Income Taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

12. Income Taxes

Loss before provision for income taxes was distributed geographically for the years ended December 31, as follows (in thousands):

	2022			2021
Domestic	$	(4,453	)	$	(5,570	)
Foreign		(712	)		(1,552	)
Total	$	(5,165	)	$	(7,122	)

The provision (benefit) for income taxes is as follows for the years ended December 31 (in thousands):

	2022			2021
Current
Federal	$	-		$	-
State		-			-
Foreign		118			146
Change in deferred
Federal		(186	)		(1,177	)
Federal valuation allowance		186			1,177
State		(3	)		-
State valuation allowance		3			-
Foreign		(3,517	)		(1,842	)
Foreign valuation allowance		3,517			1,842
Total current	$	118		$	146

The differences between our effective income tax rate and the U.S. federal statutory federal income tax rate for the years ended December 31, are as follows:

	2022			2021
Amounts at statutory tax rates		21	%		21	%
Foreign losses taxed at different rates		(1	)%		(1	)%
Stock-based compensation		(1	)%		(1	)%
GILTI inclusion		(16	)%		-	%
Other		(2	)%		(1	)%
Total		1	%		18	%
Valuation allowance		(3	)%		(20	)%
Effective tax rate		(2	)%		(2	)%

Significant components of the deferred tax asset balances at December 31 are as follows (in thousands):

	2022			2021
Deferred tax assets:
Accruals	$	(13	)	$	(87	)
Stock compensation		4			38
Net operating losses		25,608			21,943
Total deferred tax assets		25,599			21,894
Valuation allowance		(25,599	)		(21,894	)
Total net deferred tax assets	$	-		$	-

Valuation allowances are recorded to offset certain deferred tax assets due to management’s uncertainty of realizing the benefits of these items. Management applies a full valuation allowance for the accumulated losses of Neonode Inc. and its subsidiaries, since it is not determinable using the “more likely than not” criteria that there will be any future benefit of our deferred tax assets. This is mainly due to our history of operating losses. As of December 31, 2022, we had federal, state and foreign net operating losses of $75.6 million, $20.1 million and $40.4 million, respectively. The federal loss carryforward begins to expire in 2028, and the California loss carryforward begins to expire in 2030. The foreign loss carryforward, which is generated in Sweden, does not expire.

Utilization of the net operating loss and tax credit carryforwards is subject to an annual limitation due to the ownership percentage change limitations provided by Section 382 of the Internal Revenue Code and similar state provisions. The annual limitation may result in the expiration of the net operating losses and tax credit carryforwards before utilization.  As of December 31, 2022, we had not completed the determination of the amount to be limited under the provision.

We follow the provisions of accounting guidance which includes a two-step approach to recognizing, derecognizing and measuring uncertain tax positions. There were no unrecognized tax benefits for the years ended December 31, 2022 and 2021.

We follow the policy to classify accrued interest and penalties as part of the accrued tax liability in the provision for income taxes. For the years ended December 31, 2022 and 2021 we did not recognize any interest or penalties related to unrecognized tax benefits.

As of December 31, 2022, we had no uncertain tax positions that would be reduced as a result of a lapse of the applicable statute of limitations.

We file income tax returns in the U.S. federal jurisdiction, California, Sweden, and Japan. The 2008 through 2021 tax years are open and may be subject to potential examination in one or more jurisdictions. We are not currently under any federal, state or foreign income tax examinations.