Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.23.3
Income Taxes
 12 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
Income tax expense (benefit) reported in the consolidated income statements is comprised of the following:
December 31,
2022 2021
(As Restated)
 (As Restated)
Current expense (benefit):
Federal $ 377,281  $ 241,243 
State, net of state tax credits 132,520  27,954 
Total current expense (benefit) 509,801  269,197 
Deferred expense (benefit):
Federal (295,011) (1,376,812)
State (146,342) (401,345)
Total deferred expense (benefit) (441,353) (1,778,157)
Total income tax expense (benefit) $ 68,448  $ (1,508,960)
The following are the components of the Company’s deferred tax assets (liabilities) for federal and state income taxes:
December 31,
2022 2021
(As Restated)
 (As Restated)
Deferred income tax assets:
Accrued expenses $ 97,148  $ 938,916 
Deferred revenue 5,338,821  4,546,130 
Lease liability 6,582,122  5,839,233 
Goodwill - component 2 72,033  53,946 
Nonqualified stock options 339,075  255,921 
Interest expense limitation 35,031  — 
Net operating loss carryforwards 5,285,726  5,461,650 
Tax credits 35,850  35,850 
Intangibles 3,166,533  1,906,947 
Total deferred income tax assets 20,952,339  19,038,593 
Deferred income tax liabilities:
Lease right-of-use asset (5,694,797) (5,022,052)
Deferred franchise costs (100,558) (122,431)
Goodwill - component 1 (537,421) (405,964)
Asset basis difference related to property and equipment (2,545,455) (1,902,389)
Restricted stock compensation (145,956) (98,958)
Total deferred income tax liabilities (9,024,187) (7,551,794)
Valuation allowance
Net deferred tax asset $ 11,928,152  $ 11,486,799 

Federal tax effected of these net operating losses were $4.5 million and $4.5 million as of December 31, 2022 and 2021, respectively. $11.1 million of the federal net operating loss is subject to a 20-year carryforward, with a portion beginning to expire in 2036. $10.5 million of the federal net operating loss has an indefinite carryforward period.

The Joint Corp., without its consolidated VIEs, has state tax effected net operating loss carryforwards of $0.7 million and $0.9 million as of December 31, 2022 and 2021, respectively. The determination of the state net operating loss carryforwards is dependent upon apportionment percentages and state laws that can change from year to year and impact the amount of such carryforwards. If such net operating loss carryforwards are not utilized, they will begin to expire in 2025.

The Joint Corp. has research and development credits of $14,229 that will begin to expire in 2031 and $21,621 California AMT credits that do not expire.
The following is a reconciliation of the statutory federal income tax rate applied to pre-tax accounting net income, compared to the income tax benefit in the consolidated income statements:
  For the Years Ended December 31,
  2022 2021
(As Restated)
(As Restated)
  Amount Percent Amount Percent
Expected federal tax expense (benefit) $ 145,982  21.0  % $ 1,280,282  21.0  %
State tax provision (benefit), net of federal benefit 41,660  6.0  % (332,169) (5.5) %
Other permanent differences
 15,458  2.2  % 72,794  1.2  %
Stock compensation
 (91,454) (13.2) % (2,519,083) (41.4) %
Change in tax rate
 (64,756) (9.3) % —  —  %
Other adjustments
 21,558  3.1  % (10,784) (0.2) %
Expense (Benefit) $ 68,448  9.8  % $ (1,508,960) (24.9) %
Changes in the Company’s income tax expense (benefit) relate primarily to state taxes and stock-based compensation, as well as changes in pre-tax income during the year ended December 31, 2022, as compared to the year ended December 31, 2021. For the years ended December 31, 2022 and December 31, 2021, effective tax rates were 9.8% and (24.9)%, respectively. The difference between the statutory federal income tax rate and the Company’s effective tax rate was primarily due to state taxes, stock-based compensation, and other permanent differences.
For the years ended December 31, 2022 and December 31, 2021, the Company had gross uncertain tax positions of $1.3 million and $1.3 million, respectively.
December 31,
2022 2021
(As Restated)
 (As Restated)
Beginning balances
 $ 1,314,351  $ 729,837 
Increases related to tax positions taken during a prior year —  — 
Decreases related to tax positions taken during a prior year —  — 
Increases related to tax positions taken during a current year —  584,514 
Decreases related to settlements with taxing authorities —  — 
Decreases related to expiration of the statute of limitations —  — 
Ending balances
 $ 1,314,351  $ 1,314,351 
At December 31, 2022 and December 31, 2021, there were $19,433 and $19,433, respectively of unrecognized tax benefits that if recognized would affect the annual effective tax rate.
Interest and penalties associated with tax positions for the years ended December 31, 2022 and December 31, 2021 were $0 and $40,491, respectively and are recorded in the period assessed as general and administrative expenses. Accrued interest and penalties was $143,584 for both the years ended December 31, 2022 and December 31, 2021 and recorded as other liabilities.
With exceptions due to the generation and utilization of net operating losses or credits, as of December 31, 2022, the Company is no longer subject to federal and state examinations by taxing authorities for tax years before 2019 and 2018, respectively.