16,619,608)
Long term capital loss carryover		—		—		(4,896,643)
Book income and tax income differences, including debt origination, interest accrual, income from pass-through investments, dividends, realized gains (losses) and changes in estimates		11,860,086		(3,615,815)		3,205,514
Estimated taxable income	$	43,919,265	$	30,017,620	$	25,175,897
Taxable income earned in prior year and carried forward for distribution in current year		28,606,043		24,011,459		21,051,549
Adjustment for cumulative effect of distributions carried forward		—		—		—
Taxable income earned prior to period end and carried forward		(36,997,828)		(28,606,043)		(25,182,518)
Distribution payable as of period end and paid in following period		—		—		1,171,059
Total distributions accrued or paid to common stockholders	$	35,527,480	$	25,423,036	$	22,215,987

The aggregate gross unrealized appreciation and depreciation, the net unrealized appreciation, and the aggregate cost of the Company’s portfolio company securities for U.S. federal income tax purposes as of December 31, 2023 and December 31, 2022 were as follows:

	December 31, 2023		December 31, 2022
Aggregate cost of portfolio company securities	$	902,143,550	$	875,823,177
Gross unrealized appreciation of portfolio company securities		38,379,839		28,927,746
Gross unrealized depreciation of portfolio company securities		(65,262,547)		(58,602,607)
Gross unrealized appreciation on foreign currency translations of portfolio company securities		11,142		—
Gross unrealized depreciation on foreign currency translations of portfolio company securities		(811,301)		(1,414,678)
Aggregate fair value of portfolio company securities	$	874,460,683	$	844,733,638

As of December 31, 2023, the Taxable Subsidiaries had unrealized losses in investments and net operating loss (“NOL”) carryovers creating a net deferred tax liability equal to $188,893 as reflected below. As of December 31, 2023, for U.S. federal income tax purposes, the Taxable Subsidiaries had net operating loss carryforwards totaling $5,509,104, of which $918,232 will expire during the tax years 2034 through 2037 if unused. Due to the nature of the Taxable Subsidiaries’ holdings, a valuation allowance was established as we determined it is more likely than not that some of the deferred tax assets will not be realized prior to expiration. Although our future projections indicate that we may be able to realize a portion of these deferred tax assets, due to the degree of uncertainty of these projections, management has recorded a deferred tax asset valuation allowance of $6,507,196.

	2023		2022
Deferred tax asset	$	6,507,196	$	4,939,367
Deferred tax liability		(188,893)		(61,936)
Total deferred tax asset before valuation allowance	$	6,318,303	$	4,877,431
Deferred tax valuation allowance	$	(6,507,196)	$	(4,939,367)
Net deferred tax liability	$	(188,893)	$	(61,936)

The Company has recorded a tax reclassification of stockholders’ equity in accordance with U.S. GAAP to reduce paid-in capital and increases distributable earnings (increasing accumulated undistributed investment income) for book to tax differences that it has determined to be permanent. For the years ended December 31, 2023 and 2022, this reclassification was $1,348,766 and $1,040,884, respectively. The total adjustment on the Consolidated Statement of Assets and Liabilities as of December 31, 2023 and 2022 was $5,707,301 and $4,358,534, respectively.

Although the Company files federal and state tax returns, its major tax jurisdiction is federal. The 2020, 2021 and 2022 federal tax years for the Company remain subject to examination by the IRS.