Note 14 - Income Taxes |
6 Months Ended |
|---|---|
Jun. 30, 2026 | |
| Notes to Financial Statements | |
| Income Tax Disclosure [Text Block] |
NOTE 14 – INCOME TAXES
Charlie's Holdings, Inc. and its subsidiaries are taxed as a C corporation and file a consolidated federal income tax return. Income tax expense is comprised of domestic (U.S. federal and state) income taxes at the applicable statutory rates, adjusted for non-deductible expenses, stock-based compensation, and other permanent differences. The Company maintains a full valuation allowance against its deferred tax assets, as it is not more likely than not that such assets will be realized. As a result, the net impact of changes in estimates on the Company's overall income tax expense is limited.
At December 31, 2025, the Company had federal and state net operating loss carryforwards of approximately $5.2 million and $9.9 million, respectively. The federal net operating loss carryforwards can be carried forward indefinitely but are subject to an annual utilization limit of 80% of taxable income. State net operating loss carryforwards expire at various dates through 2043, if not utilized. At December 31, 2025, the Company had federal research and development tax credit carryforwards of approximately $0.1 million. These credits expire by 2040, if not utilized.
The utilization of net operating loss carryforwards and research and development tax credit carryforwards may be subject to annual limitations under Sections 382 and 383 of the Internal Revenue Code, and analogous state provisions, due to ownership changes that may have occurred previously or that could occur in the future. In general, an ownership change, as defined under Section 382, occurs when the ownership of certain stockholders or public groups increases by more than 50 percentage points over a three-year period. The Company experienced an ownership change in 2019. The Company has not completed a formal Section 382 analysis; however, it has assumed for purposes of these financial statements that net operating loss carryforwards generated prior to the 2019 ownership change are not available to offset taxable income arising after that date. If a formal analysis were completed and pre-change losses were determined to be available, the Company's tax liabilities could be reduced. Conversely, if a formal analysis were to identify additional ownership changes, the Company's net operating loss carryforwards and tax credit carryforwards could be subject to further limitation.
For the three months ended June 30, 2026, the Company determined that income tax expense was not material to the condensed consolidated financial statements, and accordingly, income tax provision has been recorded for the period. For the three months ended June 30, 2025, the Company recorded a tax expense from continuing operations of approximately $388,000. The Company’s income tax expense for the three months ended June 30, 2025 was related to current year projected income that was not eligible to be offset with prior year tax attribute carryovers. |