|12 Months Ended|
Dec. 31, 2022
10. Income Taxes
As of December 31, 2022, the Company has U.S. federal and state net operating loss carryforwards of approximately $22,168,000, which have an indefinite carryforward.
A reconciliation of the U.S. federal income tax rate to the Company’s effective tax rate is as follows:
Deferred taxes are recognized for temporary differences between the basis of assets and liabilities for financial statement and income tax purposes. The significant components of the Company’s deferred tax assets are comprised of the following:
For tax years beginning on or after January 1, 2022, the 2017 Tax Cuts and Jobs Act amended Section 174 of the code to eliminate current-year deductibility of research and development expenses and requires taxpayers to capitalize and amortize them over five years for research activities performed in the United States and fifteen years for research activities performed outside of the United States. For the 2022 tax year, the Company has capitalized $8,099,702 of research and development expenses. This has resulted in an increase in the deferred tax asset associated with capitalized research and development by $1,873,211.
As of December 31, 2022, the Company has not generated sufficient positive evidence for future earnings to support a position that it will be able to realize its net deferred tax asset. The Company has significant negative evidence to overcome in the form of cumulative pre-tax losses from continuing operations since its formation, as well as projected losses for the current year. Therefore, it will continue to maintain a full valuation allowance on its U.S. federal and state net deferred tax asset. The change in the valuation allowance offset the income tax benefit related to the pre-tax loss for the year ended December 31, 2022. The Company does not have any material unrecognized tax benefits as of December 31, 2022.
The Company experienced a net change in valuation allowance of $3,100,898 and $3,745,299 for the years ended December 31, 2022 and 2021, respectively.
The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.
Reference 1: http://www.xbrl.org/2003/role/disclosureRef