Annual report [Section 13 and 15(d), not S-K Item 405]

Income Taxes

v3.25.4
Income Taxes
 12 Months Ended
Dec. 31, 2025
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The components of loss from continuing operations before the provision for income taxes, by taxing jurisdiction are as follows:
December 31,
2025 2024
Domestic $ (229,504) $ (1,608,738)
Total $ (229,504) $ (1,608,738)
Income tax expense reported in the consolidated income statements is comprised of the following:
December 31,
2025 2024
Current expense:
State, net of state tax credits $ 38,653  $ 62,759 
Total current expense 38,653  62,759 
Deferred expense (benefit):
Federal —  (57,153)
Total deferred expense (benefit) —  (57,153)
Total income tax expense $ 38,653  $ 5,606 
The tax effects of temporary differences that give rise to significant components of the deferred tax assets and liabilities are provided below:
December 31,
2025 2024
Deferred income tax assets:
Accrued expenses $ 757,576  $ 1,607,324 
Deferred revenue 3,535,528  3,909,555 
Lease liabilities 3,795,895  5,710,136 
Goodwill - component 1 383,987  — 
Goodwill - component 2 49,829  55,368 
Fixed assets 471,855  — 
Nonqualified stock options 117,962  322,376 
Net operating loss carryforwards 3,261,907  3,029,413 
Tax credits 35,850  35,850 
Intangible assets 3,416,636  3,921,742 
Stock-based compensation expense 141,563  139,038 
Total 15,968,588  18,730,802 
Less: valuation allowance (11,327,659) (12,307,555)
Total deferred income tax assets 4,640,929  6,423,247 
Deferred income tax liabilities:
Lease ROU asset (4,320,092) (5,392,996)
Deferred franchise costs (320,837) (75,284)
Goodwill - component 1 —  (807,824)
Fixed assets —  (147,143)
Total deferred income tax liabilities (4,640,929) (6,423,247)
Net deferred income taxes
 $ —  $ — 

A valuation allowance of $11.3 million and $12.3 million was recorded against the deferred tax asset balance of The Joint Corp., without its VIEs, as of December 31, 2025 and 2024, respectively. During the year ended December 31, 2025, the valuation allowance decreased by $1.0 million. As of each reporting date, we consider new evidence, both positive and negative, that could impact our view with regard to future realization of deferred tax assets in each reporting jurisdiction. A significant piece of objective evidence evaluated was the cumulative loss incurred in each jurisdiction over the three-year period ended December 31, 2025. Such objective evidence limits the ability to consider other subjective evidence, such as projections for future growth, in evaluating the need for a valuation allowance. As a result, we determined that it is more likely than not that The Joint Corp. will not realize its deferred tax assets as of December 31, 2025, and has recorded a valuation allowance after consideration of any recorded deferred tax liabilities.

Additionally, deferred tax assets attributable to its VIEs of $1.0 million and $1.1 million were classified as discontinued operations as of December 31, 2025 and 2024, respectively, and are related to deferred revenue. See Note 3, Divestitures for more information on discontinued operations.

The Joint Corp., without the VIEs, has federal gross net operating loss carryforwards of $10.2 million and $12.3 million as of December 31, 2025 and 2024, respectively. The federal tax effected impacts of these net operating losses were $2.1 million and $2.6 million as of December 31, 2025 and 2024, respectively. $7.8 million of the federal net operating loss as of December 31, 2025 is subject to a 20-year carryforward, with a portion beginning to expire in 2036. $2.3 million of the federal net operating loss as of December 31, 2025 has an indefinite carryforward period.

The Joint Corp., without the VIEs, has state net operating loss carryforwards of $10.2 million and $3.6 million as of December 31, 2025 and 2024, 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, a portion will begin to expire in 2026.

