Income Taxes

12 Months Ended

Jul. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Note 10 – Income Taxes

The Company’s tax expense differs from the “expected” tax expense for the period (computed by applying the blended corporate rate and state tax rates of 28.87% to loss before taxes), are approximately as follows:

	July 31, 2022			July 31, 2021
Federal income tax benefit - 19.17% and 20.09%, respectively	$	(513,000	)	$	(5,000	)
State income tax - 4.458% and 4.35%, respectively		(114,000	)		(2,000	)
Tax effect of timing differences for income tax purposes		554,000			-
Non-deductible items		13,000			-
Subtotal		(60,000	)		(7,000	)
Change in valuation allowance		60,000			7,000
Income tax benefit	$	-		$	-

The tax effects of temporary differences that give rise to significant portions of deferred tax assets and liabilities at July 31, 2022 and 2021, respectively, are approximately as follows:

	July 31, 2022			July 31, 2021
Deferred Tax Assets
Amortization of intangible asset	$	13,000		$	-
Amortization of website		1,000			-
Share based payments		540,000			-
Change in fair value of derivative liabilities		-			-
Net operating loss carryforwards		(98,000	)		(38,000	)
Total deferred tax assets		456,000			38,000
Less: valuation allowance		(456,000	)		(38,000	)
Net deferred tax asset recorded	$	-		$	-

DESCRYPTO HOLDINGS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JULY 31, 2022 AND 2021

Deferred tax assets and liabilities are computed by applying the federal and state income tax rates in effect to the gross amounts of temporary differences and other tax attributes, such as net operating loss carryforwards. In assessing if the deferred tax assets will be realized, the Company considers whether it is more likely than not that some or all of these deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the period in which these deductible temporary differences reverse.

The Company, after considering all available evidence, fully reserved its deferred tax assets since it is more likely than not that such benefits may be realized in future periods. The Company has not yet established that it can generate taxable income. The Company will continue to evaluate its deferred tax assets to determine whether any changes in circumstances could affect the realization of their future benefit. If it is determined in future periods that portions of the Company’s deferred tax assets satisfy the realization standards, the valuation allowance will be reduced accordingly.

During the year ended July 31, 2022, the valuation allowance increased by approximately $53,000. The total valuation allowance results from the Company’s estimate of its uncertainty in being unable to recover its net deferred tax assets.

At July 31, 2022, the Company has federal and state net operating loss carryforwards, which are available to offset future taxable income, of approximately $395,000 (approximately $98,000 at the blended tax rate). The Company is in the process of analyzing their NOL and has not determined if the Company has had any change of control issues that could limit the future use of these NOL’s. NOL carryforwards that were generated after 2017 may only be used to offset 80% of taxable income and are carried forward indefinitely. NOL’s generated prior to December 31, 2017 expire through 2037.

These carryforwards may be subject to an annual limitation under Section 382 and 383 of the Internal Revenue Code of 1986, and similar state provisions if the Company experienced one or more ownership changes which would limit the amount of NOL and tax credit carryforwards that can be utilized to offset future taxable income and tax, respectively. In general, an ownership change, as defined by Section 382 and 383, results from transactions increasing ownership of certain stockholders or public groups in the stock of the corporation by more than 50 percentage points over a three- year period. The Company has not completed an IRC Section 382/383 analysis. If a change in ownership were to have occurred, NOL and tax credit carryforwards could be eliminated or restricted.

If eliminated, the related asset would be removed from the deferred tax asset schedule with a corresponding reduction in the valuation allowance. Due to the existence of the valuation allowance, limitations created by future ownership changes, if any, are not expected to impact the Company’s effective tax rate.

DESCRYPTO HOLDINGS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JULY 31, 2022 AND 2021

The Company files corporate income tax returns in the United States and State of Florida jurisdictions. Due to the Company’s net operating loss posture, all tax years are open and subject to income tax examination by tax authorities. The Company’s policy is to recognize interest expense and penalties related to income tax matters as tax expense.

At July 31, 2022 and 2021, respectively, there are no unrecognized tax benefits, and there were no significant accruals for interest related to unrecognized tax benefits or tax penalties.