We have research and development credits of $14 thousand that will begin to expire in 2031 and California Alternative Minimum Tax credits of $22 thousand that do not expire.
The provision for income taxes differs from the amount calculated using the statutory federal corporate income tax rate of 21% due to the following items:
  For the Years Ended December 31,
  2025 2024
  Amount Percent Amount Percent
Loss from continuing operations before provision for income taxes $ (229,504) $ (1,608,738)
Expected federal tax expense at U.S. federal statutory rate (48,388) 21.0  % (337,835) 21.0  %
State and local income taxes (net of federal income tax effect) (1) (128,782) 56.1  % 79,774  (5.0) %
Changes in valuation allowances (507,419) 221.1  % 66,503  (4.1) %
Nontaxable or nondeductible items:
    Section 162(m) officer compensation —  —  % 85,992  (5.3) %
    Share based compensation (2) (28,302) 12.3  % (119,263) 7.4  %
    Payroll tax penalty (45,749) 19.9  % —  —  %
    Meals and entertainment 23,549  (10.2) % 30,462  (1.9) %
    Other items 17,710  (7.7) % 26,572  (1.6) %
Changes in unrecognized tax benefits 300,582  (130.9) % 212,687  (13.2) %
Other adjustments:
    Deferred true-up to deferred franchise costs 285,915  (124.5) % —  —  %
    Current year expirations of non-qualified stock options 217,356  (94.7) % —  —  %
    Other items (47,819) 20.8  % (39,286) 2.4  %
Total income tax expense and effective rate $ 38,653  (16.8) % $ 5,606  (0.3) %
___________
(1) State taxes in Arizona, California and Texas made up the majority (greater than 50%) of the tax effect in this category.
(2) Share based compensation includes incentive stock options, non-qualified stock options and restricted stock awards.

Changes in our income tax expense relate primarily to state income taxes (net of federal tax and permanent differences), changes in tax rates, stock compensation, shortfall/windfall on stock compensation expense, change in valuation allowance and uncertain tax positions during the year ended December 31, 2025, as compared to the year ended December 31, 2024. For the years ended December 31, 2025 and 2024, effective tax rates were (16.8)% and (0.3)%, respectively. The difference between the statutory federal income tax rate and our effective tax rate was primarily due to the uncertain tax position net impact and state taxes (net of federal taxes) for the year ended December 31, 2025. The difference between the statutory federal income tax rate and our effective tax rate was primarily due to the valuation allowance, change in tax rate and uncertain tax position for the year ended December 31, 2024.

We apply a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit or obligation as the largest amount that is more than 50% likely of being realized upon ultimate settlement. We consider many factors when evaluating and estimating our tax positions and tax benefits, which may require periodic adjustments.
For the years ended December 31, 2025 and 2024, we had gross uncertain tax positions attributable to the VIEs, recorded as discontinued operations, of $0.6 million and $0.9 million, respectively.
December 31,
2025 2024
Beginning balance $ 948,182  $ 1,175,766 
Reductions for expiration of the statute of limitations (314,468) (227,584)
Ending balance $ 633,714  $ 948,182 
As of December 31, 2025 and December 31, 2024, there were $20 thousand and $22 thousand, respectively, of unrecognized tax benefits that if recognized would affect the annual effective tax rate.
Interest and penalties associated with tax positions are recorded in the period assessed as general and administrative expenses. Accrued interest and penalties were $178 thousand and $202 thousand for the years ended December 31, 2025 and 2024, respectively, and recorded as other liabilities.
The amount of cash paid for income taxes (net of refunds received) was as follows:
December 31,
2025 2024
Federal $ 321,000  $ 285,510 
State:
    Arizona 62,000  — 
    California 168,000  182,000 
    Texas 62,000  51,026 
    Other state jurisdictions 13,752  91,956 
Income taxes paid (net of refunds received) $ 626,752  $ 610,492 
With exceptions due to the generation and utilization of net operating losses or credits, as of December 31, 2025, we are no longer subject to federal and state examinations by taxing authorities for tax years before 2022 and 2021, respectively.